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TMCNet:  Digi International Posts Second Fiscal Quarter 2014 Results [Manufacturing Close - Up]

[April 29, 2014]

Digi International Posts Second Fiscal Quarter 2014 Results [Manufacturing Close - Up]

(Manufacturing Close - Up Via Acquire Media NewsEdge) Digi International Inc. reported revenue of $45.9 million for the second fiscal quarter of 2014, compared with $48.2 million for the second fiscal quarter of 2013.

In a release on April 24, the Company noted that net income was $0.7 million, or $0.03 per diluted share, in the second fiscal quarter of 2014 compared to $1.0 million, or $0.04 per diluted share, in the year ago comparable quarter.

"Our overall revenue was in line with guidance provided when we announced earnings last quarter," said Joe Dunsmore, President and Chief Executive Officer. "However, we were disappointed by the miss on our second quarter operating margins." On April 23, Dunsmore announced his intention to retire as Digi's CEO and Chairman. He will remain fully focused on driving the execution of the company's operations through the end of the calendar year while the Board of Directors conducts a search for his successor.


Net income in the second fiscal quarter of 2014 was positively impacted by a reversal of certain tax reserves in connection with the conclusion of a federal income tax audit more fully described later in this earnings release, resulting in a tax benefit of $1.1 million, or $0.04 per diluted share. Net income in the second fiscal quarter of 2013 was unfavorably impacted by a legal settlement with U.S. Ethernet Innovations, LLC of $1.0 million, net of taxes, or $0.04 per diluted share.

Business Results for the Three Months Ended March 31, Revenue from our hardware products for the second fiscal quarter of 2014 was $40.6 million, compared to product revenue of $43.1 million for the second fiscal quarter of 2013, a decrease of $2.5 million or 5.9 percent. Revenue from growth hardware products was $20.8 million in the second fiscal quarter of 2014, compared to $22.0 million in the second fiscal quarter of 2013, a decrease of $1.2 million or 5.4 percent. Revenue from mature hardware products was $19.8 million in the second fiscal quarter of 2014, compared to $21.1 million in the second fiscal quarter of 2013, a decrease of $1.3 million or 6.5 percent.

Revenue from our service offerings, which are part of our growth portfolio, was $5.3 million in the second quarter of fiscal 2014, compared to $5.1 million in the year ago comparable quarter, an increase of $0.2 million or 4.6 percent.

Revenue in North America was $27.4 million in the second fiscal quarter of 2014 compared to $28.6 million in the second fiscal quarter of 2013, a decrease of $1.2 million or 4.3 percent. Revenue in EMEA (Europe, Middle East and Africa) was $11.9 million in the second fiscal quarters of both 2014 and 2013. Revenue in the Asia Pacific region was $5.0 million in the second fiscal quarter of 2014, compared to $6.3 million in the second fiscal quarter of 2013, a decrease of $1.3 million or 20.3 percent. Latin American revenue was $1.6 million in the second fiscal quarter of 2014, compared to $1.4 million in the comparable quarter a year ago, an increase of $0.2 million or 14.0 percent.

Gross profit was $21.8 million in the second fiscal quarter of 2014, compared to $25.0 million in the same period of the prior year, a decrease of $3.2 million or 12.7 percent. The gross margin was 47.5 percent in the second fiscal quarter of 2014, compared to 51.8 percent in the second fiscal quarter of 2013. The gross margin was lower in the second fiscal quarter of 2014 than in the comparable period a year ago primarily due to lower gross margins from our services offerings as well as hardware product mix.

Total operating expenses in the second fiscal quarter of 2014 were $22.4 million, or 48.9 percent of revenue, compared to $24.5 million, or 50.9 percent of revenue, in the second fiscal quarter of 2013. Operating expenses in the second fiscal quarter of 2013 included $1.5 million, or 3.2 percent of revenue, relating to the settlement of a patent infringement lawsuit with U.S. Ethernet Innovations, LLC.

Digi reported an operating loss of $0.6 million, or 1.4 percent of revenue, in the second fiscal quarter of 2014, compared to operating income of $0.4 million, or 0.9 percent of revenue, in the second fiscal quarter of 2013. Operating income for the second fiscal quarter of 2013 included the settlement of the aforementioned patent infringement lawsuit of $1.5 million. Please refer to the table reconciling operating (loss) income to non-GAAP operating (loss) income, which is provided later in this earnings release.

Net income was $0.7 million in the second fiscal quarter of 2014, or $0.03 per diluted share, compared to $1.0 million, or $0.04 per diluted share, in the second fiscal quarter of 2013. In conjunction with a federal income tax audit that was settled during the second fiscal quarter of 2014, certain reserves were remeasured and reversed resulting in a discrete tax benefit of $1.1 million, or $0.04 per diluted share. Net income in the second fiscal quarter of 2013 included a charge for the settlement of a patent infringement lawsuit of $1.0 million, net of taxes, or $0.04 per diluted share, partially offset by a tax benefit of $0.4 million, or $0.01 per diluted share, resulting from legislation that was enacted that allowed Digi to record tax credits for the last three quarters of fiscal 2012.

Earnings before interest, taxes, depreciation and amortization in the second fiscal quarter of 2014 were $1.2 million, or 2.7 percent of revenue, compared to $2.8 million, or 5.9 percent of revenue, in the second fiscal quarter of 2013.

Business Results for the Six Months Ended March 31, For the six months ended March 31, Digi reported revenue of $93.2 million, compared to revenue of $95.2 million for the six months ended March 31, 2013.

