[November 15, 2018] |
|
Digi International Reports Fourth Fiscal Quarter and Full Year 2018 Results
Digi International® Inc. (NASDAQ: DGII), a leading global
provider of mission critical Internet of Things ("IoT") products,
services, and solutions, reported revenue of $65.7 million for the
fourth fiscal quarter of 2018 compared to $45.1 million in the fourth
fiscal quarter of 2017 and to our guidance range of $60.0 million to
$64.0 million. This reflects a 45.6% growth rate compared to the prior
year quarter and a record fourth quarter revenue performance.
Net income for the fourth fiscal quarter of 2018 was $3.6 million, or
$0.13 per diluted share, compared to $4.3 million, or $0.16 per diluted
share in the fourth fiscal quarter of 2017 and to our guidance range of
$0.05 to $0.10 per diluted share. Our adjusted net income for the fourth
fiscal quarter of 2018 was $2.2 million, or $0.08 per diluted share,
compared to $4.2 million, or $0.16 per diluted share for the fourth
fiscal quarter of 2017.
Adjusted EBITDA in the fourth fiscal quarter of 2018 was $7.5 million,
or 11.5% of total revenue, compared to our guidance range of $6.5
million to $7.5 million. In the fourth fiscal quarter of 2017 our
adjusted EBITDA was $7.0 million, or 15.5% of total revenue.
Reconciliations of GAAP and non-GAAP financial measures, including
Adjusted Net Income and Adjusted EBITDA, appear at the end of this
release.
Management Commentary - Ron Konezny, President
and Chief Executive Officer
"We capped off a great year with record revenues for the quarter and for
the year. During the year, we completed several key strategic
initiatives. Momentum from both business segments positions our agile,
athletic and innovative organization to drive revenue growth, expand
profitability and build on our leadership position."
Financial Results
|
GAAP Results
|
(in thousands, except per share data)
|
|
Q4 2018
|
|
Q4 2017
|
|
YTD 2018
|
|
YTD 2017
|
Total Revenue
|
|
$
|
65,662
|
|
|
$
|
45,105
|
|
|
$
|
228,366
|
|
|
$
|
181,634
|
|
Gross Profit
|
|
$
|
30,963
|
|
|
$
|
21,334
|
|
|
$
|
108,883
|
|
|
$
|
87,174
|
|
Gross Margin
|
|
|
47.2
|
%
|
|
|
47.3
|
%
|
|
|
47.7
|
%
|
|
|
48.0
|
%
|
Operating Income
|
|
$
|
1,905
|
|
|
$
|
4,164
|
|
|
$
|
2,322
|
|
|
$
|
8,807
|
|
Operating Income as % of Total Revenue
|
|
|
2.9
|
%
|
|
|
9.2
|
%
|
|
|
1.0
|
%
|
|
|
4.8
|
%
|
Net Income
|
|
$
|
3,608
|
|
|
$
|
4,343
|
|
|
$
|
1,303
|
|
|
$
|
9,366
|
|
Net Income per Diluted Share
|
|
$
|
0.13
|
|
|
$
|
0.16
|
|
|
$
|
0.05
|
|
|
$
|
0.35
|
|
|
Non-GAAP Results*
|
(in thousands, except per share data)
|
|
Q4 2018
|
|
Q4 2017
|
|
YTD 2018
|
|
YTD 2017
|
Adjusted Net Income
|
|
$
|
2,206
|
|
|
$
|
4,172
|
|
|
$
|
3,071
|
|
|
$
|
10,041
|
|
Adjusted Net Income per Diluted Share
|
|
$
|
0.08
|
|
|
$
|
0.16
|
|
|
$
|
0.11
|
|
|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
7,528
|
|
|
|
7,011
|
|
|
|
22,465
|
|
|
|
23,516
|
|
Adjusted EBITDA as % of Total Revenue
|
|
|
11.5
|
%
|
|
|
15.5
|
%
|
|
|
9.8
|
%
|
|
|
12.9
|
%
|
* A reconciliation of GAAP to non-GAAP financial measures appears at
the end of this release.
