UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
July 22, 2010
Date of report (date of earliest event reported)
Digi International Inc.
| Delaware | 1-34033 | 41-1532464 | ||
| (State of Incorporation) | (Commission file number) | (I.R.S. Employer Identification No.) |
| 11001 Bren Road East, Minnetonka, Minnesota | 55343 | |
| (Address of principal executive offices) | (Zip Code) |
Telephone Number: (952) 912-3444
(Registrant’s telephone number, including area code)
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):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
On July 22, 2010, Digi International Inc. (“Digi”) issued a press release regarding Digi’s
financial results for its third fiscal quarter ended June 30, 2010. 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.
2
Item 9.01 Financial Statements and Exhibits.
The following Exhibit is furnished herewith:
| 99.1 | Press Release dated July 22, 2010, announcing financial results for the third quarter of fiscal 2010. |
3
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: July 22, 2010
| DIGI INTERNATIONAL INC. |
||||
| By: | /s/ Brenda L. Mueller | |||
| Brenda L. Mueller | ||||
| Corporate Controller, Acting Principal Financial Officer and Acting Principal Accounting Officer | ||||
EXHIBIT INDEX
| Manner of | ||||
| No. | Exhibit | Filing | ||
99.1
|
Press Release dated July 22, 2010, announcing financial results for the third quarter of fiscal 2010. | Furnished Electronically |
Exhibit 99.1
Digi International Reports Third Fiscal Quarter 2010 Results
Exceeds Street EPS and Revenue Consensus Estimates
(Minneapolis, MN, July 22, 2010) — Digi International® Inc. (NASDAQ: DGII, www.digi.com) reported
revenue of $47.2 million for the third fiscal quarter of 2010, compared with $44.5 million for the
third fiscal quarter of 2009, an increase of $2.7 million, or 6.2%. Net income was $3.8 million,
or $0.15 per diluted share, in the third fiscal quarter of 2010 compared to $1.4 million, or $0.06
per diluted share, in the year ago comparable quarter, an increase of $2.4 million. These GAAP
results were impacted by favorable tax adjustments and investigation costs, which are described
elsewhere in this earnings release. Other financial highlights for the third fiscal quarter of
2010 include:
| • | Revenue of $47.2 million in the third fiscal quarter of 2010 exceeded revenue in the second fiscal quarter of 2010 by 2.2 million, or 4.8%. |
| • | Revenue increased sequentially in the third fiscal quarter of 2010 compared to the second fiscal quarter of 2010 in North America, Asia Pacific and Latin America. |
| • | Digi exceeded Street EPS and revenue consensus estimates for the third fiscal quarter of 2010. Earnings per diluted share for the third fiscal quarter of 2010 were $0.15, compared to consensus earnings per diluted share of $0.07. Earnings per diluted share for the third fiscal quarter of 2010 includes a charge of $0.7 million, net of taxes, or $0.03 per diluted share, for investigation costs and a benefit of $2.2 million, or $0.09 per diluted share for the reversal of tax reserves associated with the conclusion of an audit of prior tax years and the statutory closing of a prior tax year (please refer to the detailed reconciliation of non-GAAP information provided later in this release). Revenue for the third fiscal quarter of 2010 was $47.2 million compared to the consensus estimate for the same period of $46.9 million. |
“Our third fiscal quarter 2010 results show significant strength,” said Joe Dunsmore, Digi’s Chief
Executive Officer. “The revenues in the first nine months of fiscal 2010 increased $9.4 million,
or 7.4%, over the first nine months of the previous fiscal year. On both a GAAP and non-GAAP basis
our earnings through the first nine months of fiscal 2010 are well ahead of our earnings in the
same period of fiscal 2009.”
