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 fourth fiscal quarter and full fiscal year ended September 30, 2020.

Fourth Fiscal Quarter 2020 Results

  • Revenue increased to $73.2 million compared to $65.0 million, an increase of $8.2 million, or 12.6%.
  • Net income increased to $4.4 million compared to $2.3 million, an increase of $2.1 million, or 93.9%.
  • Net income per diluted share increased to $0.15 compared to $0.08 per diluted share, or 87.5%.
  • Adjusted EPS increased to $0.32 per diluted share compared to $0.18 per diluted share, or 77.8%.
  • Adjusted EBITDA increased to $12.1 million compared to $7.6 million, an increase of $4.5 million, or 58.3%.

Full Year 2020 Results

  • Revenue increased to $279.3 million compared to $254.2 million, an increase of $25.1 million, or 9.9%.
  • Net income decreased to $8.4 million compared to $10.0 million, a decrease of $1.6 million, or 15.5%.
  • Net income per diluted share decreased to $0.28 compared to $0.35 per diluted share, or 20.0%. Included in fiscal 2019 was a gain on the sale of our corporate headquarters building that contributed $0.12 (net of tax) per diluted share.
  • Adjusted EPS increased to $0.98 per diluted share compared to $0.66 per diluted share, or 48.5%.
  • Adjusted EBITDA increased to $40.2 million compared to $26.5 million, an increase of $13.7 million, or 51.8%.

Reconciliations of GAAP and non-GAAP financial measures appear at the end of this release.

“Digi delivered record revenue results for fiscal year 2020 amid the challenging macroeconomic backdrop, aided by the Opengear acquisition,” said Ron Konezny, President and Chief Executive Officer. “Our recent organizational change placing key leaders over each major product line will drive alignment, focus, and growth while sharpening our customer focus. In addition, we are excited to see our SmartSense IoT Solutions business return to growth with the capture of several enterprise customers, further building on our record annualized recurring revenue. Digi’s core value proposition enabling secure, automated, remote work has never been more relevant as our customers adapt during this pandemic era.”

Segment Results

IoT Product & Services

The segment's fourth fiscal quarter 2020 revenues of $64.6 million increased 16.4% from the same period in the prior fiscal year. This increase is attributed primarily to the incremental revenue associated with our acquisition of Opengear, Inc. ("Opengear") in December 2019. Gross profit margin increased 379 basis points to 51.6% of revenues for the fourth fiscal quarter of 2020. Products acquired through the acquisition of Opengear were the primary driver of the margin rate increase.

Full fiscal 2020 revenues of $249.5 million were a record for this segment, increasing 15.9% from the prior fiscal year. This increase is attributed primarily to the incremental revenue associated with our acquisition of Opengear. Gross profit margin increased 514 basis points to 51.8% of revenues for full fiscal 2020. Products acquired through the acquisition of Opengear drove the margin rate increase.

IoT Solutions

The segment's fourth fiscal quarter 2020 revenues of $8.6 million decreased 9.5% from the same period in the prior fiscal year. This was due primarily to delays in customer rollouts, expansions and equipment upgrades largely as a result of the pandemic. We served just over 70,000 sites as of September 30, 2020, compared to just over 63,000 sites as of September 30, 2019. Gross profit margin increased 585 basis points to 48.5%, due to product and customer mix. This also demonstrated the value of our high margin recurring revenue business model.

Full fiscal 2020 revenues of $29.8 million decreased 23.6% from the prior fiscal year. Consistent with the fourth quarter, this decrease was due primarily to delays in customer rollouts, expansions and equipment upgrades largely as a result of the pandemic. Gross profit margin increased 160 basis points to 49.2% as a result of a greater mix of recurring revenue compared to the prior fiscal year.

Fiscal 2021 Guidance

Due to the ongoing uncertainties caused by the COVID-19 pandemic and the resulting dynamic macroeconomic conditions, Digi will not be providing financial guidance.

Fourth Fiscal Quarter 2020 Conference Call Details

As announced on October 9, 2020, Digi will discuss its fourth fiscal quarter and full year 2020 results on a conference call on Thursday, November 12, 2020 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 Jamie Loch, 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 1997802. International participants may access the call by dialing (262) 912-4765 and entering passcode 1997802. 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 1997802 when prompted.