|
|
Business Results for the Quarters Ended
September 30, 2018 and 2017
|
Revenue Detail Quarter
|
(in thousands)
|
|
Q4 2018
|
|
Q4 2017
|
|
Change
|
|
% Change
|
Product
|
|
$
|
53,317
|
|
|
$
|
40,881
|
|
|
$
|
12,436
|
|
|
30.4 %
|
Services
|
|
|
3,078
|
|
|
|
1,703
|
|
|
|
1,375
|
|
|
80.7 %
|
Solutions
|
|
|
9,267
|
|
|
|
2,521
|
|
|
|
6,746
|
|
|
267.6 %
|
Total revenue
|
|
$
|
65,662
|
|
|
$
|
45,105
|
|
|
$
|
20,557
|
|
|
45.6 %
|
|
|
|
|
|
|
|
|
|
North America, primarily United States
|
|
$
|
49,222
|
|
|
$
|
28,071
|
|
|
$
|
21,151
|
|
|
75.3 %
|
Europe, Middle East and Africa
|
|
|
9,335
|
|
|
|
10,344
|
|
|
|
(1,009
|
)
|
|
(9.8)%
|
Asia
|
|
|
5,767
|
|
|
|
5,446
|
|
|
|
321
|
|
|
5.9 %
|
Latin America
|
|
|
1,338
|
|
|
|
1,244
|
|
|
|
94
|
|
|
7.6 %
|
Total revenue
|
|
$
|
65,662
|
|
|
$
|
45,105
|
|
|
$
|
20,557
|
|
|
45.6 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue increased 45.6% to $65.7 million in the fourth
fiscal quarter of 2018 from $45.1 million in the fourth fiscal quarter
of 2017.
Product
Product revenue increased by $12.4 million, or 30.4%, in the fourth
fiscal quarter of 2018 compared to the fourth fiscal quarter of 2017.
This included $8.0 million of incremental revenue from Accelerated
Concepts, Inc. ("Accelerated"), which we acquired in January 2018 as
well as revenue growth in our cellular products and embedded modules.
Services
Services revenue increased by $1.4 million, or 80.7%, in the fourth
fiscal quarter of 2018 compared to the fourth fiscal quarter of 2017.
This growth was driven primarily by revenues of our Digi Wireless Design
Services group.
Solutions
Solutions revenue increased by $6.7 million, or 267.6%, in the fourth
fiscal quarter of 2018 compared to the fourth fiscal quarter of 2017.
This was driven by the growth of our SmartSense by Digi™
business and includes $5.6 million of incremental revenue from TempAlert
LLC ("TempAlert"), which we acquired in October 2017. As of September
30, 2018, we were servicing over 54,000 sites, which is an increase from
the nearly 48,000 sites as of June 30, 2018.
Gross profit was $31.0 million, or 47.2% of revenue in the fourth
fiscal quarter of 2018 compared to $21.3 million, or 47.3% of revenue
for the fourth fiscal quarter of 2017. This $9.7 million increase was
primarily the result of increased sales related to the acquisition of
Accelerated, increased Solutions business sales, and increased sales of
our embedded modules and cellular products. Gross profit was negatively
impacted by increased costs associated with our manufacturing
transition, product and customer mix in both products and solutions, and
increased amortization of intangibles expense, primarily related to our
acquisitions of TempAlert and Accelerated.
Operating income for the fourth fiscal quarter of 2018 was $1.9
million, or 2.9% of revenue, as compared to $4.2 million, or 9.2% of
revenue, for the fourth quarter of fiscal 2017. The decline was a result
of an increase of $11.9 million of operating expenses. This increase was
primarily due to increased contingent consideration expenses of $4.1
million, as we incurred expenses of $1.1 million in the fourth quarter
of fiscal 2018 and a benefit of $3.0 million in the fourth quarter of
fiscal 2017. In addition, operating expenses in the fourth quarter of
fiscal 2018 included incremental costs associated with TempAlert
acquired in October 2017, and $3.0 million of incremental expenses
related to Accelerated, acquired in January 2018. We also had increased
incentive-based compensation expenses in the fourth quarter of fiscal
2018 compared to the same period in the prior fiscal year. This was
partially offset by increased gross profit of $9.7 million discussed
above.
Net income was $3.6 million in the fourth fiscal quarter of 2018,
or $0.13 per diluted share, compared to $4.3 million, or $0.16 per
diluted share, in the fourth fiscal quarter of 2017.
Adjusted EBITDA in the fourth fiscal quarter of 2018 was $7.5
million, or 11.5% of total revenue, compared to $7.0 million, or 15.5%
of total revenue, in the fourth fiscal quarter of 2017. Included in
Adjusted EBITDA for the fourth fiscal quarter of 2018 is $1.0 million of
contingent consideration expenses mostly related to the performance of
Accelerated.
