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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 13, 2005
Digi International Inc.
| Delaware | 0-17972 | 41-1532464 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
||
| 11001 Bren Road East | ||
| Minnetonka, Minnesota | 55343 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code (952) 912-3444
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. | ||||||||
| Item 9.01. Financial Statements and Exhibits. | ||||||||
| SIGNATURES | ||||||||
| EXHIBIT INDEX | ||||||||
| Press Release | ||||||||
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Item 2.02. Results of Operations and Financial Condition.
On January 13, 2005, Digi International Inc. (the “Company”) reported its financial results for the first quarter of 2005. See the Company’s press release dated January 13, 2005, which is furnished as Exhibit 99 and incorporated by reference in this Current Report on Form 8-K.
Item 9.01. Financial Statements and Exhibits.
The following Exhibit is being furnished herewith:
| 99 | Press Release dated January 13, 2005. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| DIGI INTERNATIONAL INC. |
||||
| Date: January 13, 2005 | By /s/ Subramanian Krishnan | |||
| Subramanian Krishnan | ||||
| Senior Vice President, Chief Financial Officer and Treasurer | ||||
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EXHIBIT INDEX
| No. | Exhibit | Manner of Filing | ||
99
|
Press Release dated January 13, 2005. | Filed Electronically |
EXHIBIT 99
Digi International Reports First Quarter Fiscal 2005 Results - Page 1
Digi International Reports Fiscal First Quarter 2005 Revenue Growth of 12.0% over First Quarter 2004
First Quarter 2005 Net Income up 79.8% over First Quarter 2004, Earnings Per Share at High End of Guidance
(Minneapolis, January 13, 2005) - Digi International® Inc. (NASDAQ: DGII) today reported revenue of $29.5 million for the first fiscal quarter of 2005, compared to $26.3 million in the first fiscal quarter of 2004. Revenue for the quarter represented an increase of 12.0% over the first quarter of the prior fiscal year and was at the high end of management’s previously announced guidance of $28.5 — $29.5 million.
Device Networking Solutions products, which include NetSilicon and the device server product lines, contributed $10.1 million in revenue in the first quarter of fiscal 2005 compared to $8.8 million in the first fiscal quarter of 2004 or an increase of 15.5%. Revenue from Connectivity Solutions products was $19.4 million in the first fiscal quarter of 2005, an increase of 10.3% over $17.5 million in the comparable period in 2004.
Digi reported net income of $3.0 million for the first fiscal quarter of 2005, or $0.13 per diluted share, compared to net income of $1.6 million, or $0.08 per diluted share during the first fiscal quarter of 2004. Earnings per diluted share for the first fiscal quarter of 2005 was at the upper end of management’s guidance of $0.11 — $0.13.
The gross profit margin in the fiscal first quarter of 2005 was 62.1% compared to 61.2% in the first fiscal quarter of 2004, primarily due to customer and product mix.
Total operating expenses in the first fiscal quarter of 2005 were $14.2 million or 48.2% of net sales, compared to $13.8 million, or 52.6% of net sales, in the first fiscal quarter of 2004. The increase in operating expenses is primarily attributable to increased variable selling and other variable operating expenses directly related to the increase in revenue.
Operating income in the first fiscal quarter of 2005 was $4.1 million, compared to $2.3 million in the first fiscal quarter of 2004, an increase of 80%.
Digi’s cash and cash equivalents and marketable securities balance at the end of the quarter was $83.0 million, an increase of $1.3 million from the end of the prior quarter. Days sales outstanding (DSO) was at 32 days for the fiscal first quarter of 2005, compared to 33 days for the previous quarter. Digi’s cash per share at December 31, 2004, defined as cash and cash equivalents and marketable securities divided by shares
Digi International Reports First Quarter Fiscal 2005 Results - Page 2
outstanding of 22,343,695, was $3.71. Tangible book value per share at December 31, 2004, defined as stockholders’ equity less net identifiable intangible assets and goodwill divided by shares outstanding of 22,343,695, was $5.25.
“Digi is off to a good start in 2005. We continue to innovate and expand our product pipeline in order to leverage the Digi brand and deliver on our promise of making device networking easy for our customers. With this goal in mind, we are excited that Microsoft has recognized Digi and selected our console servers to meet their current needs,” said Joe Dunsmore, Chairman, President and CEO of Digi.