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, 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 "assume," "believe," "anticipate," "intend," "estimate," "target," "may," "will," "expect," "plan," "potential," "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 Digi 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 ongoing COVID-19 pandemic and efforts to mitigate the same, risks related to the economic downturn that commenced during the COVID-19 pandemic and the ability of companies like us to operate a global business in such conditions, 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 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, 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, 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, 2019 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, adjustments to estimates of contingent consideration, acquisition-related expenses, interest expense related to acquisition and gains from the disposition of our former corporate headquarters 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 gains from the disposition of our former corporate headquarters 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.

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,

 

2020

 

2019

 

2020

 

2019

Revenue

$

73,169

 

 

$

64,960

 

 

$

279,271

 

 

$

254,203

 

Cost of sales

35,651

 

 

34,365

 

 

135,299

 

 

135,168

 

Gross profit

37,518

 

 

30,595

 

 

143,972

 

 

119,035

 

Operating expenses:

 

 

 

 

 

 

 

Sales and marketing

13,011

 

 

11,218

 

 

52,761

 

 

45,801

 

Research and development

11,010

 

 

9,893

 

 

43,765

 

 

37,564

 

General and administrative

8,288

 

 

7,376

 

 

36,012

 

 

25,685

 

Restructuring (reversal) charge

(12

)

 

—

 

 

117

 

 

(87

)

Operating expenses

32,297

 

 

28,487

 

 

132,655

 

 

108,963

 

Operating income

5,221

 

 

2,108

 

 

11,317

 

 

10,072

 

Other (expense) income, net

(877

)

 

479

 

 

(3,854

)

 

1,073

 

Income before income taxes

4,344

 

 

2,587

 

 

7,463

 

 

11,145

 

Income tax (benefit) expense

(89

)

 

301

 

 

(948

)

 

1,187

 

Net income

$

4,433

 

 

$

2,286

 

 

$

8,411

 

 

$

9,958

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

Basic

$

0.15

 

 

$

0.08

 

 

$

0.29

 

 

$

0.36

 

Diluted

$

0.15

 

 

$

0.08

 

 

$

0.28

 

 

$

0.35

 

Weighted average common shares:

 

 

 

 

 

 

 

Basic

29,079

 

 

28,172

 

 

28,849

 

 

27,905

 

Diluted

29,678

 

 

28,916

 

 

29,546

 

 

28,554

 

Digi International Inc.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

 

 

September 30,
2020

 

September 30,
2019

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

54,129

 

 

$

92,792

 

Accounts receivable, net

59,227

 

 

56,417

 

Inventories

51,568

 

 

39,764

 

Other current assets

5,134

 

 

3,574

 

Total current assets

170,058

 

 

192,547

 

Other non-current assets

358,624

 

 

206,151

 

Total assets

$

528,682

 

 

$

398,698

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

28,067

 

 

$

21,183

 

Other current liabilities

33,163

 

 

23,275

 

Total current liabilities

61,230

 

 

44,458

 

Other non-current liabilities

95,952

 

 

5,262

 

Total liabilities

157,182

 

 

49,720

 

Total stockholders’ equity

371,500

 

 

348,978

 

Total liabilities and stockholders’ equity

$

528,682

 

 

$

398,698

 

Digi International Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

Fiscal year ended September 30,

 

2020

 

2019

Net cash provided by operating activities

$

34,478

 

 

$

28,964

 

Net cash (used in) provided by investing activities

(136,997

)

 

5,511

 

Net cash provided by financing activities

63,603

 

 

1,113

 

Effect of exchange rate changes on cash and cash equivalents

253

 

 

(810

)

Net (decrease) increase in cash and cash equivalents

(38,663

)

 

34,778

 

Cash and cash equivalents, beginning of period

92,792

 

 

58,014

 

Cash and cash equivalents, end of period

$

54,129

 

 

$

92,792

 

Non-GAAP Financial Measures

TABLE 1

Reconciliation of Net Income to Adjusted EBITDA

(In thousands)

 

 

Three months ended September 30,

 

Fiscal year ended September 30,

 

2020

 

2019

 

2020

 

2019

 

 

 

% of total
revenue

 

 

 

% of total
revenue

 

 

 

% of total
revenue

 

 

 

% of total
revenue

Total revenue

$

73,169

 

 

100.0

%

 

$

64,960

 

 

100.0

%

 

