Revenue of $108M, Record End of Quarter ARR
of $110M
Cash Flow From Operations was $13
Million
Digi International® Inc. (Nasdaq: DGII), a leading global
provider of business and mission critical Internet of Things
("IoT") products, services and solutions, today announced its
financial results for its second fiscal quarter ended March 31,
2024.
Second Fiscal Quarter 2024 Results
Compared to Second Fiscal Quarter 2023 Results
- Revenue was $108 million, a decrease of 3%.
- Gross profit margin was 57.9%, an increase of 130 basis
points.
- Net income was $4 million, compared to $6 million.
- Net income per diluted share was $0.11, compared to $0.16.
- Adjusted net income per diluted share was $0.49, flat year over
year.
- Adjusted EBITDA was $24 million, flat year over year.
- Annualized Recurring Revenue (ARR) was $110 million at quarter
end, an increase of 11%.
Reconciliations of GAAP and non-GAAP financial measures appear
at the end of this release.
“Value added solutions for our customers, which directly
correlate to our growth in ARR, is evident in our results. The
diversity of Digi’s customer base and solutions, combined with
strong operating discipline, inventory optimization, and improved
debt structure generated nearly twice the operating cash flow, and
have cut our interest payments nearly in half from last year,”
stated Ron Konezny, President and CEO. “We remain steadfast in our
commitment to enabling our customers meet their critical objectives
through our solutions and services.”
Additional Financial
Highlights
- We made payments towards our new revolving credit facility,
reducing our net outstanding debt to $172 million at quarter end
and debt net of cash and cash equivalents to $148 million.
- We had $3.7 million of interest expense in the second quarter
of fiscal 2024, compared to $6.4 million a year ago. The decrease
was driven by decreased debt outstanding and a reduction of our
effective interest rate.
- Cash flow from operations was $13 million in the second quarter
of fiscal 2024, compared to $7 million a year ago, driven primarily
by year over year changes in inventory.
- Net inventory ended the quarter at $62 million, compared to $74
million at September 30, 2023, reflecting continued efforts to
manage inventory levels.
- We accrued an approximate $6 million liability in the quarter
for pending litigation.
Segment Results
IoT Product & Services
The segment's second fiscal quarter 2024 revenue of $83 million
decreased $2.5 million for the three months ended March 31, 2024,
as compared to the same period in the prior fiscal year. This
decrease consisted of an approximate $4.6 million decrease in
product sales volume, with no material impact from pricing, from
our Console Server and Cellular product lines that was partially
offset by growth in OEM and $2.1 million in service revenue growth.
ARR as of the end of the second fiscal quarter was $23 million, an
increase of 35% from the prior fiscal year. This increase primarily
was due to growth in the subscription base for Console Server
services, complemented by growth in other business lines. Gross
profit margin decreased 90 basis points to 54.0% of revenue for the
second fiscal quarter of 2024, driven primarily by decreased volume
as well as mix of lower gross profit products across Console Server
and Cellular products. Operating income was $13 million, a decrease
of 1%, primarily due to the decrease in revenue.
IoT Solutions
The segment's second fiscal quarter 2024 revenue of $24 million
decreased $0.9 million for the three months ended March 31, 2024,
as compared to the same period in the prior fiscal year, consisting
of a $0.9 million increase in recurring revenue offset by a $1.0
million decrease in one time services volume and a $0.8 million
decrease in hardware sales. ARR as of the end of the second fiscal
quarter was $87 million, an increase of 6% from the prior fiscal
year primarily driven by growth in SmartSense. Gross profit margins
increased 860 basis points to 71.0% in the second fiscal quarter of
2024. This increase was the result of growth in higher margin ARR
subscription revenues. Operating loss was $4.7 million, compared to
an operating loss of $0.8 million a year ago driven by the above
referenced litigation reserve.
Capital Allocation
Strategy
We intend to deleverage the company while seeking optimal
inventory levels as our supply chain continues to normalize. Our
inventory position has declined but remains elevated. We believe
this investment will deliver working capital benefits for Digi in
future quarters.
Acquisitions remain a top capital priority for Digi. We will be
disciplined in our approach and act when we believe an opportunity
is appropriate to execute in the context of prevailing market
conditions. We are evolving and monitoring our acquisition
pipeline, and we intend to focus more on scale and ARR.
Third Fiscal Quarter 2024 and Full-Year
2024 Guidance
Digi remains steadfast in achieving our new long term strategic
goals of doubling ARR and Adjusted EBITDA to $200 million within
the next five years. Digi’s resilient execution in a large and
growing Industrial Internet of Things market has stayed consistent.
Our outlook on ARR growth for fiscal 2024 remains unchanged at 5%.
While pleased with our first half results, we find our customers
are more cautious on second half demand than we previously
expected. This is demonstrated through longer than expected sales
cycles which lowers our top line expectations. The softer top line
expectations combined with tight expense controls slightly lowers
our Adjusted EBITDA ranges to 0 to 5%, with revenue projection to
be down 5% year over year. The macroeconomic conditions have us
uncertain as to when, and to what degree, sales cycles will return
to more normal conditions.