Digi International Reports Third Fiscal Quarter 2010 Results
Below is a table setting forth certain GAAP and Non-GAAP results:
Q3 and YTD 2010 Results
| (in thousands, except per share amounts) | Q3 2010 | Q3 2009 | YTD 2010 | YTD 2009 | ||||||||||||
Net Sales |
$ | 47,238 | $ | 44,470 | $ | 135,282 | $ | 125,916 | ||||||||
Operating Income |
$ | 2,544 | $ | 602 | $ | 6,568 | $ | 1,967 | ||||||||
Net Income |
$ | 3,812 | $ | 1,393 | $ | 6,697 | $ | 3,124 | ||||||||
Net Income per Diluted Share |
$ | 0.15 | $ | 0.06 | $ | 0.27 | $ | 0.12 | ||||||||
Q3 and YTD 2010 Non-GAAP Results
| (in thousands, except per share amounts) | Q3 2010 | Q3 2009 | YTD 2010 | YTD 2009 | ||||||||||||
Operating Income |
$ | 3,588 | (1) | $ | 2,555 | (1) | $ | 7,260 | (1) | $ | 3,920 | (1) | ||||
Net Income |
$ | 2,316 | (1) | $ | 2,242 | (1) | $ | 4,880 | (1) | $ | 3,532 | (1) | ||||
Net Income per Diluted Share |
$ | 0.09 | (1) | $ | 0.09 | (1) | $ | 0.19 | (1) | $ | 0.14 | (1) | ||||
| (1) | A table with a detailed reconciliation of non-GAAP information is provided later in this earnings release. |
Business Results for the Three Months Ended June 30, 2010
Revenue from embedded products in the third fiscal quarter of 2010 was $22.3 million compared to
$20.5 million in the third fiscal quarter of 2009, an increase of $1.8 million, or 9.0%. Revenue
from non-embedded products was $24.9 million in the third fiscal quarter of 2010 compared to $24.0
million in the third fiscal quarter of 2009, an increase of $0.9 million, or 3.8%. Net sales in
the third fiscal quarter of 2010 were unfavorably impacted by foreign currency translation of $0.5
million when compared to the same period in the prior fiscal year.
Revenue in North America was $28.5 million in the third fiscal quarter of 2010, compared to $22.6
million in the third fiscal quarter of 2009, an increase of $5.9 million, or 25.8%. Revenue in the
Asia Pacific region was $5.9 million in the third fiscal quarter of 2010 compared to $4.0 million
in the third fiscal quarter of 2009, an increase of $1.9 million, or 48.0%. Latin American revenue
was $1.2 million in the third fiscal quarter of 2010, compared to $0.8 million in the comparable
quarter a year ago. Revenue in EMEA (Europe, Middle East and Africa) was $11.6 million in the
third fiscal quarter of 2010, compared to $17.1 million in the comparable quarter a year ago, a
decrease of $5.5 million, or 31.9%.
Gross profit was $23.7 million in the third fiscal quarter of 2010 compared to $21.4 million in the
same period in the prior year. The gross margin was 50.2% in the third fiscal quarter of 2010
compared to 48.2% in the third fiscal quarter of 2009. The gross margin was higher in the third
fiscal quarter of 2010 than in the comparable period a year ago due to favorable product mix,
product cost reductions, and lower manufacturing expenses.
Total operating expenses in the third fiscal quarter of 2010 were $21.2 million, or 44.8% of
revenue, compared to $20.8 million, or 46.8% of revenue, in the third fiscal quarter of 2009.
Total operating expenses in the third fiscal quarter of 2010 include $1.0 million of expenses
pertaining to the investigation. Total operating expenses in the third fiscal quarter of 2009
include a charge for restructuring expenses of $2.0 million. Total operating expenses increased by
$1.2 million, excluding the aforementioned items, primarily due to the
Digi International Reports Third Fiscal Quarter 2010 Results
reinstatement for fiscal
2010 of the incentive compensation program which had been eliminated in fiscal 2009 and incremental
ongoing operating expenses of $0.5 million for MobiApps, acquired on June 8, 2009.