$

279,271

 

 

100.0

%

 

$

254,203

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

4,433

 

 

 

 

$

2,286

 

 

 

 

$

8,411

 

 

 

 

$

9,958

 

 

 

Interest expense (income), net

525

 

 

 

 

(168

)

 

 

 

3,288

 

 

 

 

(631

)

 

 

Income tax (benefit) expense

(89

)

 

 

 

301

 

 

 

 

(948

)

 

 

 

1,187

 

 

 

Depreciation and amortization

5,140

 

 

 

 

3,384

 

 

 

 

19,299

 

 

 

 

13,396

 

 

 

Stock-based compensation

1,914

 

 

 

 

1,475

 

 

 

 

7,237

 

 

 

 

5,655

 

 

 

Gain on sale of building

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

(4,396

)

 

 

Restructuring (reversal) charge

(12

)

 

 

 

—

 

 

 

 

117

 

 

 

 

(87

)

 

 

Acquisition expense

154

 

 

 

 

345

 

 

 

 

2,772

 

 

 

 

1,390

 

 

 

Adjusted EBITDA

$

12,065

 

 

16.5

%

 

$

7,623

 

 

11.7

%

 

$

40,176

 

 

14.4

%

 

$

26,472

 

 

10.4

%

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 September 30,

 

Fiscal year ended September 30,

 

2020

 

2019

 

2020

 

2019

Net income and net income per diluted share

$

4,433

 

 

$

0.15

 

 

$

2,286

 

 

$

0.08

 

 

$

8,411

 

 

$

0.28

 

 

$

9,958

 

 

$

0.35

 

Amortization

4,067

 

 

0.14

 

 

2,149

 

 

0.07

 

 

14,754

 

 

0.50

 

 

8,818

 

 

0.31

 

Stock-based compensation

1,914

 

 

0.06

 

 

1,475

 

 

0.05

 

 

7,237

 

 

0.24

 

 

5,655

 

 

0.20

 

Other non-operating expense (income)

352

 

 

0.01

 

 

(311

)

 

(0.01

)

 

566

 

 

0.02

 

 

(442

)

 

(0.02

)

Acquisition expense

154

 

 

0.01

 

 

345

 

 

0.01

 

 

2,772

 

 

0.09

 

 

1,390

 

 

0.05

 

Acquisition earn-out adjustments

—

 

 

—

 

 

3

 

 

—

 

 

(128

)

 

—

 

 

1,191

 

 

0.04

 

Restructuring (reversal) charge

(12

)

 

—

 

 

—

 

 

—

 

 

117

 

 

—

 

 

(87

)

 

—

 

Interest expense related to acquisition

526

 

 

0.02

 

 

—

 

 

—

 

 

3,558

 

 

0.12

 

 

—

 

 

—

 

Gain on sale of building

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(4,396

)

 

(0.15

)

Tax effect from the above adjustments (1)

(1,715

)

 

(0.06

)

 

(858

)

 

(0.03

)

 

(7,106

)

 

(0.24

)

 

(2,565

)

 

(0.09

)

Discrete tax (benefits) expense (2)

(89

)

 

—

 

 

31

 

 

—

 

 

(1,216

)

 

(0.04

)

 

(549

)

 

(0.02

)

Adjusted net income and adjusted net income per diluted share (3)

$

9,630

 

 

$

0.32

 

 

$

5,120

 

 

$

0.18

 

 

$

28,965

 

 

$

0.98

 

 

$

18,973

 

 

$

0.66

 

Diluted weighted average common shares

 

 

29,678

 

 

 

 

28,916

 

 

 

 

29,546

 

 

 

 

28,554

 

(1)

The tax effect from the above adjustments assumes an estimated effective tax rate of 20.2% for fiscal 2020 and 18% for fiscal 2019 based on adjusted net income.

(2)

For the three months ended September 30, 2020, discrete tax benefits primarily are a result of expiring statute of limitations. For the twelve months ended September 30, 2020, discrete tax benefits include excess tax benefits recognized on stock compensation, an adjustment of our state deferred tax rate due to the Opengear acquisition and expiring statute of limitations. For the three and twelve months ended September 30, 2019, discrete tax benefits primarily includes reversals of tax reserves due to the expiration of statutes of limitation.

(3)

Adjusted net income per diluted share may not add due to the use of rounded numbers.