Highlights of the quarter
| • | Standard & Poor’s made semi-annual changes to its various indices including the S&P SmallCap 600/Barra Value index where Digi was re-classified from a value company to a growth company. A stock’s categorization as either “growth” or “value” is determined by its book-to-price ratio. |
| • | Microsoft Corp. selected the Digi CM console server, with patented RealPort software, to provide remote out-of-band access via serial port to the servers that power Microsoft’s recently introduced MSN Search engine. |
| • | Digi introduced an enhanced Digi One IAP industrial device server, the industry’s first truly interoperable device server featuring industrial protocol bridging. Protocol bridging is a unique Digi technology that enables industrial Ethernet and serial protocols to transparently intercommunicate. |
| • | Digi added four new products to its USB Plus Series of powered USB connectivity solutions. The USB Plus Series is the most extensive line of powered USB connectivity solutions available and is designed to simplify retail operations by allowing powered USB peripheral devices to be used with a standard, low-cost PC. |
Second Quarter and Fiscal 2005 Guidance
Digi expects second quarter 2005 revenue to be in the range of $29.0 million to $30.0 million and
anticipates earnings per diluted share to be in the range of $0.12 to $0.14. For the full fiscal
year 2005, Digi continues to forecast an increase in revenue over fiscal year 2004 revenue in
excess of 10%.
As a result of a settlement with the Internal Revenue Service on an audit of prior fiscal years, subject to final approval by the Joint Committee of Taxation, Digi anticipates that 2005 earnings per share may include a reversal of approximately $5.5 million of previously established income tax reserves, equating to approximately $0.24 per diluted share positive impact. Excluding this possible one-time tax item described above, Digi expects earnings per diluted share for fiscal 2005 to increase in excess of 33% compared to fiscal 2004. Digi’s guidance for the second fiscal quarter and full fiscal year of 2005 do not give effect to this possible reversal because the timing and amount of the reversal are uncertain.
Digi International Reports First Quarter Fiscal 2005 Results - Page 3
Digi International Inc.
Condensed Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited)
| Three months ended | ||||||||
| December 31, 2004 | December 31, 2003 | |||||||
Net sales |
$ | 29,470 | $ | 26,307 | ||||
Cost of sales |
11,159 | 10,203 | ||||||
Gross profit |
18,311 | 16,104 | ||||||
Operating expenses: |
||||||||
Sales and marketing |
6,443 | 6,076 | ||||||
Research and development |
4,252 | 4,511 | ||||||
General and administrative |
2,190 | 1,940 | ||||||
Intangibles amortization |
1,325 | 1,298 | ||||||
Total operating expenses |
14,210 | 13,825 | ||||||
Operating income |
4,101 | 2,279 | ||||||
Other income, net |
190 | 74 | ||||||
Income before income taxes |
4,291 | 2,353 | ||||||
Income tax provision |
1,330 | 706 | ||||||
Net income |
$ | 2,961 | $ | 1,647 | ||||
Net income per common share, basic and diluted |
$ | 0.13 | $ | 0.08 | ||||
Weighted average common shares, basic |
22,082 | 20,498 | ||||||
Weighted average common shares, diluted |
23,309 | 21,276 | ||||||
Digi International Reports First Quarter Fiscal 2005 Results - Page 4
Digi International Inc.
Condensed Consolidated Balance Sheets
(In thousands)
| December 31, 2004 | September 30, 2004 | |||||||
| (unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 12,400 | $ | 19,528 | ||||
Marketable securities |
68,556 | 59,639 | ||||||
Accounts receivable, net |
12,019 | 10,555 | ||||||
Inventories, net |
12,566 | 11,231 | ||||||
Other |
5,328 | 4,315 | ||||||
Total current assets |
110,869 | 105,268 | ||||||
Marketable securities, long-term |
2,000 | 2,500 | ||||||
Property, equipment and improvements, net |
18,800 | 18,634 | ||||||
Identifiable intangible assets and goodwill, net |
18,859 | 20,233 | ||||||
Net deferred tax assets |
3,403 | 3,013 | ||||||
Other |
730 | 817 | ||||||
Total assets |
$ | 154,661 | $ | 150,465 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 5,489 | $ | 4,945 | ||||
Accrued expenses |
6,710 | 9,126 | ||||||
Income taxes payable |
6,138 | 9,107 | ||||||
Total current liabilities |
18,337 | 23,178 | ||||||
Net deferred tax liabilities |
83 | 208 | ||||||
Total liabilities |
18,420 | 23,386 | ||||||
Total stockholders’ equity |
136,241 | 127,079 | ||||||
Total liabilities and stockholders’ equity |
$ | 154,661 | $ | 150,465 | ||||
Digi International Reports First Quarter Fiscal 2005 Results - Page 5
Digi International Inc.