Business Results for the Years Ended September
30, 2018 and 2017
|
Revenue Detail Fiscal Year
|
(in thousands)
|
|
FY 2018
|
|
FY 2017
|
|
Change
|
|
% Change
|
Product
|
|
$
|
191,050
|
|
|
$
|
166,480
|
|
|
$
|
24,570
|
|
|
14.8 %
|
Services
|
|
|
10,456
|
|
|
|
7,757
|
|
|
|
2,699
|
|
|
34.8 %
|
Solutions
|
|
|
26,860
|
|
|
|
7,397
|
|
|
|
19,463
|
|
|
263.1 %
|
Total revenue
|
|
$
|
228,366
|
|
|
$
|
181,634
|
|
|
$
|
46,732
|
|
|
25.7 %
|
|
|
|
|
|
|
|
|
|
North America, primarily United States
|
|
$
|
163,397
|
|
|
$
|
117,749
|
|
|
$
|
45,648
|
|
|
38.8 %
|
Europe, Middle East and Africa
|
|
|
39,211
|
|
|
|
39,403
|
|
|
|
(192
|
)
|
|
(0.5)%
|
Asia
|
|
|
20,881
|
|
|
|
19,892
|
|
|
|
989
|
|
|
5.0 %
|
Latin America
|
|
|
4,877
|
|
|
|
4,590
|
|
|
|
287
|
|
|
6.3 %
|
Total revenue
|
|
$
|
228,366
|
|
|
$
|
181,634
|
|
|
$
|
46,732
|
|
|
25.7 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue increased 25.7% to $228.4 million in fiscal 2018
from $181.6 million in fiscal 2017.
Product
Product revenue increased by $24.6 million, or 14.8%, in fiscal 2018
compared to fiscal 2017. This increase included $22.2 million of
incremental revenue from Accelerated, which we acquired in January 2018.
Services
Services revenue increased by $2.7 million, or 34.8%, in fiscal 2018
compared to fiscal 2017, primarily related to increased revenues from
our Digi Wireless Design services and Digi Remote Manager®.
Solutions
Solutions revenue increased by $19.5 million, or 263.1%, in fiscal 2018
compared to fiscal 2017. This was driven by the growth of our SmartSense
by Digi™ business and includes $17.0 million of incremental
revenue from TempAlert, which we acquired in October 2017.
Gross profit was $108.9 million, or 47.7% of revenue in fiscal
2018 compared to $87.2 million, or 48.0% of revenue for fiscal 2017.
This $21.7 million increase was driven primarily by our acquisition of
Accelerated and the increased revenue of our Solutions business. This
was partially offset by increased costs associated with our
manufacturing transition and increased amortization of intangibles
expense in fiscal 2018 compared to fiscal 2017.
Operating income for fiscal 2018 was $2.3 million, or 1.0% of
revenue, as compared to $8.8 million, or 4.8% of revenue, for fiscal
2017. This $6.5 million decline was a result of increased operating
expenses of $28.2 million. This increase was primarily due to increased
contingent consideration expenses of $5.7 million, as we incurred
expenses of $1.4 million in fiscal 2018 and a benefit of $4.3 million in
fiscal 2017. In addition, operating expenses in fiscal 2018 included
incremental costs associated with TempAlert, acquired in October 2017,
and $8.2 million of incremental expenses related to Accelerated,
acquired in January 2018. We also had increased incentive-based
compensation expenses in fiscal 2018 as compared to fiscal 2017. This
was partially offset by increased gross profit of $21.7 million
discussed above.
Net income was $1.3 million in fiscal 2018, or $0.05 per diluted
share, compared to $9.4 million, or $0.35 per diluted share, in fiscal
2017.
Adjusted EBITDA in fiscal 2018 was $22.5 million, or 9.8% of
total revenue, compared to $23.5 million, or 12.9% of total revenue, in
fiscal 2017.
Balance Sheet, Liquidity and Capital Structure
Digi continues to maintain a strong balance sheet with no debt. As of
September 30, 2018, Digi had:
-
Cash and cash equivalents and marketable securities balance of $62.8
million, a decrease of $52.2 million from the end of fiscal 2017. The
decrease in cash is related directly to the purchase price and other
costs associated with the TempAlert and Accelerated acquisitions. Cash
and marketable securities increased sequentially by $8.1 million from
the end of third quarter of fiscal 2018. Subsequent to the end of
fiscal 2018, during the first quarter of fiscal 2019, we received $9.7
million from two customers of which $7.4 million was applied to
accounts receivable.
