UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________
FORM 8-K
________________________________________
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
May 2, 2019
Date of report (date of earliest event reported)
_________________________________________
Digi International Inc.
(Exact name of registrant as specified in its charter)
_________________________________________
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) | |||
(952) 912-3444
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common Stock, par value $.01 per share | DGII | The Nasdaq Stock Market LLC | ||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ | 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)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter): Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 2.02 | Results of Operations and Financial Condition. |
On May 2, 2019, Digi International Inc. (“Digi”) issued a press release regarding Digi’s financial results for its second fiscal quarter ended March 31, 2019. A copy of Digi’s press release is attached hereto as Exhibit 99.1.
The information contained in this Current Report shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01 | Financial Statements and Exhibits. |
No. | Exhibit | Manner of Filing | |||
99.1 | Furnished Electronically | ||||
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized.
Date: May 2, 2019
DIGI INTERNATIONAL INC. | |||
By: | /s/ Brian G. Ballenger | ||
Brian G. Ballenger | |||
Vice President of Finance and Accounting, Acting Principal Financial Officer, Acting Principal Accounting Officer and Interim Treasurer | |||
Exhibit 99.1
Digi International Reports Second Fiscal Quarter 2019 Results | ||||||
Transformation Initiatives Drive Record Quarterly Revenues | ||||||
(Minneapolis, MN, May 2, 2019) - Digi International® Inc. (NASDAQ: DGII), a leading global provider of mission critical Internet of Things ("IoT") products, services, and solutions, reported revenue of $65.8 million for the second fiscal quarter of 2019 compared to $54.5 million in the second fiscal quarter of 2018 and compared to our guidance range of $59.0 million to $63.0 million. This reflects a 20.6% growth rate compared to the prior year quarter.
Net income for the second fiscal quarter of 2019 was $1.3 million, or $0.05 per diluted share, compared to a net loss of $0.1 million, or $0.00 loss per diluted share in the second fiscal quarter of 2018 and compared to our guidance range of $0.01 per diluted share to $0.05 per diluted share.
Adjusted EBITDA in the second fiscal quarter of 2019 was $6.5 million, or 10.0% of total revenue, compared to our guidance range of $4.5 million to $6.5 million. In the second fiscal quarter of 2018, our adjusted EBITDA was $5.2 million, or 9.6% of total revenue.
Reconciliations of GAAP and non-GAAP financial measures appear at the end of this release.
"Our results reflect the investments we have made to simplify our business and drive success with our customers, distribution partners, and new products" said Ron Konezny, President and Chief Executive Officer. "We remain squarely focused on building off these results to complete a record fiscal 2019."
Financial Results
GAAP Results | ||||||||||||||||
Three months ended March 31, | Six months ended March 31, | |||||||||||||||
(in thousands, except per share data) | 2019 | 2018 (as adjusted)* | 2019 | 2018 (as adjusted)* | ||||||||||||
Total Revenue | $ | 65,764 | $ | 54,548 | $ | 128,077 | $ | 99,503 | ||||||||
Gross Profit | $ | 30,329 | $ | 26,834 | $ | 60,112 | $ | 48,793 | ||||||||
Gross Margin | 46.1 | % | 49.2 | % | 46.9 | % | 49.0 | % | ||||||||
Operating Income (Loss) ** | $ | 785 | $ | 818 | $ | 6,343 | $ | (1,181 | ) | |||||||
Operating Income as % of Total Revenue | 1.2 | % | 1.5 | % | 5.0 | % | (1.2 | )% | ||||||||
Net Income (Loss) ** | $ | 1,342 | $ | (126 | ) | $ | 6,024 | $ | (4,613 | ) | ||||||
Net Income (Loss) per Diluted Share | $ | 0.05 | $ | — | $ | 0.21 | $ | (0.17 | ) | |||||||
*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.