As a result of the foregoing factors, Digi reported operating income of $2.5 million, or 5.4% of
net sales, in the third fiscal quarter of 2010 compared to $0.6 million, or 1.4% of net sales, in
the third fiscal quarter of 2009.
Net income was $3.8 million in the third fiscal quarter of 2010, or $0.15 per diluted share,
compared to $1.4 million, or $0.06 per diluted share, in the third fiscal quarter of 2009. Net
income in the third fiscal quarter of 2010 decreased by $0.7 million, net of taxes, or $0.03 per
diluted share as a result of expenses for the investigation. Net income in that same quarter also
benefited by $2.2 million, or $0.09 per diluted share from the reversal of tax reserves associated with the conclusion of an audit of prior tax
years and the statutory closing of a prior tax year. Net income in the third fiscal quarter of
2009 decreased by $1.3 million, net of taxes, or $0.05 per diluted share, due to a restructuring
charge. Net income in that same quarter also benefited by $0.5 million, or $0.02 per diluted share
from the reversal of tax reserves associated with the closure of a prior tax year. 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 which is provided later in this earnings release.
Business Results for the Nine Months Ended June 30, 2010
For the nine months ended June 30, 2010, Digi reported revenue of $135.3 million compared to
revenue of $125.9 million for the nine months ended June 30, 2009, an increase of $9.4 million or
7.4%. Revenue from embedded products for the first nine months of fiscal 2010 was $60.5 million
compared to $55.8 million in the first nine months of fiscal 2009, an increase of $4.7 million or
8.4%. Revenue from non-embedded products was $74.8 million in the first nine months of fiscal 2010
compared to $70.1 million in the first nine months of fiscal 2009, an increase of $4.7 million or
6.7%.
For the nine months ended June 30, 2010, Digi reported net income of $6.7 million, or $0.27 per
diluted share, compared to net income for the nine months ended June 30, 2009 of $3.1 million, or
$0.12 per diluted share. Non-GAAP net income for the first nine months of fiscal 2010 was $4.9
million, or $0.19 per diluted share, compared to $3.5 million or $0.14 per diluted share in the
first nine months of fiscal 2009. 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 which is provided later
in this earnings release.
Digi’s cash and cash equivalents and marketable securities balance, including long-term marketable
securities, was $82.5 million at June 30, 2010, an increase of $1.5 million from March 31, 2010.
Please refer to the Condensed Consolidated Statements of Cash Flows, which are included in this
earnings release, for cash flow details. At June 30, 2010, Digi’s current ratio was 6.8 to 1
compared to 7.3 to 1 at March 31, 2010.
Third Fiscal Quarter 2010 Business Highlights:
Smart Grid Related Announcements
| • | Continuing to increase Smart Grid market penetration, Digi is partnering with Cooper Power Systems to provide an IP-based demand response solution, creating the next-generation of demand response with integration of Yukon Energy Services software and iDigi™. |
| • | Digi launched the next generation of XBee and XBee-PRO ZigBee modules during the quarter. These modules are frequently used to provide wireless communications for energy related devices. |
Digi International Reports Third Fiscal Quarter 2010 Results
| • | Digi announced the grand prize winners for its Wireless Green Design Contest at ESC Silicon Valley. The contestants developed green solutions using iDigi™ wireless development kits. The winning pair used iDigi™ wireless development kits to develop a prototype system for The Palms of Destin Resort in Destin, FL, that monitors energy consumption throughout the hotel. |
iDigi Announcement
