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Digi International Reports Revenue Increases for Fourth Fiscal Quarter and Full Year 2010 of 18.1% and 10%, Respectively, Compared to Fourth Fiscal Quarter and Full Year 2009

Thu, 10/28/2010 - 2:20pm
Digi International

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Meets Street EPS Consensus Estimates for Fourth Fiscal Quarter and Full Year 2010

(Minneapolis, MN, October 28, 2010) - Digi International® Inc. (NASDAQ: DGII, www.digi.com)

Financial highlights for the quarter and fiscal year ended September 30, 2010 include:

  • Digi reported revenue of $47.3 million for the fourth quarter of fiscal 2010 compared to $40.0 million in revenue for the fourth quarter of fiscal 2009, an increase of $7.3 million, or 18.1%.  Revenue for the year-ended September 30, 2010 (fiscal 2010) was $182.5 million compared to $165.9 million for the year-ended September 30, 2009 (fiscal 2009), an increase of $16.6 million, or 10.0%. 
  • Digi’s diluted earnings per share of $0.09 and $0.36 for the fourth fiscal quarter and fiscal 2010, respectively, met Street consensus estimates.  Diluted earnings per share were $0.04 and $0.16 for the fourth fiscal quarter and fiscal 2009, respectively.
  • Earnings before taxes, depreciation, and amortization (EBTDA) were $5.9 million for the fourth quarter of fiscal 2010, or 12.5% of revenue, and $20.7 million, or 11.3% of revenue, for fiscal 2010.  EBTDA were $3.5 million for the fourth quarter of fiscal 2009, or 8.8% of revenue, and $14.3 million, or 8.6% of revenue, for fiscal 2009.  A reconciliation of EBTDA to income before income taxes is provided later in this earnings release.
  • Digi generated cash from operations of $16.1 million and $15.7 million for fiscal years 2010 and 2009, respectively.
  • Digi’s cash and cash equivalents and marketable securities balance was $87.6 million at September 30, 2010, an increase of $5.1 million over the cash and cash equivalents and marketable securities balance, including long-term marketable securities, at June 30, 2010 and an increase of $11.8 million over the comparable balance at September 30, 2009. 
  • Digi maintained a strong balance sheet throughout fiscal 2010.  At September 30, 2010 there was no long term debt and the current ratio was 6.7 to 1.

“2010 was a year of continued profitability and a return to top-line growth,” said Joe Dunsmore, Digi’s Chief Executive Officer. “Revenue for fiscal year 2010 increased $16.6 million, or 10.0%, and the fourth fiscal quarter

of 2010 marked Digi’s thirty-first consecutive quarter of profitability. We continued to show solid growth momentum in our wireless product lines and thus we believe we are in a very strong market position entering fiscal 2011.”

Below is a table setting forth certain GAAP and Non-GAAP results:

Business Results for the Three Months Ended September 30, 2010

Digi reported revenue of $47.3 million for the fourth fiscal quarter of 2010 compared to $40.0 million for the fourth fiscal quarter of 2009, an increase of $7.3 million, or 18.1%.

Revenue from embedded products in the fourth fiscal quarter of 2010 was $21.9 million compared to $18.8 million in the fourth fiscal quarter of 2009, an increase of $3.1 million, or 16.2%.  Revenue from non-embedded products was $25.4 million in the fourth fiscal quarter of 2010 compared to $21.2 million in the fourth fiscal quarter of 2009, an increase of $4.2 million, or 19.9%.  Net sales in the fourth fiscal quarter of 2010 were unfavorably impacted by foreign currency translation of $0.6 million when compared to the same period in the prior fiscal year. 

Revenue in North America was $26.8 million in the fourth fiscal quarter of 2010, compared to $24.2 million in the fourth fiscal quarter of 2009, an increase of $2.6 million, or 10.8%.  Revenue in EMEA (Europe, Middle East and Africa) was $12.7 million in the fourth fiscal quarter of 2010, compared to $10.7 million in the comparable quarter a year ago, an increase of $2.0 million, or 19.0%.  Revenue in the Asia Pacific region was $6.3 million in the fourth fiscal quarter of 2010 compared to $4.0 million in the fourth fiscal quarter of 2009, an increase of $2.3 million, or 57.5%.  Latin American revenue was $1.5 million in the fourth fiscal quarter of 2010, compared to $1.1 million in the comparable quarter a year ago, an increase of $0.4 million, or 27.3%.

Gross profit was $24.0 million in the fourth fiscal quarter of 2010 compared to $19.4 million in the same period in the prior year. The gross margin was 50.8% in the fourth fiscal quarter of 2010 compared to 48.5% in the fourth fiscal quarter of 2009, an increase of 2.3 percentage points. The gross margin was higher in the fourth fiscal quarter of 2010 than in the comparable period a year ago primarily due to product cost reductions and lower manufacturing expenses, partially offset by unfavorable product mix .