** The six months ended March 31, 2019 includes a gain of $4.4 million ($3.4 million net of tax) on the sale of our corporate headquarters reported in general and administrative expense on the Condensed Consolidated Statements of Operations.
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Digi International Reports Second Fiscal Quarter 2019 Results | ||||
Non-GAAP Results** | ||||||||||||||||
Three months ended March 31, | Six months ended March 31, | |||||||||||||||
(in thousands, except per share data) | 2019 | 2018 (as adjusted)* | 2019 | 2018 (as adjusted)* | ||||||||||||
Adjusted Net Income (Loss) | $ | 1,140 | $ | 65 | $ | 2,300 | $ | (1,657 | ) | |||||||
Adjusted Net Income (Loss) per Diluted Share | $ | 0.04 | $ | — | $ | 0.08 | $ | (0.06 | ) | |||||||
Adjusted EBITDA | 6,548 | 5,245 | $ | 12,709 | $ | 8,208 | ||||||||||
Adjusted EBITDA as % of Total Revenue | 10.0 | % | 9.6 | % | 9.9 | % | 8.2 | % | ||||||||
*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. | ||||||||||||||||
Business Results for the Three Months Ended March 31, 2019 and 2018
Revenue Detail | |||||||||||||||
Three months ended March 31, | |||||||||||||||
(in thousands) | 2019 | 2018 (as adjusted)* | Change | % Change | |||||||||||
Product | $ | 52,097 | $ | 47,588 | $ | 4,509 | 9.5 | % | |||||||
Services | 3,942 | 2,237 | 1,705 | 76.2 | % | ||||||||||
Solutions | 9,725 | 4,723 | 5,002 | 105.9 | % | ||||||||||
Total revenue | $ | 65,764 | $ | 54,548 | $ | 11,216 | 20.6 | % | |||||||
North America, primarily United States | $ | 48,869 | $ | 39,169 | $ | 9,700 | 24.8 | % | |||||||
Europe, Middle East and Africa | 10,764 | 9,504 | 1,260 | 13.3 | % | ||||||||||
Other | 6,131 | 5,875 | 256 | 4.4 | % | ||||||||||
Total revenue | $ | 65,764 | $ | 54,548 | $ | 11,216 | 20.6 | % | |||||||
*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.
Total revenue increased 20.6% to $65.8 million in the second fiscal quarter of 2019 from $54.5 million in the second fiscal quarter of 2018.
Product
Product revenue increased by $4.5 million, or 9.5%, in the second fiscal quarter of 2019 compared to the second fiscal quarter of 2018. We experienced growth compared to the second fiscal quarter of 2018 across most of our product categories, with the largest growth in our cellular product offerings, partially offset by a decline in our network products.
Services
Services revenue increased by $1.7 million, or 76.2%, in the second fiscal quarter of 2019 compared to the second fiscal quarter of 2018, related to increased revenues from our Digi Remote Manager® and support services.
Solutions
Solutions revenue increased by $5.0 million, or 105.9%, in the second fiscal quarter of 2019 compared to the second fiscal quarter of 2018. This increase was driven by new customer deployments, additional purchases and equipment upgrades from existing customers, and an increase in our recurring revenue base. We are serving just over 57,000 sites as of March 31, 2019, compared to nearly 42,000 sites a year ago.
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Digi International Reports Second Fiscal Quarter 2019 Results | ||||
Gross profit was $30.3 million, or 46.1% of revenue in the second fiscal quarter of 2019 compared to $26.8 million, or 49.2% of revenue for the second fiscal quarter of 2018. This $3.5 million increase was driven primarily by increased sales from our IoT Solutions segment. Our gross margin decline was primarily a result of product and customer mix and costs associated with our transition to third-party manufacturing.