Revenue from our hardware products for the first six months of fiscal 2014 was $82.5 million, compared to $86.2 million in the first six months of fiscal 2013, a decrease of $3.7 million or 4.2 percent. Revenue from growth hardware products for the first six months of fiscal 2014 was $42.6 million, compared to $43.8 million for the first six months of fiscal 2013, a decrease of $1.2 million or 2.6 percent. Revenue from mature hardware products was $39.9 million for the first six months of fiscal 2014, compared to $42.4 million in the first six months of fiscal 2013, a decrease of $2.5 million or 5.8 percent.

Revenue from our service offerings was $10.7 million for the first six months of fiscal 2014, or 11.4 percent of revenue, compared to $9.0 million for the first six months of fiscal 2013, or 9.5 percent of revenue, an increase of $1.7 million or 17.9 percent.

For the six months ended March 31, Digi reported net income of $1.4 million, or $0.05 per diluted share, compared to net income for the six months ended March 31, 2013 of $2.2 million, or $0.08 per diluted share. Net income was favorably impacted for the first six months of fiscal 2014 by the aforementioned reversals of tax reserves related to a federal income tax audit as well as the expiration of the statutes of limitation in the U.S., totaling $1.3 million, or $0.05 per diluted share. Net income was unfavorably impacted for the first six months of fiscal 2013 as a result of the aforementioned patent infringement settlement of $1.0 million, net of tax, or $0.04 per diluted share, which was partially offset by a benefit of $0.5 million, or $0.02 per diluted share, resulting from the enactment of legislation that allowed Digi to record tax credits for the last three quarters of fiscal 2012, and the reversal of tax reserves for the expiration of the statute of limitations for both U.S. and foreign jurisdictions.

Digi's cash and cash equivalents and marketable securities balance, including long-term marketable securities, was $99.4 million at March 31, a decrease of $6.3 million from September 30, 2013, primarily resulting from repurchases of common stock. Please refer to the Condensed Consolidated Statements of Cash Flows that are included in this earnings release for additional cash flow details. At March 31, Digi's current ratio was 8.1 to 1 compared to 7.0 to 1 at September 30, 2013.

Second Fiscal Quarter 2014 Business Highlights: -Digi International and Arrow Electronics Inc. signed a global distribution agreement expanding their existing successful North American distribution alliance. Arrow will offer leading Digi embedded products and Device Cloud by Etherios, which allows any device to communicate with any application anywhere in the world. Previously available to Arrow customers in North America, these solutions now are available globally. This strategic relationship strengthens Digi's worldwide channel strategy and increased ability to service large multi-national projects outside of North America.

-OEM Technology Solutions, a Digi International customer of over 20 years, announced that it will use Device Cloud by Etherios to further its offerings in preventative customer service and condition- based monitoring on rail systems throughout the world. OEM Technology Solutions equipment powers over 20,000 systems in rail cars in 20 countries. The company first turned to Digi International for its hardware, such as the ConnectCore Wi-9C embedded wireless module and Digi TransPort WR44 cellular gateway, to enable its products wirelessly. Now, Device Cloud makes that information even more accessible and actionable by making it available via the web.

-Etherios will develop a system to maximize solar power generation. The system calculates the amount of energy needed per residence and transfers unused solar power to those in need by way of the smart grid. The Etherios Wireless Design Services group will develop the hardware and software, including a wireless gateway that will connect the energy monitoring system and Device Cloud by Etherios. The gateway will monitor electrical energy generation, storage and consumption, and export to the electrical utility.

-The leading information system provider for the taxi business will use the ConnectCore Wi-i.MX53 in solutions related to online card payment, intelligent positioning systems, and data collection systems. The company provides system and software integration services in demanding mobile system ventures.

-In February, Digi International announced the release of the Digi TransPort WR11, a cellular router that provides a secure and reliable connection for retail and point-of-sale applications. The Digi TransPort WR11 connects ATMs, lottery terminals, payment kiosks, vending machines, and digital signs with cellular networks. The WR11 helps retailers and payment network operators increase network uptime and reduce costs associated with disconnected stores and payment terminals. The WR11 is part of the Digi TransPort family of 3G/4G cellular routers that provide flexible, enterprise level cellular routers for remote and mobile networking applications. Many are used in large-scale secure electronic payment networks for point- of-sale, lottery, self-service kiosks, and off-premise ATM machines.

-In February, Digi International announced the ConnectCore 6, the world's first surface mount multi-chip module with built-in wireless connectivity. The ConnectCore 6 provides access to all of the features of the Freescale i.MX 6 Quad, i.MX 6 Dual and i.MX 6 Solo processors, making it the ideal solution for M2M applications. The module's small form factor and design, which requires no connectors, reduces manufacturing costs and makes it easier than ever to add wireless capabilities to portable devices.

Fiscal 2014 Guidance For the third fiscal quarter of 2014, Digi projects revenue in a range of $46.5 million to $49.5 million with a most likely revenue of approximately $48.0 million. Digi projects net income per diluted share for the third fiscal quarter of 2014 in a range of ($0.02) to $0.02, with a most likely net income per diluted share of $0.00.

For the full fiscal year 2014, Digi now projects revenue in a range of $188.0 million to $194.0 million with a most likely annual revenue of approximately $191.0 million. Digi now projects annual net income per diluted share to be in a range of $0.06 to $0.12, with a most likely net income per diluted share of $0.09.

More information: www.digi.com ((Comments on this story may be sent to newsdesk@closeupmedia.com)) (c) 2014 ProQuest Information and Learning Company; All Rights Reserved.

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