Total operating expenses in the fourth fiscal quarter of 2010 were $20.6 million, or 43.7% of revenue, compared to $18.3 million, or 45.8% of revenue, in the fourth fiscal quarter of 2009. Total operating expenses in the fourth fiscal quarter of 2010 included $0.3 million of residual expenses resulting from the investigation discussed within our third quarter Form 10-Q and described later in this earnings release, and a benefit of $0.1 million resulting from a reversal of the restructuring reserve since expenses associated with the plan were less than expected.  Total operating expenses increased by $2.1 million, excluding the aforementioned items, primarily due to the reinstatement for fiscal 2010 of the incentive compensation program which had been eliminated in fiscal 2009, increased commission expenses related to the increase in revenue, and consulting and professional services fees. 

Net income was $2.2 million in the fourth fiscal quarter of 2010, or $0.09 per diluted share, compared to $1.0 million, or $0.04 per diluted share, in the fourth fiscal quarter of 2009. Non-GAAP net income and non-GAAP net income per diluted share for the fourth fiscal quarter of 2010 and 2009 were $2.4 million, or $0.09 per diluted share, and $0.7 million, or $0.03 per diluted share, respectively, as detailed elsewhere in this earnings release. 

Business Results for the Twelve Months Ended September 30, 2010

For the twelve months ended September 30, 2010 (fiscal 2010), Digi reported revenue of $182.5 million compared to revenue of $165.9 million for the twelve months ended September 30, 2009 (fiscal 2009), an increase of $16.6 million, or 10.0%. Revenue from embedded products in fiscal 2010 was $82.4 million compared to $74.7 million in fiscal 2009, an increase of $7.7 million, or 10.4%.  Revenue from non-embedded products was $100.1 million in fiscal 2010 compared to $91.2 million in fiscal 2009, an increase of $8.9 million, or 9.7%. Revenue from embedded products included satellite revenue of $1.8 million in fiscal 2010 and $0.4 million in fiscal 2009 from date of acquisition of MobiApps Holdings Private Limited on June 8, 2009.

For fiscal year 2010, Digi reported net income of $8.9 million, or $0.36 per fully diluted share, compared to net income for fiscal 2009 of $4.1 million, or $0.16 per diluted share.   Net income for fiscal 2010 was reduced by investigation and remediation expenses of $0.9 million, net of tax, or $0.04 per fully diluted share, offset by a reversal of the restructuring reserve of $0.3 million, net of tax, or $0.01 per diluted share, and tax benefits of $2.3 million, or $0.09 per diluted share, resulting from the reversal of tax reserves associated primarily with the closure of prior tax years through statute expiration and audit.  Net income for fiscal 2009 was reduced by the charge for restructuring expenses of $1.9 million, net of tax, or $0.07 per diluted share, offset partially by tax benefits of $1.2 million, or $0.05 per diluted share, resulting from the reversal of tax reserves associated with the extension of the research and development credit, the resolution of certain state tax matters, and the closing of a prior tax year.

Digi’s cash and cash equivalents and marketable securities balance was $87.6 million at September 30, 2010, an increase of $5.1 million over the cash and cash equivalents and marketable securities balance, including long-term marketable securities, at June 30, 2010, and an increase of $11.8 million over the comparable balance at September 30, 2009.  Please refer to the Condensed Consolidated Statement of Cash Flows included in this earnings release for additional cash flow details. 

Fiscal 2010 Business Highlights Include:

Smart Grid Partnerships

  • Adding to key relationships with ITron, Inc. and Comverge, Inc. Digi is now also 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 announced that EcoFactor, Inc., a provider of software that intelligently manages connected thermostats and reduces home energy consumption, is using the Digi X-Grid™ solution to easily connect customers’ home energy devices to its web-based software. The Digi X-Grid™ is an “Extended Grid” that enables real-time, IP-based monitoring and control of home energy devices beyond the electric meter.
  • Digi and GroundedPower, a leading provider of interactive software for energy efficiency and smart grid solutions, announced an “Extended Grid” partnership to help consumers reduce energy consumption.  The partnership shows proven reductions of nearly 10 percent with the recent Cape Light pilot program.
  • Demonstrating the value of Digi solutions in alternative energy applications, Digi and SolarEdge Technologies, Inc. announced their collaboration on full connectivity solutions for photovoltaic (PV) systems, including data harvesting from revenue-grade power meters, PV inverter mesh networking and future interaction with the Smart Grid.

Other Smart Grid Related Announcements

  • Digi introduced the ConnectPort® X2 for Smart Energy gateways.  It is the industry’s first gateway that connects, controls, or gathers data from ZigBee® Smart Energy devices equally well before or with Smart Meter deployments.
  • Expanding Digi’s presence in the European Smart Metering connectivity market, the company announced the launch of the ConnectPort® X Wireless M-Bus gateway family.  By integrating wireless M-Bus technology frequently found in Europe, these gateways can easily and cost effectively connect electricity, gas and water meters to a European energy service provider via broadband.
  • Digi launched the next generation of XBee® and XBee-PRO® ZigBee modules during the year. These modules are frequently used to provide wireless communications for energy related devices.
  • Recognizing Digi’s position in the emerging Smart Grid, on November 17, 2009, the NASDAQ OMX Group, Inc., Clean Edge, Inc., and First Trust Advisors L.P. announced the launch of a new exchange traded fund (ETF) - the First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (Nasdaq:GRID). It is based on the NASDAQ Clean Edge Smart Grid Infrastructure Index(SM) (Nasdaq:QGRD), a benchmark for the smart grid and electric infrastructure sector. Digi is included in the Smart Grid Infrastructure Index, which enables investors to "easily track companies that are working diligently to help fully implement an energy grid that is more efficient, cleaner and resilient." First Trust's ETF, GRID, is designed to correspond to the price and yield performance of the index on which it is based.