Operating income was $0.8 million, or 1.2% of revenue for the second fiscal quarter of 2019 and $0.8 million, or 1.5% of revenue, for the second fiscal quarter of 2018. Our operating income was driven by our $3.5 million gross profit increase, offset by an increase in operating expenses of $3.5 million. The increase in operating expenses primarily included $1.9 million of additional employee-related costs, $0.8 million in acquisition-related expenses and $0.6 million of adjustments to contingent consideration.
Net income was $1.3 million in the second fiscal quarter of 2019, or $0.05 per diluted share, compared to a net loss of $0.1 million, or $0.00 loss per diluted share, in the second fiscal quarter of 2018.
Adjusted EBITDA in the second fiscal quarter of 2019 was $6.5 million, or 10.0% of total revenue, compared to $5.2 million, or 9.6% of total revenue, in the second fiscal quarter of 2018.
Business Results for the Six Months Ended March 31, 2019 and 2018
Revenue Detail | |||||||||||||||
Six months ended March 31, | |||||||||||||||
(in thousands) | 2019 | 2018 (as adjusted)* | Change | % Change | |||||||||||
Product | $ | 102,909 | $ | 86,042 | $ | 16,867 | 19.6 | % | |||||||
Services | 6,424 | 4,663 | 1,761 | 37.8 | % | ||||||||||
Solutions | 18,744 | 8,798 | 9,946 | 113.0 | % | ||||||||||
Total revenue | $ | 128,077 | $ | 99,503 | $ | 28,574 | 28.7 | % | |||||||
North America, primarily United States | $ | 95,204 | $ | 68,506 | $ | 26,698 | 39.0 | % | |||||||
Europe, Middle East and Africa | 20,868 | 19,660 | 1,208 | 6.1 | % | ||||||||||
Other | 12,005 | 11,337 | 668 | 5.9 | % | ||||||||||
Total revenue | $ | 128,077 | $ | 99,503 | $ | 28,574 | 28.7 | % | |||||||
*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.
Total revenue increased 28.7% to $128.1 million in the first six months of fiscal 2019 from $99.5 million in the first six months of fiscal 2018.
Product
Product revenue increased by $16.9 million, or 19.6%, in the first six months of fiscal 2019 compared to the first six months of fiscal 2018. This increase included $5.4 million of incremental revenue from Accelerated Concepts, Inc. ("Accelerated"), a provider of cellular (LTE) networking equipment, since the acquisition in January 2018. Additionally, we experienced growth compared to the first six months of fiscal 2018 within our industrial cellular products, RF products and our embedded modules, partially offset by a decline in sales of terminal servers.
Services
Services revenue increased by $1.8 million, or 37.8%, in the first six months of fiscal 2019 compared to the first six months of fiscal 2018, related to increased revenues from our Digi Remote Manager and support services.
Solutions
Solutions revenue increased by $9.9 million, or 113.0%, in the first six months of fiscal 2019 compared to the first six months of fiscal 2018. This increase was driven by new customer deployments, additional purchases and equipment
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Digi International Reports Second Fiscal Quarter 2019 Results | ||||
upgrades from existing customers, and an increase in our recurring revenue base. We are serving just over 57,000 sites as of March 31, 2019, compared to nearly 42,000 sites a year ago.
Gross profit was $60.1 million, or 46.9% of revenue in the first six months of fiscal 2019 compared to $48.8 million, or 49.0% of revenue for the first six months of fiscal 2018. This $11.3 million increase was driven primarily by our acquisition of Accelerated, increased sales from our IoT Solutions segment, and increased sales from most of our IoT Products. Our gross margin decline was primarily a result of product and customer mix, increased costs associated with our transition to a third-party manufacturer and increased amortization expense associated with the Accelerated acquisition.
Operating income for the first six months of fiscal 2019 was $6.3 million, or 5.0% of revenue, as compared to an operating loss of $1.2 million, or 1.2% of revenue, for the first six months of fiscal 2018, an increase of $7.5 million. This increase was a result of increased gross profit of $11.3 million described above, offset by an increase in operating expenses of $3.8 million. The increase in operating expenses included $2.8 million of incremental costs, primarily employee-related, associated with Accelerated, $3.7 million of additional employee-related costs and $1.2 million of increased contingent consideration expense. These were mostly offset by a $4.4 million gain from the sale of our corporate headquarters in October 2018 and lower acquisition-related expenses of $0.8 million.