-
Current and long-term contingent liabilities of $10.1 million, an
increase of $3.7 million from the end of fiscal 2017. This increase is
comprised of the addition of $2.3 million related to the fair value of
contingent consideration for the Accelerated acquisition and an
increase in fair value of $2.1 million in fiscal 2018 associated with
better than expected performance by Accelerated. This was partially
offset by a decrease of $0.7 million related to the Bluenica and
FreshTemp® contingent consideration.
Corporate Headquarters Update
Subsequent to the end of fiscal 2018, on October 2, 2018, we sold our
130,000 square feet corporate headquarters building in Minnetonka,
Minnesota. The sales price was $10.0 million in cash adjusted for
certain selling costs and an escrow for the leaseback of the building
for four months. At September 30, 2018 the net book value of the land,
building and improvements was $5.2 million and listed as Assets Held for
Sale on our Consolidated Balance Sheet. As a result, we recorded a $1.1
million tax benefit in the fourth quarter of fiscal 2018 because we are
able to use credit loss carryforwards which previously had a valuation
allowance. We expect to record a gain of approximately $4.5 million
($3.4 million net of deferred tax effects) in the first quarter of
fiscal 2019.
In October 2018, we signed a thirteen-year lease agreement with minimum
lease obligations of $15.9 million for 59,497 square feet of office
space in Hopkins, Minnesota, which will serve as our new corporate
headquarters and is approximately three miles from our current
headquarters.
Customer Highlights
IoT PRODUCTS & SERVICES
-
A North American based global leader of IP video solutions for the bus
and passenger rail industry has selected Digi's WR44R router to
offload video via Wi-Fi while the bus or train is at the depot. The
solution will use LTE cellular to transmit maintenance data and live
stream video in case of an emergency. Digi was selected for our vast
experience in this application and the product's ease of use. The
project calls for an estimated 500 devices per year for approximately
three years.
-
A global leader in the lottery and gaming management industry has
developed a retail solution to dispense lottery instant games located
in retail brick and mortar stores. The system provides insights,
visibility and data for lotteries to better understand how products
perform at retailer locations. Digi's WR21 transport routers were
selected to provide this access in order to deliver valuable data
streams that simultaneously track and reconcile game sales in
real-time. The solution mitigates operational costs for retailers
associated with ticket theft.
-
A leading global industrial gas company has selected Digi for a
connected tank monitoring solution using our Connect Sensor and Digi
Remote Manager® products. The customer chose Digi based on
the complete solution, cost savings and increase in data they will be
able to capture to drive their logistics systems. The solution will
begin to deploy in early calendar 2019.
-
A utility company in northern Germany, has elected to use Digi's WR31
cellular routers to equip their local power distribution points with
cellular monitoring due to their robust design and reliable operation.
During the first phase 150 nodes will be replaced with a full roll-out
that will cover several thousand sites.
IoT SOLUTIONS
-
The VA Medical Center in Palo Alto, California, one of the largest VA
centers in the country, selected SmartSense by Digi™ to
monitor their pharmacy/lab, dietary, surgery and off-site clinics. We
have currently deployed over 900 sensors.
-
Jenny Craig, with approximately 600 company-owned and franchised
centers worldwide, will deploy SmartSense by Digi™ at their
centers located in the United States and Canada to ensure proper
temperatures are maintained for their freezers which store their food
products.
-
SmartSense by Digi™ is now monitoring over 130 pharmacies
at Giant Food Inc., a supermarket chain based in Maryland with 169
stores.
-
A large supermarket chain in Northeastern United States selected
SmartSense by Digi™ to monitor their pharmacy freezers and
refrigerators at over 150 of their sites.
Fiscal 2019 Guidance
For the first fiscal quarter of 2019, Digi projects revenue to be in a
range of $56.0 million to $60.0 million. EPS is projected to be in a
range of $0.03 loss per diluted share to $0.01 per diluted share.
Adjusted EBITDA is projected to be between $4.0 million and $6.0 million.