Key Wireless Partnerships and Customer Relationships

  • Digi expanded its M2M solutions with a partnership with Ericsson, a global leader in 3G mobile broadband network technology.  Digi will be working with Ericsson to provide 3G cellular connectivity for machine-to-machine (M2M) applications.
  • Spectrum Design Solutions, Digi's wireless consulting group and a leading embedded cellular integrator, announced their collaboration with Qualcomm Incorporated to promote wireless M2M designs incorporating Qualcomm's newest cellular technology offering, called Gobi.
  • 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.
  • In partnership with Freescale Semiconductor, Inc., Digi introduced the industry's first core module designed specifically for low power, wireless multimedia applications. Representing three industry firsts, the ConnectCore™ Wi-MX51 is industry's first wireless enabled core module based on Freescale's new high-performance i.MX51 processor, first to offer 802.11 a/b/g/n Wi-Fi and first to support Microsoft's new Windows CE 6.0 R3.

iDigi Services

  • Further expanding the iDigi™ platform, in 2010 the Company launched a major 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.
  • Digi introduced the Digi ConnectPort X3, a low-cost, programmable cellular gateway for monitoring and tracking remote assets. The ConnectPort X3 is integrated with the iDigi Platform, a cloud-computing service that makes it easy to remotely manage devices and integrate device information into a company’s back-end systems and machine-to-machine (M2M) applications.
  • Showing its unique ability to blend multiple wireless technologies into a vertically focused solution, Digi introduced the ConnectPort X5 family of compact, ruggedized telematics devices. The product family is the industry's first family of telematics devices to incorporate cellular, satellite, global positioning system (GPS), Wi-Fi and vehicle area network (VAN) wireless technology in one device. Additionally, ConnectPort X5 customers have access to the iDigi™ wireless M2M solutions bundle which includes the hosted software and services necessary to easily configure and manage large scale device deployments.

Other Key Wireless Product Announcements

  • Digi introduced the Digi m130™, an embedded module that allows OEMS to enable their products with GSM/GPRS, global positioning system (GPS) and ORBCOMM satellite connectivity in a single solution. Ideal for fleet management and asset tracking applications, the compact Digi m130 enables remote connectivity to mobile assets via cellular or satellite networks and is the fastest way for device manufacturers to add cellular, GPS and satellite in one design.
  • Digi launched the industry's first M2M development kit for mainstream satellite development for under $300. The Digi m10 JumpStart Kit features the smallest, most cost effective and highest performance ORBCOMM satellite modem available. The m10 JumpStart Kit demystifies satellite development, allowing customers to quickly and easily build satellite-enabled products.
  • Rabbit, a Digi brand, introduced the Rabbit® 6000, the industry’s first embedded wireless communications and control System on Chip (SoC) ideal for industrial automation applications.

Guidance

Digi projects revenue in a range of $46 million to $49 million for the first fiscal quarter of 2011, and net income per diluted share in a range of $0.04 to $0.08. 

For the full year fiscal 2011, Digi projects revenue in a range of $195 million to $215 million, or an increase of 6.8% to 17.8% over fiscal year 2010.  Digi projects net income per diluted share to be in a range of $0.28 to $0.52.

Investigation and Remediation

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.  We voluntarily disclosed the allegations to the United States Department of Justice (DOJ) and the United States Securities and Exchange Commission (SEC). 

We announced on August 2, 2010, that we had received confirmation through discussions with representatives of the DOJ and the SEC that they would not be initiating any enforcement proceedings against Digi, including not seeking any monetary or other sanctions. 

Based upon what we learned from the investigation, we have and are further strengthening our monitoring controls over foreign locations and other operational and regulatory compliance procedures, including retention of third party assistance to implement our remediation plan.  During the fourth quarter of fiscal 2010, Digi spent $0.3 million on investigation-related expenses and outside resources for consulting and assistance in implementing our remediation plan. 

Fourth Quarter and Year-End 2010 Conference Call Details

Digi’s management will discuss the fiscal fourth quarter and year-end results, on Thursday, October 28, 2010, after market closeat 5:00 p.m. EST (4:00 p.m. CST). To join the call, please dial 866-700-6067 and enter pass code 69760761. International participants may access the call by dialing 617-213-8834 and entering pass code 69760761. 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 70653530 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.

2011 Annual Meeting

Digi will hold its annual meeting of stockholders at the Minneapolis Marriott Southwest, 5801 Opus Parkway, Minnetonka, Minnesota, commencing at 3:30 p.m., Central Standard Time, on Thursday, January 20, 2011. 

 

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