Net income was $6.0 million in the first six months of fiscal 2019, or $0.21 per diluted share, compared to a net loss of $4.6 million, or $0.17 loss per diluted share, in the first six months of fiscal 2018.
Adjusted EBITDA in the first six months of fiscal 2019 was $12.7 million, or 9.9% of total revenue, compared to $8.2 million, or 8.2% of total revenue, in the first six months of fiscal 2018.
Balance Sheet, Liquidity and Capital Structure
Digi continues to maintain a strong balance sheet with no debt. As of March 31, 2019, Digi had:
• | Cash and cash equivalents and marketable securities balance of $72.1 million, an increase of $9.3 million from the end of fiscal 2018. The increase includes $10.0 million of proceeds received in the first fiscal quarter of 2019 for the sale of our corporate headquarters. |
• | Current contingent consideration liabilities of $8.5 million. |
Customer Highlights
IoT PRODUCTS & SERVICES
• | A North American provider of personal transportation solutions selected Digi’s XBee Cellular LTE Cat 1 embedded modem and connectivity services, including Digi Remote Manager, for the primary communication path on a mobility project. The XBee modem and connectivity offering from Digi provides robust communications and enabled a rapid pace of development to production without the time risks of regulatory and carrier certifications. |
• | A large manufacturer of people moving systems has selected Digi cellular routers to provide core systems communications for their IoT deployments. The Digi routers enable real-time collection of usage and wear data that help accelerate a move to a more predictive global maintenance model. Digi is also providing key IoT connectivity that enhances rider experience and system safety and was chosen for our industrial reliability and security focus in our Digi Remote Manager platform. |
• | A leading provider of solar energy products has selected Digi’s XBee3 ZigBee module for solar tracking systems. The XBee3 ZigBee will enable reliable communication with gateways for remote management. |
IoT SOLUTIONS
• | Two large school districts, one in Colorado and the other in Texas, selected Digi SmartSense for food safety monitoring across all of their respective campuses, approximating 480 sites in total. |
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Digi International Reports Second Fiscal Quarter 2019 Results | ||||
• | A leading grocery chain in the western United States selected Digi to provide task management in all 300+ of their stores. |
• | A large regional hospital in Canada, is using Digi SmartSense to monitor all lab and pharmacy locations across its entire campus. |
Fiscal 2019 Guidance
For the third fiscal quarter of 2019, Digi projects revenue to be in a range of $60 million to $64 million. EPS is projected to be in a range of $0.02 per diluted share to $0.06 per diluted share. Adjusted EBITDA is projected to be between $4.5 million and $6.5 million.
For the full fiscal year 2019, Digi projects revenue to be in a range of $248 million to $258 million. EPS is projected to be in a range of $0.27 per diluted share to $0.37 per diluted share. Adjusted EBITDA continues to be projected in a range of $24 million to $28 million.
Second Fiscal Quarter 2019 Conference Call Details
As announced on April 4, 2019, Digi will discuss its second fiscal quarter 2019 results on a conference call on Thursday, May 2, 2019 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 Brian Ballenger, Acting Principal Financial Officer and Acting Principal Accounting 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 2443699. International participants may access the call by dialing (262) 912-4765 and entering passcode 2443699. 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 2443699 when prompted. A replay of the webcast will be available for one week through 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 Internet of Things ("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," "estimate," "looking forward," "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. Among others, these include 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 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
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Digi International Reports Second Fiscal Quarter 2019 Results | ||||
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, 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, 2018 and subsequent quarterly reports on Form 10-Q 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 earnings before interest, taxes and amortization ("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 income and income per diluted share, respectively, exclusive of such items as reversals of tax reserves, discrete tax benefits and restructuring 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 related to taxes and restructuring, 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 recoveries, 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 expenses 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.