For the third fiscal quarter, revenues are estimated to be $103
million to $107 million. Adjusted EBITDA is estimated to be between
$24.0 million and $25.5 million. Adjusted net income per share is
anticipated to be between $0.47 and $0.51 per diluted share,
assuming a weighted average diluted share count of 37.5 million
shares.
We provide guidance or longer-term targets for Adjusted net
income per share as well as Adjusted EBITDA targets on a non-GAAP
basis. We do not reconcile these items to their most similar U.S.
GAAP measure as it is difficult to predict without unreasonable
efforts numerous items that include but are not limited to the
impact of foreign exchange translation, restructuring, interest and
certain tax related events. Given the uncertainty, any of these
items could have a significant impact on U.S. GAAP results.
Second Fiscal Quarter 2024 Conference
Call Details
As announced on April 8, 2024, Digi will discuss its second
fiscal quarter results on a conference call on Thursday, May 2,
2024 at 10:00 a.m. ET (9:00 a.m. CT). The call will be hosted by
Ron Konezny, President and Chief Executive Officer and Jamie Loch,
Chief Financial Officer.
Participants may register for the conference call at:
https://register.vevent.com/register/BI2bbfe01f2107469d85ced9c48f92b3e4.
Once registration is completed, participants will be provided a
dial-in number and passcode to access the call. All participants
are asked to dial-in 15 minutes prior to the start time.
Participants may access a live webcast of the conference call
through the investor relations section of Digi’s website,
https://digi.gcs-web.com/ or the hosting website at:
https://edge.media-server.com/mmc/p/9x9odirn/.
A replay will be available within approximately two hours after
the completion of the call for approximately one year. You may
access the replay via webcast through the investor relations
section of 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 IoT connectivity 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.
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 "assume," "believe," "continue," "estimate,"
"expect," "intend," "may," "plan," "potential," "project,"
"should," or "will" 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 Digi
operates, projections of future performance, inventory levels,
perceived marketplace opportunities, interest expense savings 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 ongoing and varying inflationary and deflationary
pressures around the world and the monetary policies of governments
globally as well as present concerns about a potential recession,
the ability of companies like us to operate a global business in
such conditions as well as negative effects on product demand and
the financial solvency of customers and suppliers in such
conditions, risks related to ongoing supply chain challenges that
continue to impact businesses globally, risks related to
cybersecurity, risks arising from the present wars in Ukraine and
the Middle East, 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, the
potential for significant purchase orders to be canceled or
changed, 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 integrate and
realize the expected benefits of acquisitions, our ability to
defend or settle satisfactorily any litigation, 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,
reorganizations or other similar business initiatives that may
impact our ability to retain important employees or otherwise
impact our operations in unintended and adverse ways, 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, those set forth in Item 1A, Risk
Factors, of our Annual Report on Form 10-K for the year ended
September 30, 2023, subsequent filings on Form 10-Q and other
filings, could cause our actual 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
Digi. 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. We believe 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 net income and
adjusted net income per diluted share, respectively, exclusive of
such items as reversals of tax reserves, discrete tax benefits,
restructuring charges and reversals, intangible amortization,
stock-based compensation, other non-operating income/expense,
changes in fair value of contingent consideration,
acquisition-related expenses and interest expense related to
acquisitions 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 these matters,
which while important, are not central to the core operations of
our business. Management believes that Adjusted EBITDA, defined as
EBITDA adjusted for stock-based compensation expense,
acquisition-related expenses, restructuring charges and reversals,
and changes in fair value of contingent consideration, is useful to
investors to evaluate our core operating results and financial
performance because it excludes items that are significant non-cash
or non-recurring items reflected in the Condensed Consolidated
Statements of Operations. We believe that the presentation of
Adjusted EBITDA 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.
Digi International
Inc.
Condensed Consolidated
Statements of Operations
(In thousands, except per
share amounts)
(Unaudited)
Three months ended March 31,
Six months ended March 31,
2024
2023
2024
2023
Revenue
$
107,702
$
111,144
$
213,791
$
220,450
Cost of sales
45,384
48,272
90,373
96,057
Gross profit
62,318
62,872
123,418
124,393
Operating expenses:
Sales and marketing
20,540
20,341
40,187
39,447
Research and development
15,044
15,155
29,677
29,249
General and administrative
18,583
15,201
33,270
31,559
Operating expenses
54,167
50,697
103,134
100,255
Operating income
8,151
12,175
20,284
24,138
Other expense, net
(3,729
)
(6,346
)
(19,138
)
(12,300
)
Income before income taxes
4,422
5,829
1,146
11,838
Income tax provision (benefit)
428
(70
)
206
160
Net income
$
3,994
$
5,899
$
940
$
11,678
Net income per common share:
Basic
$
0.11
$
0.16
$
0.03
$
0.33
Diluted
$
0.11
$
0.16
$
0.03
$
0.32
Weighted average common shares:
Basic
36,296
35,791
36,212
35,698
Diluted
36,974
36,730
36,855
36,821
Digi International
Inc.