For the full fiscal year 2019, Digi projects revenue to be in a range of
$245.0 million to $255.0 million. EPS is projected to be in a range of
$0.20 per diluted share to $0.35 per diluted share. Adjusted EBITDA is
projected to be in a range of $24.0 million and $28.0 million.
Fourth Fiscal Quarter and Year-End 2018
Conference Call Details
As announced on October 2, 2018, Digi will discuss its fourth fiscal
quarter and year-end 2018 results on a conference call on Thursday,
November 15, 2018 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 Gokul Hemmady, Chief Financial Officer.
Digi invites all those interested in hearing management's discussion of
its quarter to access a live webcast of the conference call through the
investor relations section of Digi's website at www.digi.com.
Participants may also join the call directly by dialing (855) 638-5675
and entering passcode 8883349. International participants may access the
call by dialing (262) 912-4765 and entering passcode 8883349. 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 8883349 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") 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 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, 2017 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 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. Additionally, management believes that the presentation
of adjusted EBITDA and 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. Adjusted
EBITDA is used as an internal metric for executive compensation, as well
as incentive compensation for the broader employee base, and it is
monitored quarterly for these purposes.
For more information, visit Digi's website at www.digi.com,
or call 877-912-3444 (U.S.) or 952-912-3444 (International).
|
Digi International Inc. Condensed Consolidated
Statements of Operations (In thousands, except per
share amounts) (Unaudited)
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Fiscal year ended September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
53,317
|
|
|
$
|
40,881
|
|
|
$
|
191,050
|
|
|
$
|
166,480
|
|
Services and solutions
|
|
|
12,345
|
|
|
|
4,224
|
|
|
|
37,316
|
|
|
|
15,154
|
|
Total revenue
|
|
|
65,662
|
|
|
|
45,105
|
|
|
|
228,366
|
|
|
|
181,634
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
Cost of product
|
|
|
27,403
|
|
|
|
21,439
|
|
|
|
96,332
|
|
|
|
85,369
|
|
Cost of services and solutions
|
|
|
6,543
|
|
|
|
1,920
|
|
|
|
20,280
|
|
|
|
7,647
|
|
Amortization of intangibles
|
|
|
753
|
|
|
|
412
|
|
|
|
2,871
|
|
|
|
1,444
|
|
Total cost of sales
|
|
|
34,699
|
|
|
|
23,771
|
|
|
|
119,483
|
|
|
|
94,460
|
|
Gross profit
|
|
|
30,963
|
|
|
|
21,334
|
|
|
|
108,883
|
|
|
|
87,174
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
11,987
|
|
|
|
8,398
|
|
|
|
44,517
|
|
|
|
33,955
|
|
Research and development
|
|
|
8,605
|
|
|
|
7,262
|
|
|
|
33,178
|
|
|
|
28,566
|
|
General and administrative
|
|
|
8,355
|
|
|
|
1,510
|
|
|
|
28,565
|
|
|
|
13,331
|
|
Restructuring charges, net
|
|
|
111
|
|
|
|
-
|
|
|
|
301
|
|
|
|
2,515
|
|
Total operating expenses
|
|
|
29,058
|
|
|
|
17,170
|
|
|
|
106,561
|
|
|
|
78,367
|
|
Operating income
|
|
|
1,905
|
|
|
|
4,164
|
|
|
|
2,322
|
|
|
|
8,807
|
|
Other income, net:
|
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
|
89
|
|
|
|
219
|
|
|
|
420
|
|
|
|
608
|
|
Other income (expense), net
|
|
|
85
|
|
|
|
(134
|
)
|
|
|
48
|
|
|
|
76
|
|
Total other income, net
|
|
|
174
|
|
|
|
85