Investor Contact:
Brian G. Ballenger | ||
Vice President of Finance and Accounting, Acting Principal Financial Officer, Acting Principal Accounting Officer and Interim Treasurer | ||
Digi International | ||
952-912-3070 | ||
Email: brian.ballenger@digi.com | ||
For more information, visit Digi's website at www.digi.com, or call 877-912-3444 (U.S.) or 952-912-3444 (International).
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Digi International Reports Second Fiscal Quarter 2019 Results | ||||
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, | ||||||||||||||
2019 | 2018 (as adjusted)* | 2019 | 2018 (as adjusted)* | ||||||||||||
Revenue: | |||||||||||||||
Product | $ | 52,097 | $ | 47,588 | $ | 102,909 | $ | 86,042 | |||||||
Services and solutions | 13,667 | 6,960 | 25,168 | 13,461 | |||||||||||
Total revenue | 65,764 | 54,548 | 128,077 | 99,503 | |||||||||||
Cost of sales: | |||||||||||||||
Cost of product | 28,496 | 23,080 | 54,309 | 42,290 | |||||||||||
Cost of services and solutions | 6,214 | 3,864 | 12,191 | 7,043 | |||||||||||
Amortization of intangibles | 725 | 770 | 1,465 | 1,377 | |||||||||||
Total cost of sales | 35,435 | 27,714 | 67,965 | 50,710 | |||||||||||
Gross profit | 30,329 | 26,834 | 60,112 | 48,793 | |||||||||||
Operating expenses: | |||||||||||||||
Sales and marketing | 11,534 | 11,175 | 23,191 | 20,935 | |||||||||||
Research and development | 9,569 | 8,617 | 19,087 | 16,368 | |||||||||||
General and administrative | 8,441 | 6,224 | 11,558 | 12,671 | |||||||||||
Restructuring reversal | — | — | (67 | ) | — | ||||||||||
Total operating expenses | 29,544 | 26,016 | 53,769 | 49,974 | |||||||||||
Operating income (loss) | 785 | 818 | 6,343 | (1,181 | ) | ||||||||||
Other income, net: | |||||||||||||||
Interest income, net | 142 | 34 | 258 | 239 | |||||||||||
Other income (expense), net | 257 | (527 | ) | 305 | (572 | ) | |||||||||
Total other income (expense), net | 399 | (493 | ) | 563 | (333 | ) | |||||||||
Income (loss) before income taxes | 1,184 | 325 | 6,906 | (1,514 | ) | ||||||||||
Income tax (benefit) expense | (158 | ) | 451 | 882 | 3,099 | ||||||||||
Net income (loss) | $ | 1,342 | $ | (126 | ) | $ | 6,024 | $ | (4,613 | ) | |||||
Net income (loss) per common share: | |||||||||||||||
Basic | $ | 0.05 | $ | — | $ | 0.22 | $ | (0.17 | ) | ||||||
Diluted | $ | 0.05 | $ | — | $ | 0.21 | $ | (0.17 | ) | ||||||
Weighted average common shares: | |||||||||||||||
Basic | 27,866 | 27,084 | 27,687 | 26,914 | |||||||||||
Diluted | 28,438 | 27,084 | 28,289 | 26,914 | |||||||||||
*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.
