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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________
FORM
8-K
________________________________________
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
May 1, 2024
Date of report (date of earliest event reported)
_________________________________________
Digi International Inc
.
(Exact name of registrant as specified in its charter)
_________________________________________
Delaware 1-34033 41-1532464
(State of Incorporation) (Commission file number) (I.R.S. Employer Identification No.)
9350 Excelsior Blvd. Suite 700
Hopkins Minnesota 55343
(Address of principal executive offices) (Zip Code)
(
952
)
912-3444
(Registrant's telephone number, including area code)
________________________________________
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of
the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of each exchange on which registered
Common Stock, par value $.01 per share DGII The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant is an emerging growth company as
defined in as defined in Rule 405 of the Securities Act of 1933 ((s) 230.405
of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 ((s)
240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a)
of the Exchange Act.
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Item 2.02 Results of Operations and Financial Condition
.
On May 1, 2024, Digi International Inc. ("Digi") issued a press release
regarding Digi's financial results for its second fiscal quarter ended March
31, 2024. A copy of Digi's press release is attached hereto as Exhibit 99.1.
The information contained in this Current Report shall not be deemed "filed"
for purposes of Section 18 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or incorporated by reference in any filing under the
Securities Act of 1933, as amended, or the Exchange Act, except as shall be
expressly set forth by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits
.
No. Exhibit Manner of Filing
99.1 Press Release dated May 1, 2024, announcing financial Furnished Electronically
results for the second fiscal quarter ended March 31, 2024
104 The cover page from the Current Report Filed Electronically
on Form 8-K formatted in Inline XBRL
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
Date: May 1, 2024
DIGI INTERNATIONAL INC.
By: /s/ James J. Loch
James J. Loch
Senior Vice President, Chief Financial Officer and Treasurer
Exhibit 99.1
Digi International Reports Second Fiscal Quarter 2024 Results
Revenue of $108M, Record End of Quarter ARR of $110M
Cash Flow From Operations was $13 Million
(Minneapolis, MN, May 1, 2024)
- Digi International
(R)
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.
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Digi International Reports Second Fiscal Quarter 2024 Results
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/
.
2
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Digi International Reports Second Fiscal Quarter 2024 Results
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
.
3
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Digi International Reports Second Fiscal Quarter 2024 Results
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.
4
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Digi International Reports Second Fiscal Quarter 2024 Results
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.
5
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Digi International Reports Second Fiscal Quarter 2024 Results
Investor Contact:
Rob Bennett
Investor Relations
Digi International
952-912-3524
Email: rob.bennett@digi.com
6
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Digi International Reports Second Fiscal Quarter 2024 Results
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
7
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Digi International Reports Second Fiscal Quarter 2024 Results
Digi International Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
March 31, September 30,
2024 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
8
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Digi International Reports Second Fiscal Quarter 2024 Results
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 % of % of % of
total total total total
revenue revenue revenue revenue
Total $ 107,702 100.0 % $ 111,144 100.0 % $ 213,791 100.0 % $ 220,450 100.0 %
revenue
Net $ 3,994 $ 5,899 $ 940 $ 11,678
income
Interest 3,697 6,393 9,358 12,364
expense, net
Debt issuance - - 9,722 -
cost write off
Income tax provision 428 (70) 206 160
(benefit)
Depreciation and 8,066 7,846 16,117 15,958
amortization
Stock-based 3,473 3,465 6,579 6,333
compensation expense
Litigation 6,253 - 6,253 -
accrual
Gain on (2,129) - (2,129) -
asset sale
Restructuring 43 23 146 46
charge
Acquisition - 307 (61) 688
expense
Adjusted $ 23,825 22.1 % $ 23,863 21.5 % $ 47,131 22.0 % $ 47,227 21.4 %
EBITDA
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 $ 3,994 $ 0.11 $ 5,899 $ 0.16 $ 940 $ 0.03 $ 11,678 $ 0.32
income per diluted share
Amortization 6,097 0.16 6,251 0.17 12,335 0.33 12,714 0.35
Stock-based 3,473 0.09 3,465 0.09 6,579 0.18 6,333 0.17
compensation expense
Other non-operating 32 - (47) - 58 - (64) -
expense (income)
Acquisition - - 307 0.01 (61) - 688 0.02
expense
Litigation 6,253 0.17 - - 6,253 0.17 - -
accrual
Gain on (2,129) (0.06) - - (2,129) (0.06) - -
asset sale
Restructuring 43 - 23 - 146 - 46 -
charge
Interest 3,697 0.10 6,393 0.17 9,358 0.25 12,364 0.34
expense, net
Debt issuance - - - - 9,722 0.26 - -
cost write off
Tax effect from the (3,593) (0.10) (4,626) (0.12) (7,506) (0.20) (9,495) (0.27)
above adjustments
(1)
Discrete tax 81 - 557 0.02 (101) - 1,749 0.05
expenses (benefits)
(2)
Adjusted net income and adjusted $ 17,948 $ 0.49 $ 18,222 $ 0.50 $ 35,594 $ 0.97 $ 36,013 $ 0.98
net income per diluted share
(3)
Diluted weighted 36,974 36,730 36,855 36,821
average common shares
(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.
9
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