| • | Further expanding the iDigi™ platform, the Company launched a major Machine-to Machine (M2M) initiative with easy, out-of-the-box cloud connectivity for embedded development. iDigi™ is the embedded industry’s first ready-to-use cloud computing platform for M2M network and device management. |
Other Key Wireless Announcements
| • | The introduction of the Digi TransPort™ WR44 with Gobi, marked the industry’s first enterprise class cellular router with Qualcomm Gobi™ technology. The new, flexible Digi TransPort WR44 provides global carrier diversity and can connect to virtually any cellular network in the world. | ||
| • | Digi announced that its Digi TransPort® enterprise class, multi-function cellular routers can now be used on CDMA450 data networks prevalent throughout Eastern Europe and Scandinavia. The new routers enable high-speed data connectivity in sparsely populated and newly developing markets. | ||
| • | NetControl chose the Digi Connect WAN 3G cellular router to enable its NetCase on-board bus ticketing system. The tourist bus company OpenTour leveraged the system to improve fleet security, combat fraud, and speed passenger boarding. | ||
| • | Digi opened registration during the quarter for the Fifth Annual WaveForum Wireless Developers Conference. Marking its fifth anniversary, WaveForum provides greater insight into the latest innovations in wireless technology. | ||
| • | The commercial sea port of Port au Prince, Haiti, now boasts an advanced vessel tracking and communications system, designed to aid port management and international relief organizations. The vessel tracking system was donated to the Haitian Port Authority by an industry team of network and communications product manufacturers and service providers, including Digi. | ||
| • | Expanding Digi’s addressable market in building automation, Digi announced that Control Solutions is using its XBee-PRO® ZB ZigBee modules and Digi Connect ME® Ethernet modules to develop a BACnet-to-ZigBee building automation controller. |
Digi International Reports Third Fiscal Quarter 2010 Results
Reconciliation Tables:
| Reconciliation of Operating Income to Non-GAAP Operating Income | ||||||||||||||||||||||||||||||||
| Three months ended June 30, | Nine months ended June 30, | |||||||||||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||||||
| (Dollars in thousands) | % of net sales | % of net sales | % of net sales | % of net sales | ||||||||||||||||||||||||||||
Operating income |
$ | 2,544 | 5.4 | % | $ | 602 | 1.4 | % | $ | 6,568 | 4.9 | % | $ | 1,967 | 1.6 | % | ||||||||||||||||
Investigation expenses |
1,044 | 2.2 | % | — | 0.0 | % | 1,044 | 0.8 | % | — | 0.0 | % | ||||||||||||||||||||
Restructuring reserve (reversal) |
— | 0.0 | % | 1,953 | 4.4 | % | (352 | ) | -0.3 | % | 1,953 | 1.6 | % | |||||||||||||||||||
Operating income excluding investigation
expenses and restructuring reserve (Non-GAAP
basis) |
$ | 3,588 | 7.6 | % | $ | 2,555 | 5.7% | * | $ | 7,260 | 5.4 | % | $ | 3,920 | 3.1 | %* | ||||||||||||||||
| * | percentages presented may not add due to use of rounded numbers |
| Reconciliation of Net Income and Net Income per Diluted Share to Non-GAAP Net Income and Net Income per Diluted Share |
||||||||||||||||||||||||||||||||
| Three months ended June 30, | Nine months ended June 30, | |||||||||||||||||||||||||||||||
| (In thousands, except per share amounts) | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||||||||||||||
Net income and net income per common share,
diluted |
$ | 3,812 | $ | 0.15 | $ | 1,393 | $ | 0.06 | $ | 6,697 | $ | 0.27 | $ | 3,124 | $ | 0.12 | ||||||||||||||||
Investigation expenses, net of taxes |
678 | 0.03 | — | — | 678 | 0.03 | — | — | ||||||||||||||||||||||||
Restructuring reserve (reversal), net of taxes |
— | — | 1,318 | 0.05 | (229 | ) | (0.01 | ) | 1,291 | 0.05 | ||||||||||||||||||||||
Discrete tax benefit from reversal of tax
reserves associated with the closure of prior
tax years through statute expiration and
audit, and extension of research and