Condensed Consolidated Statement of Cash Flows
For the three months ended December 31, 2004 and 2003
(in thousands)
(Unaudited)
| Three months ended | ||||||||
| December 31, 2004 | December 31, 2003 | |||||||
Operating activities: |
||||||||
Net income |
$ | 2,961 | $ | 1,647 | ||||
Adjustments to reconcile net income to
net cash (used in) provided by operating activities: |
||||||||
Depreciation of property, equipment and improvements |
566 | 657 | ||||||
Amortization of identifiable intangible assets and other assets |
1,572 | 1,550 | ||||||
Tax benefit related to the exercise of stock options |
1,509 | 534 | ||||||
Other |
(185 | ) | 83 | |||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(1,029 | ) | 1,004 | |||||
Inventories |
(1,341 | ) | (788 | ) | ||||
Other assets |
(1,045 | ) | (996 | ) | ||||
Accounts payable and accrued expenses |
(2,275 | ) | (1,108 | ) | ||||
Income taxes payable |
(2,978 | ) | 601 | |||||
Other |
(515 | ) | (430 | ) | ||||
Total adjustments |
(5,721 | ) | 1,107 | |||||
Net cash (used in) provided by operating activities |
(2,760 | ) | 2,754 | |||||
Investing activities: |
||||||||
(Purchase) sale of held-to-maturity marketable securities, net |
(8,417 | ) | 3,895 | |||||
Contingent purchase price payments related to business acquisitions |
— | (1,962 | ) | |||||
Purchase of property, equipment, improvements and certain
other intangible assets |
(196 | ) | (371 | ) | ||||
Net cash (used in) provided by investing activities |
(8,613 | ) | 1,562 | |||||
Financing activities: |
||||||||
Proceeds from stock option plan transactions |
3,561 | 1,858 | ||||||
Proceeds from employee stock purchase plan transactions |
179 | 335 | ||||||
Net cash provided by financing activities |
3,740 | 2,193 | ||||||
Effect of exchange rate changes on cash and cash equivalents |
505 | 467 | ||||||
Net (decrease) increase in cash and cash equivalents |
(7,128 | ) | 6,976 | |||||
Cash and cash equivalents, beginning of period |
19,528 | 17,228 | ||||||
Cash and cash equivalents, end of period |
$ | 12,400 | $ | 24,204 | ||||
Digi International Reports First Quarter Fiscal 2005 Results - Page 6
First Quarter Fiscal 2005 Conference Call Details
Digi invites all those interested in hearing management’s discussion of the quarter to attend our
first fiscal quarter 2005 conference call, scheduled for Thursday, January 13, 2005, at 4:00 p.m.
CT, either by phone or on the Web. Participants can access the call directly at 1-800-621-5170.
International participants may access the call by dialing 212-346-0300. A replay will be available
for one week following the call by dialing 1-800-633-8284 for domestic participants or 402-977-9140
for international participants and entering access code 21219668 when prompted. Participants may
also access a live web cast of the conference call through the investor relations section of Digi’s
Web site, www.digi.com.
About Digi International
Digi International, based in Minneapolis, is the leader in Connectware and makes device networking
easy by developing products and technologies that are cost effective and easy to use. Digi markets
its products through a global network of distributors and resellers, systems integrators and
original equipment manufacturers (OEMs). For more information, visit Digi’s web site at
www.digi.com, or call 800-344-4273 (U.S.) or 952-912-3444 (International).
Digi, Digi International, and the Digi logo are trademarks or registered trademarks of Digi International Inc. in the United States and other countries. All other brand names and product names are trademarks or registered trademarks of their respective owners.
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 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, and 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, 2004 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
Digi International Reports First Quarter Fiscal 2005 Results - Page 7
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.
# # #
Digi International Contact
|
Investors Contact | |
S. (Kris) Krishnan
|
Kathryn McNeil/John Nesbett | |
(952) 912-3125
|
The Investor Relations Group | |
s_krishnan@digi.com
|
New York, NY | |
| 212-825-3210 | ||
| kmcneil@investorrelationsgroup.com |