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Digi International Reports Second Fiscal Quarter 2019 Results | ||||
Digi International Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
Three months ended March 31, | Six months ended March 31, | ||||||||||||||
2019 | 2018 (as adjusted)* | 2019 | 2018 (as adjusted)* | ||||||||||||
Net income (loss) | $ | 1,342 | $ | (126 | ) | $ | 6,024 | $ | (4,613 | ) | |||||
Other comprehensive (loss) income, net of tax: | |||||||||||||||
Foreign currency translation adjustment | (83 | ) | 1,787 | (1,652 | ) | 2,058 | |||||||||
Change in net unrealized gain (loss) on investments | 9 | (19 | ) | 14 | (40 | ) | |||||||||
Less income tax (expense) benefit | (2 | ) | 5 | (4 | ) | 8 | |||||||||
Reclassification of realized loss on investments included in net income (1) | — | 31 | — | 31 | |||||||||||
Less income tax benefit (2) | — | (8 | ) | — | (8 | ) | |||||||||
Other comprehensive (loss) income, net of tax | (76 | ) | 1,796 | (1,642 | ) | 2,049 | |||||||||
Comprehensive income (loss) | $ | 1,266 | $ | 1,670 | $ | 4,382 | $ | (2,564 | ) | ||||||
(1) Recorded in Other income (expense), net in our Condensed Consolidated Statements of Operations.
(2) Recorded in Income tax (benefit) expense in our Condensed Consolidated Statements of Operations.
*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.
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Digi International Reports Second Fiscal Quarter 2019 Results | ||||
Digi International Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
March 31, 2019 | September 30, 2018 (as adjusted)* | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 69,593 | $ | 58,014 | |||
Marketable securities | 2,497 | 4,736 | |||||
Accounts receivable, net | 53,493 | 49,819 | |||||
Inventories | 44,035 | 41,644 | |||||
Other current assets | 5,549 | 2,613 | |||||
Assets held for sale | — | 5,220 | |||||
Total current assets | 175,167 | 162,046 | |||||
Property, equipment and improvements, net | 13,926 | 8,354 | |||||
Intangible assets, net | 34,807 | 39,320 | |||||
Goodwill | 154,049 | 154,535 | |||||
Deferred tax assets | 5,236 | 6,600 | |||||
Other non-current assets | 350 | 1,291 | |||||
Total assets | $ | 383,535 | $ | 372,146 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 14,628 | $ | 12,911 | |||
Accrued compensation | 6,991 | 8,190 | |||||
Unearned revenue | 6,576 | 3,177 | |||||
Contingent consideration on acquired businesses | 8,527 | 5,890 | |||||
Other current liabilities | 4,369 | 5,405 | |||||
Total current liabilities | 41,091 | 35,573 | |||||
Income taxes payable | 759 | 851 | |||||
Deferred tax liabilities | 317 | 334 | |||||
Contingent consideration on acquired businesses | — | 4,175 | |||||
Other non-current liabilities | 530 | 720 | |||||
Total liabilities | 42,697 | 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; 34,471,378 and 33,812,838 shares issued | 345 | 338 | |||||
Additional paid-in capital | 262,392 | 255,936 | |||||
Retained earnings | 157,985 | 151,961 | |||||
Accumulated other comprehensive loss | (25,168 | ) | (23,526 | ) | |||
Treasury stock, at cost, 6,412,682 and 6,385,336 shares | (54,716 | ) | (54,216 | ) | |||
Total stockholders’ equity | 340,838 | 330,493 | |||||
Total liabilities and stockholders’ equity | $ | 383,535 | $ | 372,146 | |||
*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.