development credit |
(2,174 | ) | (0.09 | ) | (469 | ) | (0.02 | ) | (2,266 | ) | (0.09 | ) | (883 | ) | (0.03 | ) | ||||||||||||||||
Net income and net income per common share,
diluted, adjusted for investigation expenses,
net of taxes, restructuring reserve
(reversal), net of taxes, and a reversal of
tax reserves and other discrete tax benefits
(Non-GAAP basis) |
$ | 2,316 | $ | 0.09 | $ | 2,242 | $ | 0.09 | $ | 4,880 | $ | 0.19 | * | $3,532 | $ | 0.14 | ||||||||||||||||
| * | earnings per share presented are calculated by line item and certain amounts may not add due to use of rounded numbers |
Fiscal 2010 Guidance
For the fourth fiscal quarter of 2010, Digi projects revenue in a range of $46 million to $50
million. Digi projects net income per diluted share in a range of $0.08 to $0.13 cents. For the
full fiscal year 2010, Digi projects revenue in a range of $181 million to $185 million. Digi
anticipates that the most likely full year revenue will be $183 million. Digi projects net income
per diluted share to be in a range of $0.35 to $0.40. Projected net income per diluted share
includes investigation expenses of $0.7 million, net of taxes, or $0.03,
Digi International Reports Third Fiscal Quarter 2010 Results
a reversal of the
restructuring reserve of $0.2 million, net of taxes, or $0.01, and reversal of tax reserves and
other discrete tax benefits of $2.3 million, or $0.09. Please refer to the table below which
reconciles the guidance for diluted earnings per share to the non-GAAP guidance for diluted
earnings per share.
Reconciliation of Diluted Earnings per Share Guidance for Fiscal 2010 to
Diluted Earnings per Share, Excluding the Impact of Investigation Expenses, Net of Taxes, Reversal of Restructuring
Reserve, Net of Taxes, and Reversals of Tax Reserves and Other Discrete Tax Benefits
Diluted Earnings per Share, Excluding the Impact of Investigation Expenses, Net of Taxes, Reversal of Restructuring
Reserve, Net of Taxes, and Reversals of Tax Reserves and Other Discrete Tax Benefits
| Fiscal 2010 - Estimated Range | ||||||||
| for EPS Guidance | ||||||||
| Low | High | |||||||
Diluted earnings per share guidance for fiscal 2010 |
$ | 0.35 | $ | 0.40 | ||||
Impact of investigation expenses, net of taxes |
0.03 | 0.03 | ||||||
Impact of reversal of restructuring reserve, net of taxes |
(0.01 | ) | (0.01 | ) | ||||
Impact of reversals of tax reserves and other discrete tax events |
(0.09 | ) | (0.09 | ) | ||||
Diluted earnings per share, excluding the impact of investigation expenses, net
of taxes, reversal of restructuring reserve, net of taxes, and reversals of tax
reserves and other discrete tax events |
$ | 0.27 | * | $ | 0.33 | |||
| * | earnings per diluted share presented may not add due to use of rounded numbers |
Investigation
As previously reported, after receiving allegations regarding possible violations of our gifts,
travel and entertainment policy for activities in the Asia Pacific region by a few employees, we
initiated an investigation of these policy and corresponding internal control issues, and any
possible related violations of applicable law, including the Foreign Corrupt Practices Act (FCPA).
We voluntarily disclosed the allegations to the United States Department of Justice (DOJ) and the
United States Securities and Exchange Commission (SEC). The investigation has been under the
direction of the Audit Committee, comprised solely of independent directors, utilizing outside
counsel, and focused on the APAC region. For completeness purposes, the investigation reviewed
certain other foreign regions where no allegations have been made. We believe the investigation is
substantially complete, pending the input from the DOJ and SEC. We have been providing the DOJ and
SEC with updates and our proposed remediation plan. We will continue to cooperate fully with the
SEC and DOJ process, which could include additional investigative procedures.
