Digi International Reports First Fiscal Quarter 2024 Results
- Record End of Quarter ARR of $108M
- Gross profit margin increase of 130 basis points
- Adjusted EBITDA of $23 million
- Cash flow from operations of $19 million
- Significant reduction in debt and inventory levels
- 64% increase in ARR for IoT Product & Services segment
- 4% increase in ARR for IoT Solutions segment
- 3% decrease in revenue to $106 million
- Net loss per diluted share of $0.08 due to the impact of the term B debt issuance cost write off
- Decrease in gross profit margin for IoT Product & Services segment
- 3% decline in revenue for IoT Product & Services segment
- 4% decrease in revenue for IoT Solutions segment
Insights
The reported revenue decrease of 3% and flat year-over-year Adjusted EBITDA reflect a challenging period for Digi International Inc. Despite the revenue decline, the company's gross profit margin improvement by 130 basis points to 57.6% indicates efficiency gains, possibly through cost management or a favorable product mix. However, the net loss per diluted share of $0.08, influenced by the term B debt issuance cost write-off, marks a significant shift from the prior year's net income per diluted share of $0.16.
The Annualized Recurring Revenue (ARR) growth of 13% surpassing quarterly revenue is a positive indicator of the company's shift towards a more predictable, subscription-based revenue model. This is particularly relevant as businesses increasingly prefer the predictability of ARR models. The company's goal to reach $200 million in ARR and adjusted EBITDA within five years sets a clear growth trajectory.
From a capital structure perspective, the retirement of the term loan and reduction in gross outstanding debt to $196 million, coupled with a significant increase in cash flow from operations to $19 million, positions the company for improved financial flexibility. The focus on deleveraging and managing inventory levels, as well as the disciplined approach to acquisitions, suggests a strategic commitment to balance growth with financial health.
Examining Digi International's performance within the Industrial Internet of Things (IIoT) market, the company's resilience amidst a reported overall market decrease is noteworthy. The segment results indicating a decline in IoT Product & Services revenue by 3% and IoT Solutions by 4% may reflect competitive pressures or market saturation in certain product lines. However, the impressive 64% increase in ARR for Console Server services and growth in OEM products within the IoT Product & Services segment, as well as the 71.6% gross margin in the IoT Solutions segment, underscore successful strategic pivots and potential market share gains in higher-margin offerings.
The company's unchanged outlook for fiscal 2024, with an expected 5% growth in ARR and Adjusted EBITDA, while projecting flat revenue, suggests a cautious but stable forecast. This stability, in a sector known for rapid change and disruption, may reassure investors of Digi's ability to navigate market fluctuations and maintain a steady course.
The financial results of Digi International Inc. can be viewed in the broader context of the macroeconomic environment, which has been characterized by supply chain challenges and variable demand across the tech sector. The company's proactive inventory management, resulting in a $13 million year-over-year reduction, reflects a strategic response to such external pressures. Additionally, the reduction in interest expense due to a lower effective interest rate and decreased debt outstanding is aligned with broader economic trends of rate fluctuations and corporate debt restructuring.
The commitment to a capital allocation strategy that includes deleveraging and potential acquisitions indicates an anticipation of future market consolidation and opportunities for strategic growth. The focus on scale and ARR in acquisitions is particularly relevant in an economic climate where scalable and recurring revenue streams are highly valued.
Revenue of
ARR Surpasses Quarterly Revenue for First Time
Cash Flow From Operations was
First Fiscal Quarter 2024 Results Compared to First Fiscal Quarter 2023 Results
-
Revenue was
$106 million 3% .
-
Gross profit margin was
57.6% , an increase of 130 basis points.
