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Digi International Reports First Fiscal Quarter 2012 Results

Thu, 01/19/2012 - 1:20pm
Digi International
Thirty-Sixth Consecutive Quarter of Profitability, Despite Thailand Flooding Impact

(Minneapolis, MN, January 19, 2012) - Digi International® Inc. (NASDAQ: DGII, www.digi.com)    reported revenue of $46.7 million for the first fiscal quarter of 2012, compared with $48.3 million for the first fiscal quarter of 2011. Net income for the first fiscal quarter of 2012 was $0.7 million, or $0.03 per diluted share, compared to $2.3 million or $0.09 per diluted share in the prior year comparable quarter.   As announced in October 2011, the flooding in Thailand impacted the operations of Digi’s contract manufacturer near Bangkok. During the first fiscal quarter of 2012, Digi experienced lower revenue by approximately $3.0 million due to the flooding in Thailand, resulting in a reduction of earnings per diluted share of approximately $0.05, inclusive of additional costs incurred to reestablish limited production capabilities of our contract manufacturer. Earnings per diluted share for the first quarter of fiscal 2011 were impacted by favorable tax adjustments of $0.02.   

“The Digi team did an outstanding job recovering from the Thailand flooding and the subsequent effects experienced with our key contract manufacturer there,” said Joe Dunsmore, Digi’s Chief Executive Officer. “We expect that the disruption caused by the flooding is not likely to adversely impact Digi’s results going forward.”

Business Results for the Three Months Ended December 31, 2011

Revenue from embedded products in the first fiscal quarter of 2012 was $21.8 million compared to $21.1 million in the first fiscal quarter of 2011, an increase of $0.7 million or 3.4%.   Revenue from non-embedded products was $24.9 million in the first fiscal quarter of 2012 compared to $27.2 million in the first fiscal quarter of 2011, a decrease of $2.3 million, or 8.8%. 

Revenue from wireless products in the first fiscal quarter of 2012 was $19.8 million, or 42.5% of net sales, compared to $20.2 million, or 41.8% of net sales, in the first fiscal quarter of 2011, a decrease of $0.4 million, or 1.8 %.  Revenue from wired products was $26.8 million, or 57.5 % of net sales, in the first fiscal quarter of 2012 compared to $28.1 million, or 58.2% of net sales, in the first fiscal quarter of 2011, a decrease of $1.3 million, or 4.6%. 

Revenue in North America was $27.8 million in both the first quarter of fiscal 2012 and the first quarter of fiscal 2011. Revenue in EMEA (Europe, Middle East and Africa) was $11.6 million in the first quarter of fiscal 2012 compared to $12.6 million in the comparable quarter a year ago, a decrease of $1.0 million, or 8.7%. Revenue in the Asia Pacific region was $5.6 million in the first quarter of fiscal 2012 compared to $6.1 million in the first quarter of fiscal 2011, a decrease of $0.5 million, or 8.4%. Latin American revenue was $1.7 million in the first quarter of fiscal 2012 compared to $1.8 million in the comparable quarter a year ago, a decrease of $0.1 million, or 4.0%.  

Gross profit was $24.4 million in the first fiscal quarter of 2012 compared to $24.7 million in the same period of the prior year, a decrease of $0.3 million.  The Thailand flooding reduced our gross profit by approximately $1.9 million due to lower revenue and additional costs incurred in the restoration of production for certain of our product lines built by our contract manufacturer located in Bangkok.  The gross margin was 52.4% in the first fiscal quarter of 2012 compared to 51.0% in the first fiscal quarter of 2011, an increase of 1.4 percentage points.  The gross margin in the first fiscal quarter of 2012 reflects an impact of less than one percentage point as a result of the Thailand flooding.   The gross margin was higher in the first fiscal quarter of 2012 than in the comparable period a year ago primarily due to product cost reductions, manufacturing efficiencies and reduced amortization of purchased and core technology. 

Total operating expenses in the first fiscal quarter of 2012 were $23.6 million, or 50.6% of revenue, compared to $22.0 million, or 45.5% of revenue, in the first fiscal quarter of 2011.  The increase in operating expenses in the first fiscal quarter of 2012 compared to the same quarter of the prior year primarily is due to increased headcount in the Sales, Marketing and Research and Development functions and other increased expenses in advancement of the iDigi® platform and other strategic initiatives. Total operating expenses for the first fiscal quarter of 2012 also included a charge of $0.2 million related to the restructuring of the Breisach, Germany manufacturing operations, which resulted in a workforce reduction of 25 positions. 