This investigation found violations of company policy and internal controls that primarily involved
three individuals in Hong Kong and our Chief Financial Officer. All four individuals have either
been terminated or resigned from the company. The investigation also identified certain books and
records and related internal controls issues under the FCPA. The ultimate impact and outcome of the
DOJ and SEC process is unknown at this time. The Company is unable to estimate the potential costs
relating to this matter, including any penalties that might be assessed for any FCPA violations,
and accordingly, no provision has been made in our consolidated financial statements other than
with respect to expenses incurred prior to June 30, 2010. In the
Digi International Reports Third Fiscal Quarter 2010 Results
quarter and nine months ended
June 30, 2010, we incurred additional general and administrative expense of $1.0 million related to
the cost of the investigation.
Based upon what we have learned from the investigation, we are strengthening our monitoring
controls over foreign locations and other operational and regulatory compliance procedures,
including third party assistance in implementation of our remediation plan. Based on the results
of our investigation to date, we are not aware of any material impacts to our reported consolidated
financial statements that would require restatement, and no issues were detected outside of the
Asia Pacific region. We are also evaluating any impact of this matter on our Internal Controls
over Financial Reporting. The timing and final outcome of the DOJ and SEC process cannot be
predicted, and it may have a materially adverse impact on our business prospects and our
consolidated financial condition, results of operations or cash flow.
Third Fiscal Quarter 2010 Conference Call Details
Digi invites all those interested in hearing management’s discussion of its quarter, on Thursday,
July 22, 2010 after market close at 5:00 p.m. EDT (4:00 p.m. CDT), to join the call by dialing
866-783-2140 and entering passcode 19414366. International participants may access the call by
dialing 857-350-1599 and entering passcode 19414366. 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 participants and entering access code
44558636 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.
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.
For more news and information on Digi International®Inc., please visit www.IRGnews.com/coi/DGII
where you can find the CEO’s video, investor presentations, and more.
Forward-Looking Statements
This press release contains statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities
Exchange Act of 1934, as amended, which generally can be identified by the use of forward-looking
terminology such as “anticipate,” “believe,” “target,” “estimate,” “may,” “will,” “expect,” “plan,”
“project,” “should,” or “continue” or the negative thereof or other variations thereon or similar
terminology. Such statements are based on information available to management as of the time of
such statements and relate to, among other things, expectations of the business environment in
which the company operates, projections of future performance, perceived
Digi International Reports Third Fiscal Quarter 2010 Results
opportunities in the market and statements regarding the company’s mission and vision. Such
statements are not guarantees of future performance and involve certain risks, uncertainties and
assumptions, including risks related to the highly competitive market in which the company
operates, rapid changes in technologies that may displace products sold by the company, declining
prices of networking products, the company’s reliance on distributors, delays in the company’s
product development efforts, uncertainty in consumer acceptance of the company’s products,
potential weakness in North America, Europe and in other regions due to changes in economic
conditions and the current uncertainty in global economic conditions which could negatively affect
product demand, the recent financial crises affecting the banking system and financial markets
which could negatively impact the financial solvency of the company’s customers and suppliers, the
extreme volatility in fixed income, credit and equity markets which could result in actual amounts
realized on the company’s debt securities or other investments that differ significantly from
current market values, the ability to achieve the anticipated benefits and synergies associated
with acquisitions, the cost and outcome of the investigation of possible violations of our gifts,
travel and entertainment policy and corresponding internal control issues, and any possible related
violations of applicable law, including the Foreign Corrupt Practices Act, and the changes in the
company’s level of revenue or profitability. These and other risks, uncertainties and assumptions
identified from time to time in the company’s filings with the Securities and Exchange Commission,
including without limitation, its annual report on Form 10-K for the year ended September 30, 2009
and its quarterly reports on Form 10-Q, could cause the company’s future results to differ
materially from those expressed in any forward-looking statements made by or on behalf of the
company. Many of such factors are beyond the company’s ability to control or predict. These
forward-looking statements speak only as of the date for which they are made. The company disclaims
any intent or obligation to update publicly any forward-looking statements, whether as a result of
new information, future events or otherwise.
