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Digi International Reports First Fiscal Quarter 2024 Results

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 ...

Business Wire

Revenue of $106M, Record End of Quarter ARR of $108M
ARR Surpasses Quarterly Revenue for First Time 
Cash Flow From Operations was $19 Million

MINNEAPOLIS: 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 first fiscal quarter ended December 31, 2023.

First Fiscal Quarter 2024 Results Compared to First Fiscal Quarter 2023 Results

  • Revenue was $106 million, a decrease of 3%.
  • Gross profit margin was 57.6%, an increase of 130 basis points.
  • Net loss per diluted share was $0.08, driven by the $0.26 impact of the term B debt issuance cost write off, compared to net income per diluted share of $0.16.
  • Adjusted net income per diluted share was $0.48, flat year over year.
  • Adjusted EBITDA was $23 million, flat year over year.
  • Annualized Recurring Revenue (ARR) was $108 million at quarter end, an increase of 13%.

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

"Double digit ARR growth propelled Digi to reach a milestone of ARR exceeding quarterly revenue for the first time," said Ron Konezny, President and Chief Executive Officer. "Lowered inventory levels combined with a reduction in debt significantly improved our balance sheet. We are committed to achieving $200 million of ARR and $200 million of adjusted EBITDA within the next five years."

Additional Financial Highlights

  • We retired the term loan existing under our prior credit facility in the first quarter of fiscal 2024, incurring a one-time expense of $10 million for the write-off of debt issuance costs. In addition, we made payments towards our new revolving credit facility, reducing our gross outstanding debt to $196 million at quarter end and debt net of cash and cash equivalents to $163 million.
  • We had $5.7 million of interest expense in the first quarter of fiscal 2024, compared to $6.0 million a year ago. The decrease was driven by reduction of our effective interest rate and decreased debt outstanding.
  • Cash flow from operations was $19 million in the first quarter of fiscal 2024, compared to $3 million a year ago, driven primarily by year over year changes in inventory.
  • Net inventory ended the quarter at $68 million, compared to $74 million at September 30, 2023. This represents a $13 million reduction from the balance a year ago, reflecting continued efforts to manage inventory levels.

Segment Results

IoT Product & Services

The segment's first fiscal quarter 2024 revenue of $82 million decreased 3% from the same period in the prior fiscal year. This decrease was driven by decreases in sales volume in Console Server and Cellular products, partially offset by growth in OEM products. ARR as of the end of the first fiscal quarter was $23 million, an increase of 64% 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 110 basis points to 53.5% of revenue for the first fiscal quarter of 2024, driven primarily by decreased volume in Console Server, partially offset by increased volume and higher margin mix in OEM. Operating income was $10 million, a decrease of 18%, primarily due to the decrease in revenue.

IoT Solutions

The segment's first fiscal quarter 2024 revenue of $24 million decreased 4% from the same period in the prior fiscal year. This decrease was a result of decreased sales of Ventus offerings, partially offset by volume growth in SmartSense. ARR as of the end of the first fiscal quarter was $85 million, an increase of 4% from the prior fiscal year primarily driven by growth in SmartSense. Increased revenue and expanding margins in SmartSense drove a 950 basis points gross margin increase to 71.6% in the first fiscal quarter of 2024. Operating income was $1.8 million, compared to an operating loss of $0.7 million a year ago.

Capital Allocation Strategy

We intend to continue to deleverage the company while managing inventory appropriately as our supply chain continues to normalize. Our inventory position remains elevated, but 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.

Second 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 for fiscal 2024 remains unchanged, with our ARR and Adjusted EBITDA growing 5% and our revenue projects to be flat year over year.

For the second fiscal quarter, revenues are estimated to be $105 million to $109 million. Adjusted EBITDA is estimated to be between $22.5 million and $24.5 million. Adjusted net income per share is anticipated to be between $0.45 and $0.49 per diluted share, assuming a weighted average diluted share count of 37.7 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.

First Fiscal Quarter 2024 Conference Call Details

As announced on January 19, 2024, Digi will discuss its first fiscal quarter results on a conference call on Thursday, February 1, 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/BI5fa5a3d6e5ca4856948123f5f6ddf85e. 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/tn9spd4c/.

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 "anticipate," "assume," "believe," "continue," "estimate," "expect," "intend," "may," "plan," "potential," "project," "should," "target," 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 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 December 31,

 

 

2023

 

 

 

2022

 

Revenue

$

106,089

 

 

$

109,306

 

Cost of sales

 

44,989

 

 

 

47,785

 

Gross profit

 

61,100

 

 

 

61,521

 

Operating expenses:

 

 

 

Sales and marketing

 

19,647

 

 

 

19,106

 

Research and development

 

14,633

 

 

 

14,094

 

General and administrative

 

14,687

 

 

 

16,358

 

Operating expenses

 

48,967

 

 

 

49,558

 

Operating income

 

12,133

 

 

 

11,963

 

Other expense, net

 

(15,409

)

 

 

(5,954

)

(Loss) income before income taxes

 

(3,276

)

 

 

6,009

 

Income tax (benefit) provision

 

(222

)

 

 

230

 

Net (loss) income

$

(3,054

)

 

$

5,779

 

 

 

 

 

Net (loss) income per common share:

 

 

 

Basic

$

(0.08

)

 

$

0.16

 

Diluted

$

(0.08

)

 

$

0.16

 

Weighted average common shares:

 

 

 

Basic

 

36,129

 

 

 

35,608

 

Diluted

 

36,129

 

 

 

36,859

 

Digi International Inc.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

 

 

December 31,
2023

 

September 30,
2023

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

31,548

 

$

31,693

Accounts receivable, net

 

61,441

 

 

55,997

Inventories

 

67,590

 

 

74,396

Other current assets

 

4,799

 

 

4,112

Total current assets

 

165,378

 

 

166,198

Non-current assets

 

663,284

 

 

669,333

Total assets

$

828,662

 

$

835,531

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Current portion of long-term debt

$

 

$

15,523

Accounts payable

 

16,679

 

 

17,148

Other current liabilities

 

53,766

 

 

53,307

Total current liabilities

 

70,445

 

 

85,978

Long-term debt

 

194,684

 

 

188,051

Other non-current liabilities

 

21,458

 

 

21,014

Non-current liabilities

 

216,142

 

 

209,065

Total liabilities

 

286,587

 

 

295,043

Total stockholders’ equity

 

542,075

 

 

540,488

Total liabilities and stockholders’ equity

$

828,662

 

$

835,531

Digi International Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

Three months ended December 31,

 

 

2023

 

 

 

2022

 

Net cash provided by operating activities

$

18,672

 

 

$

2,680

 

Net cash used in investing activities

 

(292

)

 

 

(963

)

Net cash used in financing activities

 

(20,376

)

 

 

(5,896

)

Effect of exchange rate changes on cash and cash equivalents

 

1,851

 

 

 

228

 

Net decrease in cash and cash equivalents

 

(145

)

 

 

(3,951

)

Cash and cash equivalents, beginning of period

 

31,693

 

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