Condensed Consolidated Balance
Sheets
(In thousands)
(Unaudited)
March 31, 2024
September 30, 2023
ASSETS
Current assets:
Cash and cash equivalents
$
23,795
$
31,693
Accounts receivable, net
71,983
55,997
Inventories
62,192
74,396
Other current assets
8,414
4,112
Total current assets
166,384
166,198
Non-current assets
658,916
669,333
Total assets
$
825,300
$
835,531
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt
$
—
$
15,523
Accounts payable
22,205
17,148
Other current liabilities
58,929
53,307
Total current liabilities
81,134
85,978
Long-term debt
171,751
188,051
Other non-current liabilities
22,788
21,014
Non-current liabilities
194,539
209,065
Total liabilities
275,673
295,043
Total stockholders’ equity
549,627
540,488
Total liabilities and stockholders’
equity
$
825,300
$
835,531
Digi International
Inc.
Condensed Consolidated
Statements of Cash Flows
(In thousands)
(Unaudited)
Six months ended March 31,
2024
2023
Net cash provided by operating
activities
$
31,727
$
9,607
Net cash provided by (used in) investing
activities
1,425
(2,855
)
Net cash used in financing activities
(42,692
)
(10,187
)
Effect of exchange rate changes on cash
and cash equivalents
1,642
195
Net decrease in cash and cash
equivalents
(7,898
)
(3,240
)
Cash and cash equivalents, beginning of
period
31,693
34,900
Cash and cash equivalents, end of
period
$
23,795
$
31,660
Non-GAAP
Financial Measures
TABLE 1
Reconciliation of Net (Loss)
Income to Adjusted EBITDA
(In thousands)
Three months ended March 31,
Six months ended March 31,
2024
2023
2024
2023
% of
total
revenue
% of
total
revenue
% of
total
revenue
% of
total
revenue
Total revenue
$
107,702
100.0
%
$
111,144
100.0
%
$
213,791
100.0
%
$
220,450
100.0
%
Net income
$
3,994
$
5,899
$
940
$
11,678
Interest expense, net
3,697
6,393
9,358
12,364
Debt issuance cost write off
—
—
9,722
—
Income tax provision (benefit)
428
(70
)
206
160
Depreciation and amortization
8,066
7,846
16,117
15,958
Stock-based compensation expense
3,473
3,465
6,579
6,333
Litigation accrual
6,253
—
6,253
—
Gain on asset sale
(2,129
)
—
(2,129
)
—
Restructuring charge
43
23
146
46
Acquisition expense
—
307
(61
)
688
Adjusted EBITDA
$
23,825
22.1
%
$
23,863
21.5
%
$
47,131
22.0
%
$
47,227
21.4
%
TABLE 2
Reconciliation of Net Income
and Net Income per Diluted Share to
Adjusted Net Income and
Adjusted Net Income per Diluted Share
(In thousands, except per share
amounts)
Three months ended March 31,
Six months ended March 31,
2024
2023
2024
2023
Net income and net income per diluted
share
$
3,994
$
0.11
$
5,899
$
0.16
$
940
$
0.03
$
11,678
$
0.32
Amortization
6,097
0.16
6,251
0.17
12,335
0.33
12,714
0.35
Stock-based compensation expense
3,473
0.09
3,465
0.09
6,579
0.18
6,333
0.17
Other non-operating expense (income)
32
—
(47
)
—
58
—
(64
)
—
Acquisition expense
—
—
307
0.01
(61
)
—
688
0.02
Litigation accrual
6,253
0.17
—
—
6,253
0.17
—
—
Gain on asset sale
(2,129
)
(0.06
)
—
—
(2,129
)
(0.06
)
—
—
Restructuring charge
43
—
23
—
146
—
46
—
Interest expense, net
3,697
0.10
6,393
0.17
9,358
0.25
12,364
0.34
Debt issuance cost write off
—
—
—
—
9,722
0.26
—
—
Tax effect from the above adjustments
(1)
(3,593
)
(0.10
)
(4,626
)
(0.12
)
(7,506
)
(0.20
)
(9,495
)
(0.27
)
Discrete tax expenses (benefits) (2)
81
—
557
0.02
(101
)
—
1,749
0.05
Adjusted net income and adjusted net
income per diluted share (3)
$
17,948
$
0.49
$
18,222
$
0.50
$
35,594
$
0.97
$
36,013
$
0.98
Diluted weighted average common shares
36,974
36,730
36,855
36,821
(1)
The tax effect from the above adjustments
assumes an estimated effective tax rate of 18.0% for fiscal 2024
and 2023 based on adjusted net income.
(2)
For the three and twelve months ended
March 31, 2024 and 2023 discrete tax expenses (benefits) primarily
are a result of changes in excess tax benefits recognized on stock
compensation.
(3)
Adjusted net income per diluted share may
not add due to the use of rounded numbers.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240501537871/en/
Investor Contact: Rob Bennett Investor Relations Digi
International 952-912-3524 Email: rob.bennett@digi.com
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