This release includes historical non-GAAP operating income, net income and net income per diluted
share data. This release also includes non-GAAP guidance for diluted earnings per share for fiscal 2010.
Digi understands 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. Digi believes that non-GAAP measures have limitations in that they do not reflect all
of the amounts associated with Digi’s results of operations as determined in accordance with GAAP
and that these measures should only be used to evaluate Digi’s results of operations in conjunction
with the corresponding GAAP measures.
Digi believes that providing historical and projected operating income, net income and net income
per diluted share exclusive of the investigation expenses, change in estimate of restructuring
expenses 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 the comparative operating performance of the Company. In addition, shareholders
in the Company have expressed an interest in seeing financial performance measures exclusive of
matters such as the investigation expenses and the impact of decisions relating to taxes and
restructuring, which while important, are not central to the core operations of Digi’s business.
Digi International Reports Third Fiscal Quarter 2010 Results
Investor Contacts:
Erika Moran
The Investor Relations Group
212-825-3210
Email: mail@investorrelationsgroup.com
The Investor Relations Group
212-825-3210
Email: mail@investorrelationsgroup.com
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 2010 Results
Digi International Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
| Three months ended June 30, | Nine months ended June 30, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
Net sales |
$ | 47,238 | $ | 44,470 | $ | 135,282 | $ | 125,916 | ||||||||
Cost of sales (exclusive of amortization of purchased
and core technology shown separately below) |
22,496 | 21,986 | 63,913 | 60,963 | ||||||||||||
Amortization of purchased and core technology |
1,024 | 1,047 | 3,190 | 3,099 | ||||||||||||
Gross profit |
23,718 | 21,437 | 68,179 | 61,854 | ||||||||||||
Operating expenses: |
||||||||||||||||
Sales and marketing |
9,089 | 8,624 | 27,932 | 27,225 | ||||||||||||
Research and development |
7,159 | 6,823 | 20,723 | 19,993 | ||||||||||||
General and administrative |
4,226 | 2,743 | 11,183 | 8,660 | ||||||||||||
Intangibles amortization |
700 | 692 | 2,125 | 2,056 | ||||||||||||
Restructuring |
— | 1,953 | (352 | ) | 1,953 | |||||||||||
Total operating expenses |
21,174 | 20,835 | 61,611 | 59,887 | ||||||||||||
Operating income |
2,544 | 602 | 6,568 | 1,967 | ||||||||||||
Other income (expense): |
||||||||||||||||
Interest income, net |
68 | 208 | 167 | 1,057 | ||||||||||||
Other income (expense) |
(16 | ) | 559 | 247 | 364 | |||||||||||
Total other income, net |
52 | 767 | 414 | 1,421 | ||||||||||||
Income before income taxes |
2,596 | 1,369 | 6,982 | 3,388 | ||||||||||||
Income tax (benefit) provision |
(1,216 | ) | (24 | ) | 285 | 264 | ||||||||||
Net income |
$ | 3,812 | $ | 1,393 | $ | 6,697 | $ | 3,124 | ||||||||
Net income per common share, basic |
$ | 0.15 | $ | 0.06 | $ | 0.27 | $ | 0.13 | ||||||||
Net income per common share, diluted |
$ | 0.15 | $ | 0.06 | $ | 0.27 | $ | 0.12 | ||||||||
Weighted average common shares, basic |
24,930 | 24,607 | 24,815 | 24,982 | ||||||||||||
Weighted average common shares, diluted |
25,272 | 24,875 | 25,123 | 25,250 | ||||||||||||
Digi International Reports Third Fiscal Quarter 2010 Results
Digi International Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