|
|
|
|
468
|
|
|
|
684
|
|
Income before income taxes
|
|
|
2,079
|
|
|
|
4,249
|
|
|
|
2,790
|
|
|
|
9,491
|
|
Income tax (benefit) provision
|
|
|
(1,529
|
)
|
|
|
(94
|
)
|
|
|
1,487
|
|
|
|
125
|
|
Net income
|
|
$
|
3,608
|
|
|
$
|
4,343
|
|
|
$
|
1,303
|
|
|
$
|
9,366
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.13
|
|
|
$
|
0.16
|
|
|
$
|
0.05
|
|
|
$
|
0.35
|
|
Diluted
|
|
$
|
0.13
|
|
|
$
|
0.16
|
|
|
$
|
0.05
|
|
|
$
|
0.35
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
27,323
|
|
|
|
26,557
|
|
|
|
27,083
|
|
|
|
26,432
|
|
Diluted
|
|
|
28,160
|
|
|
|
26,885
|
|
|
|
27,652
|
|
|
|
27,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digi International Inc. Condensed Consolidated
Statements of Comprehensive Income (In thousands) (Unaudited)
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Fiscal year ended September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net income
|
|
$
|
3,608
|
|
|
$
|
4,343
|
|
|
$
|
1,303
|
|
|
$
|
9,366
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
193
|
|
|
|
1,984
|
|
|
|
(865
|
)
|
|
|
2,041
|
|
Change in net unrealized gain (loss) on investments
|
|
|
10
|
|
|
|
(12
|
)
|
|
|
(31
|
)
|
|
|
(14
|
)
|
Less income tax (provision) benefit
|
|
|
(3
|
)
|
|
|
4
|
|
|
|
6
|
|
|
|
5
|
|
Reclassification of realized loss on investments included in net
income (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
31
|
|
|
|
-
|
|
Less income tax benefit (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
(8
|
)
|
|
|
-
|
|
Other comprehensive income (loss), net of tax
|
|
|
200
|
|
|
|
1,976
|
|
|
|
(867
|
)
|
|
|
2,032
|
|
Comprehensive income
|
|
$
|
3,808
|
|
|
$
|
6,319
|
|
|
$
|
436
|
|
|
$
|
11,398
|
|
(1) Recorded in Other income (expense), net on our Consolidated
Statements of Operations. (2) Recorded in Income tax
(benefit) provision in our Consolidated Statements of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digi International Inc. Condensed Consolidated
Balance Sheets (In thousands) (Unaudited)
|
|
|
|
|
|
|
|
September 30, 2018
|
|
September 30, 2017
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
58,014
|
|
|
$
|
78,222
|
|
Marketable securities
|
|
|
4,736
|
|
|
|
32,015
|
|
Accounts receivable, net
|
|
|
50,817
|
|
|
|
28,855
|
|
Inventories
|
|
|
41,644
|
|
|
|
30,238
|
|
Receivable from sale of business
|
|
|
-
|
|
|
|
1,998
|
|
Other
|
|
|
2,613
|
|
|
|
3,032
|
|
Total current assets
|
|
|
157,824
|
|
|
|
174,360
|
|
Marketable securities, long-term
|
|
|
-
|
|
|
|
4,753
|
|
Property, equipment and improvements, net
|
|
|
6,270
|
|
|
|
12,801
|
|
Identifiable intangible assets, net
|
|
|
39,320
|
|
|
|
11,800
|
|
Goodwill
|
|
|
154,535
|
|
|
|
131,995
|
|
Deferred tax assets
|
|
|
6,665
|
|
|
|
9,211
|
|
Other
|
|
|
1,291
|
|
|
|
269
|
|
Assets held for sale
|
|
|
5,220
|
|
|
|
-
|
|
Total assets
|
|
$
|
371,125
|
|
|
$
|
345,189
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
|
$
|
12,911
|
|
|
$
|
6,240
|
|
Accrued compensation
|
|
|
8,190
|
|
|
|
4,325
|
|
Accrued warranty
|
|
|
1,172
|
|
|
|
987
|
|
Accrued professional fees
|
|
|
1,367
|
|
|
|
928
|
|
Unearned revenue
|
|
|
2,579
|
|
|
|
1,343
|
|
Contingent consideration on acquired businesses
|
|
|
5,890
|
|
|
|
388
|
|
Accrued restructuring
|
|
|
453
|
|
|
|
1,656
|
|
Other
|
|
|
2,413
|
|
|
|
2,113
|
|
Total current liabilities
|
|
|
34,975
|
|
|
|
17,980
|
|
Income taxes payable
|
|
|
851
|
|
|
|
877
|
|
Deferred tax liabilities
|
|
|
334
|
|
|
|
534
|
|