9
Digi International Reports Second Fiscal Quarter 2019 Results | ||||
Digi International Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six months ended March 31, | |||||||
2019 | 2018 (as adjusted)* | ||||||
Operating activities: | |||||||
Net income (loss) | $ | 6,024 | $ | (4,613 | ) | ||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||
Depreciation of property, equipment and improvements | 2,217 | 1,546 | |||||
Amortization of intangible assets | 4,609 | 4,287 | |||||
Stock-based compensation | 2,707 | 2,378 | |||||
Deferred income tax provision | 1,338 | 2,808 | |||||
Gain on sale of property, equipment and improvements | (4,395 | ) | 5 | ||||
Change in fair value of contingent consideration | 810 | (425 | ) | ||||
Provision for bad debt and product returns | 568 | 395 | |||||
Provision for inventory obsolescence | 900 | 900 | |||||
Restructuring reversal | (67 | ) | — | ||||
Other | (116 | ) | 25 | ||||
Changes in operating assets and liabilities (net of acquisitions) | (8,393 | ) | (12,287 | ) | |||
Net cash provided by (used in) operating activities | 6,202 | (4,981 | ) | ||||
Investing activities: | |||||||
Proceeds from maturities and sales of marketable securities | 2,252 | 29,513 | |||||
Proceeds from sale of business | — | 2,000 | |||||
Acquisition of businesses, net of cash acquired | — | (56,588 | ) | ||||
Proceeds from sale of property and equipment | 10,047 | — | |||||
Purchase of property, equipment, improvements and certain other intangible assets | (7,346 | ) | (785 | ) | |||
Net cash provided by (used in) investing activities | 4,953 | (25,860 | ) | ||||
Financing activities: | |||||||
Acquisition earn-out payments | (2,348 | ) | — | ||||
Proceeds from stock option plan transactions | 3,751 | 3,427 | |||||
Proceeds from employee stock purchase plan transactions | 549 | 618 | |||||
Purchases of common stock | (1,044 | ) | (681 | ) | |||
Net cash provided by financing activities | 908 | 3,364 | |||||
Effect of exchange rate changes on cash and cash equivalents | (484 | ) | 1,646 | ||||
Net increase (decrease) in cash and cash equivalents | 11,579 | (25,831 | ) | ||||
Cash and cash equivalents, beginning of period | 58,014 | 78,222 | |||||
Cash and cash equivalents, end of period | $ | 69,593 | $ | 52,391 | |||
Supplemental schedule of non-cash investing and financing activities: | |||||||
Transfer of inventory to property, equipment and improvements | $ | (654 | ) | $ | (827 | ) | |
Accrual for purchase of property, equipment, improvements and certain other intangible assets | $ | (20 | ) | $ | (27 | ) | |
Liability related to acquisition of business | $ | — | $ | (2,300 | ) | ||
*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.
10
Digi International Reports Second Fiscal Quarter 2019 Results | ||||
DIGI INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
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 loss | (4,613 | ) | (4,613 | ) | ||||||||||||||||||||||||||
Other comprehensive income | 2,049 | 2,049 | ||||||||||||||||||||||||||||
Employee stock purchase plan issuances | (74 | ) | 631 | (13 | ) | 618 | ||||||||||||||||||||||||
Repurchase of common stock | 68 | (681 | ) | (681 | ) | |||||||||||||||||||||||||
Issuance of stock under stock award plans | 573 | 6 | 3,421 | 3,427 | ||||||||||||||||||||||||||
Stock-based compensation expense | 2,378 | 2,378 | ||||||||||||||||||||||||||||
Balances, March 31, 2018 | 33,581 | $ | 336 | 6,431 | $ | (54,583 | ) | $ | 251,366 | $ | 145,717 | $ | (20,610 | ) | $ | 322,226 | ||||||||||||||
Balances, September 30, 2018 | 33,813 | $ | 338 | 6,385 | $ | (54,216 | ) | $ | 255,936 | $ | 151,961 | $ | (23,526 | ) | $ | 330,493 | ||||||||||||||
Net income | 6,024 | 6,024 | ||||||||||||||||||||||||||||
Other comprehensive loss | (1,642 | ) | (1,642 | ) | ||||||||||||||||||||||||||
Employee stock purchase plan issuances | (63 | ) | 544 | 5 | 549 | |||||||||||||||||||||||||
Repurchase of common stock | 91 | (1,044 | ) | (1,044 | ) | |||||||||||||||||||||||||
Issuance of stock under stock award plans | 658 | 7 | 3,744 | 3,751 | ||||||||||||||||||||||||||
Stock-based compensation expense | 2,707 | 2,707 | ||||||||||||||||||||||||||||
Balances, March 31, 2019 | 34,471 | $ | 345 | 6,413 | $ | (54,716 | ) | $ | 262,392 | $ | 157,985 | $ | (25,168 | ) | $ | 340,838 | ||||||||||||||
*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.