| June 30, 2010 | September 30, 2009 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 35,212 | $ | 48,434 | ||||
Marketable securities |
42,963 | 22,311 | ||||||
Accounts receivable, net |
24,299 | 19,032 | ||||||
Inventories |
27,817 | 26,619 | ||||||
Other |
5,613 | 6,259 | ||||||
Total current assets |
135,904 | 122,655 | ||||||
Marketable securities |
4,307 | 5,063 | ||||||
Property, equipment and improvements, net |
16,376 | 16,678 | ||||||
Identifiable intangible assets, net |
21,239 | 26,877 | ||||||
Goodwill |
85,190 | 86,558 | ||||||
Other |
879 | 1,117 | ||||||
Total assets |
$ | 263,895 | $ | 258,948 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 10,171 | $ | 5,567 | ||||
Accrued compensation |
4,632 | 3,275 | ||||||
Accrued professional fees |
1,489 | 696 | ||||||
Accrued warranty |
909 | 970 | ||||||
Deferred payment on acquisition |
— | 2,966 | ||||||
Restructuring |
202 | 721 | ||||||
Other |
2,514 | 2,339 | ||||||
Total current liabilities |
19,917 | 16,534 | ||||||
Deferred tax liabilities |
2,558 | 4,331 | ||||||
Income taxes payable |
2,639 | 4,893 | ||||||
Deferred payment on acquisition |
2,888 | 2,812 | ||||||
Other noncurrent liabilities |
517 | 792 | ||||||
Total liabilities |
28,519 | 29,362 | ||||||
Total stockholders’ equity |
235,376 | 229,586 | ||||||
Total liabilities and stockholders’ equity |
$ | 263,895 | $ | 258,948 | ||||
Digi International Reports Third Fiscal Quarter 2010 Results
Digi International Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Three months ended | Nine months ended | |||||||
| June 30, 2010 | June 30, 2010 | |||||||
Operating activities: |
||||||||
Net income |
$ | 3,812 | $ | 6,697 | ||||
Adjustments to reconcile net income to net cash provided by operations: |
||||||||
Depreciation of property, equipment and improvements |
668 | 2,002 | ||||||
Amortization of identifiable intangible assets and other assets |
1,874 | 5,743 | ||||||
Excess tax benefits from stock-based compensation |
— | (39 | ) | |||||
Stock-based compensation |
779 | 2,603 | ||||||
Deferred income taxes |
(1,353 | ) | (2,201 | ) | ||||
Restructuring |
— | (352 | ) | |||||
Other |
1,162 | 1,159 | ||||||
Changes in operating assets and liabilities |
(3,572 | ) | (3,287 | ) | ||||
Net cash provided by operating activities |
3,370 | 12,325 | ||||||
Investing activities: |
||||||||
Purchase of marketable securities |
(10,028 | ) | (38,538 | ) | ||||
Proceeds from maturities of marketable securities |
14,281 | 18,615 | ||||||
Deferred cash payout for acquisition of Spectrum Design Solutions, Inc. |
— | (3,000 | ) | |||||
Proceeds from sale of property and equipment |
11 | 11 | ||||||
Purchase of property, equipment, improvements and certain
other intangible assets |
(868 | ) | (2,337 | ) | ||||
Net cash provided by (used in) investing activities |
3,396 | (25,249 | ) | |||||
Financing activities: |
||||||||
Payments on capital lease obligations |
(1 | ) | (8 | ) | ||||
Excess tax benefits from stock-based compensation |
— | 39 | ||||||
Proceeds from stock option plan transactions |
65 | 1,097 | ||||||
Proceeds from employee stock purchase plan transactions |
246 | 691 | ||||||
Net cash provided by financing activities |
310 | 1,819 | ||||||
Effect of exchange rate changes on cash and cash equivalents |
(1,297 | ) | (2,117 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
5,779 | (13,222 | ) | |||||
Cash and cash equivalents, beginning of period |
29,433 | 48,434 | ||||||
Cash and cash equivalents, end of period |
$ | 35,212 | $ | 35,212 | ||||