Contingent consideration on acquired businesses
|
|
|
4,175
|
|
|
|
6,000
|
|
Other non-current liabilities
|
|
|
510
|
|
|
|
654
|
|
Total liabilities
|
|
|
40,845
|
|
|
|
26,045
|
|
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;
33,812,838 and 33,007,993 shares issued
|
|
|
338
|
|
|
|
330
|
|
Additional paid-in capital
|
|
|
255,936
|
|
|
|
245,528
|
|
Retained earnings
|
|
|
151,748
|
|
|
|
150,478
|
|
Accumulated other comprehensive loss
|
|
|
(23,526
|
)
|
|
|
(22,659
|
)
|
Treasury stock, at cost, 6,385,336 and 6,436,578 shares
|
|
|
(54,216
|
)
|
|
|
(54,533
|
)
|
Total stockholders' equity
|
|
|
330,280
|
|
|
|
319,144
|
|
Total liabilities and stockholders' equity
|
|
$
|
371,125
|
|
|
$
|
345,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digi International Inc. Condensed Consolidated
Statements of Cash Flows (In thousands) (Unaudited)
|
|
|
|
|
|
Fiscal years ended September 30,
|
|
|
2018
|
|
2017
|
Operating activities:
|
|
|
|
|
Net income
|
|
$
|
1,303
|
|
|
$
|
9,366
|
|
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
|
|
|
|
|
Depreciation of property, equipment and improvements
|
|
|
2,835
|
|
|
|
2,900
|
|
Amortization of identifiable intangible assets
|
|
|
9,435
|
|
|
|
2,597
|
|
Stock-based compensation
|
|
|
4,854
|
|
|
|
4,659
|
|
Excess tax benefits from stock-based compensation
|
|
|
-
|
|
|
|
(326
|
)
|
Deferred income tax provision
|
|
|
(508
|
)
|
|
|
(2,108
|
)
|
(Gain) loss on sale of property, equipment and improvements
|
|
|
(622
|
)
|
|
|
-
|
|
Change in fair value of contingent consideration
|
|
|
1,377
|
|
|
|
(4,364
|
)
|
Bad debt/product return provision
|
|
|
1,120
|
|
|
|
361
|
|
Inventory obsolescence
|
|
|
2,056
|
|
|
|
1,850
|
|
Restructuring charges
|
|
|
301
|
|
|
|
2,515
|
|
Other
|
|
|
67
|
|
|
|
(9
|
)
|
Changes in operating assets and liabilities (net of acquisitions)
|
|
|
(24,996
|
)
|
|
|
(14,966
|
)
|
Net cash (used in) provided by operating activities
|
|
|
(2,778
|
)
|
|
|
2,475
|
|
Investing activities:
|
|
|
|
|
Purchase of marketable securities
|
|
|
-
|
|
|
|
(61,964
|
)
|
Proceeds from maturities and sales of marketable securities
|
|
|
32,032
|
|
|
|
87,105
|
|
Proceeds from sale of Etherios
|
|
|
2,000
|
|
|
|
3,000
|
|
Acquisition of businesses, net of cash acquired
|
|
|
(56,258
|
)
|
|
|
(30,111
|
)
|
Proceeds from sale of property and equipment
|
|
|
731
|
|
|
|
-
|
|
Purchase of property, equipment, improvements and certain other
identifiable intangible assets
|
|
|
(1,842
|
)
|
|
|
(1,773
|
)
|
Net cash used in investing activities
|
|
|
(23,337
|
)
|
|
|
(3,743
|
)
|
Financing activities:
|
|
|
|
|
Acquisition earn-out payments
|
|
|
-
|
|
|
|
(518
|
)
|
Excess tax benefits from stock-based compensation
|
|
|
-
|
|
|
|
326
|
|
Proceeds from stock option plan transactions
|
|
|
5,460
|
|
|
|
3,502
|
|
Proceeds from employee stock purchase plan transactions
|
|
|
1,115
|
|
|
|
685
|
|
Purchases of common stock
|
|
|
(748
|
)
|
|
|
(938
|
)
|
Net cash provided by financing activities
|
|
|
5,827
|
|
|
|
3,057
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
80
|
|
|
|
706
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(20,208
|
)
|
|
|
2,495
|
|
Cash and cash equivalents, beginning of period
|
|
|
78,222
|
|
|
|
75,727
|
|
Cash and cash equivalents, end of period
|
|
$
|
58,014
|
|
|
$
|
78,222
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing and financing activities:
|
|
|
|
|
Accrual for purchase of property, equipment, improvements and