-
Net loss per diluted share was
$0.08 $0.26 $0.16
-
Adjusted net income per diluted share was
$0.48
-
Adjusted EBITDA was
$23 million
-
Annualized Recurring Revenue (ARR) was
$108 million 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
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 $196 million $163 million
-
We had
$5.7 million $6.0 million
-
Cash flow from operations was
$19 million $3 million
-
Net inventory ended the quarter at
$68 million $74 million $13 million
Segment Results
IoT Product & Services
The segment's first fiscal quarter 2024 revenue of
IoT Solutions
The segment's first fiscal quarter 2024 revenue of
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
For the second fiscal quarter, revenues are estimated to be
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
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
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,
|
|
September 30,
|
||
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 |
|
|
|
34,900 |
|
Cash and cash equivalents, end of period |
$ |
31,548 |
|
|
$ |
30,949 |
|
Non-GAAP Financial Measures
TABLE 1
Reconciliation of Net (Loss) Income to Adjusted EBITDA (In thousands) |
||||||||||||
|
Three months ended December 31, |
|||||||||||
|
2023 |
|
2022 |
|||||||||
|
|
|
% of total revenue |
|
|
|
% of total revenue |
|||||
Total revenue |
$ |
106,089 |
|
|
100.0 |
% |
|
$ |
109,306 |
|
100.0 |
% |
|
|
|
|
|
|
|
|
|||||
Net (loss) income |
$ |
(3,054 |
) |
|
|
|
$ |
5,779 |
|
|
||
Interest expense, net |
|
5,661 |
|
|
|
|
|
5,971 |
|
|
||
Debt issuance cost write off |
|
9,722 |
|
|
|
|
|
— |
|
|
||
Income tax (benefit) provision |
|
(222 |
) |
|
|
|
|
230 |
|
|
||
Depreciation and amortization |
|
8,051 |
|
|
|
|
|
8,112 |
|
|
||
Stock-based compensation expense |
|
3,106 |
|
|
|
|
|
2,868 |
|
|
||
Restructuring charge |
|
103 |
|
|
|
|
|
23 |
|
|
||
Acquisition expense |
|
(61 |
) |
|
|
|
|
381 |
|
|
||
Adjusted EBITDA |
$ |
23,306 |
|
|
22.0 |
% |
|
$ |
23,364 |
|
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 December 31, |
||||||||||||||
|
2023 |
|
2022 |
||||||||||||
Net (loss) income and net (loss) income per diluted share |
$ |
(3,054 |
) |
|
$ |
(0.08 |
) |
|
$ |
5,779 |
|
|
$ |
0.16 |
|
Amortization |
|
6,238 |
|
|
|
0.17 |
|
|
|
6,463 |
|
|
|
0.18 |
|
Stock-based compensation expense |
|
3,106 |
|
|
|
0.08 |
|
|
|
2,868 |
|
|
|
0.08 |
|
Other non-operating expense (income) |
|
26 |
|
|
|
— |
|
|
|
(17 |
) |
|
|
— |
|
Acquisition expense |
|
(61 |
) |
|
|
— |
|
|
|
381 |
|
|
|
0.01 |
|
Restructuring charge |
|
103 |
|
|
|
— |
|
|
|
23 |
|
|
|
— |
|
Interest expense, net |
|
5,661 |
|
|
|
0.15 |
|
|
|
5,971 |
|
|
|
0.16 |
|
Debt issuance cost write off |
|
9,722 |
|
|
|
0.26 |
|
|
|
— |
|
|
|
— |
|
Tax effect from the above adjustments (1) |
|
(3,913 |
) |
|
|
(0.11 |
) |
|
|
(4,869 |
) |
|
|
(0.14 |
) |
Discrete tax (benefits) expenses (2) |
|
(182 |
) |
|
|
— |
|
|
|
1,192 |
|
|
|
0.03 |
|
Adjusted net income and adjusted net income per diluted share (3) |
$ |
17,646 |
|
|
$ |
0.48 |
|
|
$ |
17,791 |
|
|
$ |
0.48 |
|
Diluted weighted average common shares |
|
|
|
36,715 |
|
|
|
|
|
36,859 |
|
||||
(1) |
The tax effect from the above adjustments assumes an estimated effective tax rate of |
(2) |
For the three and twelve months ended December 31, 2023 and 2022 discrete tax (benefits) expenses 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/20240131413042/en/
Investor Contact:
Rob Bennett
Investor Relations
Digi International
952-912-3524
Email: rob.bennett@digi.com
Source: Digi International Inc.
FAQ
What was Digi International Inc.'s revenue for the first fiscal quarter of 2024?
What was the Annualized Recurring Revenue (ARR) for Digi International Inc. at the end of the first fiscal quarter of 2024?
What was the gross profit margin for Digi International Inc. in the first fiscal quarter of 2024?
What was the Adjusted EBITDA for Digi International Inc. in the first fiscal quarter of 2024?
What was the cash flow from operations for Digi International Inc. in the first fiscal quarter of 2024?
What were the revenue changes for Digi International Inc.'s IoT Product & Services segment in the first fiscal quarter of 2024?
What were the revenue changes for Digi International Inc.'s IoT Solutions segment in the first fiscal quarter of 2024?
What are Digi International Inc.'s long term strategic goals?