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Digi International Reports Second Fiscal Quarter 2019 Results | ||||
Non-GAAP Financial Measures
TABLE 1
Reconciliation of Net Income (Loss) and Net Income (Loss) per Diluted Share to
Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Diluted Share
(In thousands, except per share amounts)
Three months ended March 31, | Six months ended March 31, | ||||||||||||||||||||||||||||||
2019 | 2018 (as adjusted)* | 2019 | 2018 (as adjusted)* | ||||||||||||||||||||||||||||
Net income (loss) and net income (loss) per diluted share | $ | 1,342 | $ | 0.05 | $ | (126 | ) | $ | — | $ | 6,024 | $ | 0.21 | $ | (4,613 | ) | $ | (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) | (202 | ) | (0.01 | ) | 191 | 0.01 | (308 | ) | (0.01 | ) | 2,956 | 0.11 | |||||||||||||||||||
Adjusted net income (loss) and adjusted net income (loss) per diluted share (2) | $ | 1,140 | $ | 0.04 | $ | 65 | $ | — | $ | 2,300 | $ | 0.08 | $ | (1,657 | ) | $ | (0.06 | ) | |||||||||||||
Diluted weighted average common shares | 28,438 | 27,084 | 28,289 | 26,914 | |||||||||||||||||||||||||||
*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.
(1) | For the three and six months ended March 31, 2019, discrete tax expense primarily includes reversals of tax reserves due to the expiration of statutes of limitation. For the three and six months ended March 31, 2018, discrete tax expense primarily includes one-time adjustments for the re-measurement of deferred tax assets and the impact of ASU 2016-09 relating to the accounting for the tax effects of stock compensation. This was partially offset by reversals of tax reserves due to the expiration of statutes of limitation. |
(2) | Adjusted net income per diluted share may not add due to the use of rounded numbers. |
TABLE 2
Reconciliation of Net Income to Adjusted EBITDA
(In thousands)
Three months ended March 31, | Six months ended March 31, | ||||||||||||||||||||||||||
2019 | 2018 (as adjusted)* | 2019 | 2018 (as adjusted)* | ||||||||||||||||||||||||
% of total revenue | % of total revenue | % of total revenue | % of total revenue | ||||||||||||||||||||||||
Total revenue | $ | 65,764 | 100.0 | % | $ | 54,548 | 100.0 | % | $ | 128,077 | 100.0 | % | $ | 99,503 | 100.0 | % | |||||||||||
Net income | $ | 1,342 | $ | (126 | ) | $ | 6,024 | $ | (4,613 | ) | |||||||||||||||||
Interest income, net | (142 | ) | (34 | ) | (258 | ) | (239 | ) | |||||||||||||||||||
Income tax (benefit) expense | (158 | ) | 451 | 882 | 3,099 | ||||||||||||||||||||||
Depreciation and amortization | 3,153 | 3,380 | 6,826 | 5,833 | |||||||||||||||||||||||
Stock-based compensation | 1,293 | 1,325 | 2,707 | 2,378 | |||||||||||||||||||||||
Gain on sale of building | — | — | (4,396 | ) | — | ||||||||||||||||||||||
Restructuring reversal | — | — | (67 | ) | — | ||||||||||||||||||||||
Acquisition expense | 1,060 | 249 | 991 | 1,750 | |||||||||||||||||||||||
Adjusted EBITDA | $ | 6,548 | 10.0 | % | $ | 5,245 | 9.6 | % | $ | 12,709 | 9.9 | % | $ | 8,208 | 8.2 | % | |||||||||||
*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.
12