certain other identifiable intangible assets
|
|
$
|
(78
|
)
|
|
$
|
(36
|
)
|
Liability related to acquisition of business
|
|
$
|
(2,300
|
)
|
|
$
|
(1,310
|
)
|
|
|
|
|
|
|
|
|
|
Non-GAAP Financial Measures
TABLE 1
|
|
|
|
|
Reconciliation of Net Income and Net Income per Diluted Share
to Adjusted Net Income and Adjusted Net Income per Diluted Share (In
thousands of dollars, except per share amounts)
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Fiscal years ended September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net income and net income per diluted share
|
|
$
|
3,608
|
|
|
$
|
0.13
|
|
|
$
|
4,343
|
|
|
$
|
0.16
|
|
|
$
|
1,303
|
|
|
$
|
0.05
|
|
|
$
|
9,366
|
|
|
$
|
0.35
|
|
Restructuring reserve
|
|
|
111
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
301
|
|
|
|
0.01
|
|
|
|
2,515
|
|
|
|
0.09
|
|
Tax effect from restructuring reserve
|
|
|
(24
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(71
|
)
|
|
|
-
|
|
|
|
(880
|
)
|
|
|
(0.03
|
)
|
Discrete tax (benefits) expense (1)
|
|
|
(1,489
|
)
|
|
|
(0.05
|
)
|
|
|
(171
|
)
|
|
|
(0.01
|
)
|
|
|
1,538
|
|
|
|
0.06
|
|
|
|
(960
|
)
|
|
|
(0.04
|
)
|
Adjusted net income and adjusted net income per diluted share (2)
|
|
$
|
2,206
|
|
|
$
|
0.08
|
|
|
$
|
4,172
|
|
|
$
|
0.16
|
|
|
$
|
3,071
|
|
|
$
|
0.11
|
|
|
$
|
10,041
|
|
|
$
|
0.37
|
|
Diluted weighted average common shares
|
|
|
|
|
28,160
|
|
|
|
|
|
26,885
|
|
|
|
|
|
27,652
|
|
|
|
|
|
27,099
|
|
(1) Discrete tax (benefits) expense includes one-time adjustments
for the re-measurement of deferred tax assets and adoption of ASU
2016-09 relating to the accounting for the tax effects of stock
compensation. This was partially offset by a net tax benefits for
the release of a valuation allowance against U.S. federal capital
loss carryforward related to expected capital gains tax in fiscal
2019 as a result of the sale of our Corporate Headquarters
building in October 2019 and reversals of tax reserves due to the
expiration of statutes of limitation and certain domestic tax
credits. (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 of dollars)
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Fiscal years ended September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
% of total revenue
|
|
|
|
% of total revenue
|
|
|
|
% of total revenue
|
|
|
|
% of total revenue
|
Total revenue
|
|
$
|
65,662
|
|
|
100.0 %
|
|
$
|
45,105
|
|
|
100.0 %
|
|
$
|
228,366
|
|
|
100.0 %
|
|
$
|
181,634
|
|
|
100.0 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,608
|
|
|
|
|
$
|
4,343
|
|
|
|
|
$
|
1,303
|
|
|
|
|
$
|
9,366
|
|
|
|
Interest income, net
|
|
|
(89
|
)
|
|
|
|
|
(219
|
)
|
|
|
|
|
(420
|
)
|
|
|
|
|
(608
|
)
|
|
|
Income tax (benefit) provision
|
|
|
(1,529
|
)
|
|
|
|
|
(94
|
)
|
|
|
|
|
1,487
|
|
|
|
|
|
125
|
|
|
|
Depreciation and amortization
|
|
|
3,264
|
|
|
|
|
|
1,468
|
|
|
|
|
|
12,270
|
|
|
|
|
|
5,497
|
|
|
|
Stock-based compensation
|
|
|
1,256
|
|
|
|
|
|
1,157
|
|
|
|
|
|
4,854
|
|
|
|
|
|
4,659
|
|
|
|
Restructuring charges, net
|
|
|
111
|
|
|
|
|
|
-
|
|
|
|
|
|
301
|
|
|
|
|
|
2,515
|
|
|
|
Acquisition expense
|
|
|
907
|
|
|
|
|
|
356
|
|
|
|
|
|
2,670
|
|
|
|
|
|
1,962
|
|
|
|
Adjusted EBITDA
|
|
$
|
7,528
|
|
|
11.5 %
|
|
$
|
7,011
|
|
|
15.5 %
|
|
$
|
22,465
|
|
|
9.8 %
|
|
$
|
23,516
|
|
|
12.9 %
|
View source version on businesswire.com: https://www.businesswire.com/news/home/20181115006001/en/
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