Net income was $0.7 million in the first fiscal quarter of 2012, or $0.03 per diluted share, compared to $2.3 million, or $0.09 per diluted share, in the first fiscal quarter of 2011. Net income in the first fiscal quarter of 2012 included a restructuring charge of $0.2 million, net of taxes, or $0.01 per diluted share, offset by a tax benefit of $0.1 million, or $0.01 per diluted share, resulting from the reversal of tax reserves for closure of various jurisdictions’ tax matters, and a gain on sale of an investment of $0.1 million with no earnings per diluted share impact.   Net income in the first fiscal quarter of 2011 included a benefit of $0.6 million, or $0.02 per diluted share, resulting from the reversal of tax reserves for closure of various jurisdictions’ tax matters and for the extension of the research and development tax credit recorded in the first fiscal quarter of 2011.  

Earnings before interest, taxes, depreciation and amortization in the first fiscal quarter of 2012 were $3.0 million, or 6.4% of revenue, compared to $5.1 million, or 10.5% of revenue in the first fiscal quarter of 2011. 

Digi’s cash and cash equivalents and marketable securities balance, including long-term marketable securities, was $106.2 million at December 31, 2011, a decrease of $1.6 million over the comparable balances at September 30, 2011. Please refer to the Condensed Consolidated Statements of Cash Flows that are included in this earnings release for additional cash flow details. At December 31, 2011, Digi’s current ratio was 8.7 to 1 compared to 8.3 to 1 at September 30, 2011.

First Fiscal Quarter 2012 Business Highlights:

Smart Grid Expansion

  • Demonstrating increased penetration into the European energy management market, Digi announced a relationship with Honeywell subsidiary Trend France for remote monitoring and control of heating and ventilation systems.   Digi will also connect Siemens AG Smart Meters across Europe via Digi X-Grid™ Solutions.
  • Expanding its list of North American energy management deployments, Digi wirelessly enabled the CIMCON street light management system on St. John, U.S. Virgin Islands.

iDigi Device Cloud

  • Showing further penetration of iDigi within the medical sector and a stronger relationship with Freescale Semiconductor, Digi launched a telehealth application kit featuring the Freescale Home Health Hub reference design that allows customers to easily create cloud-connected medical devices using the iDigi Device Cloud.
  • Digi expanded its relationship with Sprint by certifying its ConnectCore 3G system on module. This allows customers to easily add 3G Sprint connectivity to their devices and out-of-the-box cloud connectivity with the iDigi Device Cloud.

Key Wireless Product Announcements

  • Digi launched the Digi TransPort WR21, a new cellular router featuring high-end functionality for the price of a basic modem.

Update on Thailand Flooding

On October 26, 2011, Digi announced that the flooding in Thailand impacted the operations of its contract manufacturer located near Bangkok, Thailand. The contractor’s main manufacturing facility remains closed, although reduced capacity was reestablished during the most recent quarter at the contract manufacturer’s back-up facility which is also located in Bangkok and was not impacted by the flooding. In addition, Digi has reallocated some production requirements normally fulfilled in Thailand to its U.S. manufacturing facility as well as to other contract manufacturers Digi currently uses. Digi presently anticipates that the disruption to manufacturing caused by the flooding in Thailand is not likely to impact fiscal second quarter 2012 revenue adversely. Digi expects that the impact of the Thailand flooding for the full fiscal year 2012 will have a minimal impact on revenue, and the impact to gross margin will be less than one percentage point. These expectations remain subject to change as available capacity for manufacturing at the facilities in Thailand, as well as those of other contract manufacturers, may fluctuate.

Guidance

For the second fiscal quarter of 2012, Digi projects revenue in a range of $50 million to $55 million, with a most likely revenue of approximately $52.5 million. Digi projects net income per diluted share to be in a range of $0.08 to $0.13 for the second fiscal quarter of 2012. 

Digi previously had projected revenue for the full fiscal year 2012 in a range of $210 million to $235 million and net income per diluted share in a range of $0.38 to $0.64. In light of the first quarter 2012 results, Digi expects the most likely revenue and net income per diluted share to be in the bottom half of these previously announced ranges. This acknowledges the current uncertainty about general economic conditions for the remainder of the fiscal year, which make it difficult to provide more precise guidance at this time.   

First Fiscal Quarter 2012 Conference Call Details

Digi invites all those interested in hearing management's discussion of its quarter, on Thursday, January 19, 2012 after market closeat 5:00 p.m. EST (4:00 p.m. CST), to join the call by dialing (800) 299-7928 and entering passcode 49675524. International participants may access the call by dialing (617) 614-3926and entering passcode 49675524. A replay will be available two hours after the completion of the call, and for one week following the call, by dialing 1 (888) 286-8010for domestic participants or 1 (617) 801-6888for international participants and entering access code 53795501 when prompted. Participants may also access a live webcast of the conference call through the investor relations section of Digi's website at www.digi.com. The webcast will remain on our website for one week after the live session is completed.

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.

 

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