Digi International Inc. (DGII)

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Digi International Inc. (DGII)

F4Q08 (Qtr End 09/30/08) Earnings Call Transcript

October 30, 2008, 5:00 pm ET


Kris Krishnan – SVP, CFO and Treasurer

Joseph Dunsmore – Chairman, President, CEO


Ragu Madabushi [ph] – Collins Stewart LLC

Jay Meier – Feltl & Company

Michael Ciarmoli – Boenning & Scattergood, Inc.

Charlie Anderson – Dougherty & Company



Good day, ladies and gentlemen, and welcome to the Digi International Fourth Quarter and Year-End 2008 Earnings Conference Call. My name is Nikita and I will be your operator for today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of today's presentation. (Operator instructions).

I will now turn the presentation over to your host for today, Mr. Kris Krishnan, Senior Vice President and Chief Financial Officer. You may begin.

Kris Krishnan

Thank you. Good afternoon and thank you for joining us today. Before we start, I need to go over a few details. First, if you do not have a copy of our earnings release, you may access it through the press release section of the Digi Web site at www.digi.com.

Second, I would like to remind our listeners that our remarks may contain forward-looking statements that involve risks and uncertainties. These forward-looking statements are not a guarantee of the Company's future performance. The important factors that may cause actual results to differ materially include, but are not limited to the following

Rapid changes in technologies that may displace; products sold by Digi; the business environment in which Digi operates; Digi's reliance on distributors; declining prices of networking products and changes in the Company's level of profitability; the current uncertainty in the global economic conditions, which could negatively affect product demand; the recent financial crisis affecting the banking system and the financial market, which could negatively impact the financial solvency of our customers and suppliers; the extreme volatility and fixed income credit and equity market, which could result in actual amounts realized on our debt securities and other investments that defer significantly from current market values; the ability to achieve the anticipated benefits and synergies associated with the Sarian and the Spectrum acquisitions and the risks that the combined businesses will not be integrated successfully.

Finally, certain of the financial information disclosed on this call includes non-GAAP measures. The information required to be disclosed about these measures, include reconciliation to the most comparable GAAP measures are included in the earnings release or in the Form 8-K that we filed before this call. The Form 8-K can be accessed through the SEC filing section of our investor relations Web site at www.digi.com.

Now I would like to introduce Mr. Joe Dunsmore, Chairman, President and CEO.

Joseph Dunsmore

Thank you, Kris. Welcome to the call everyone. I will be brief since Kris will be covering a lot of ground summarizing our quarterly and annual financial performance. I'm very satisfied with our results and prospects for the business in what continues to be an increasingly challenging global, financial, and economic climate.

For the quarter, we exceeded the Street consensus revenue estimates. More importantly, we exceeded the Street earnings consensus by 40%. We also beat the Street earnings in revenue consensus for the fiscal year. Digi is very strong financially, with a stellar balance sheet and strong operating margins.

We continue to gain momentum with a leadership position in wireless M2M market and expect to gain leverage and take share going forward regardless of the broader economic climate. Additionally, we will today provide fiscal 2009 EPS guidance that is higher than the current Street consensus.

Fiscal 2008 was a year of significant accomplishment for the Digi team and I will highlight three of the most important that will positively impact our business momentum for fiscal 2009 and beyond.

Digi acquired Spectrum Design Solutions, a leading wireless design services firm. Adding wireless design services to Digi's drop-in networking offering enables Digi to provide customization services and bring wireless customers to market faster.

Digi acquired Sarian Systems, a privately held UK-based corporation and a leader in the European wireless router market. The acquisition extended Digi's wireless portfolio and solidified the Company's position as a global leader in commercial grade cellular routers.

Most importantly, FY '08 marked a year of accelerating innovation for Digi, with 30 new product launches as compared to 13 in FY '07, and 19 of the launches were wireless related.

Next, I'd like to talk more about the financial strength, performance, and market momentum that Digi has established over the past several quarters. This is very important to understand because this will enable Digi to work aggressively to take market share against weakened competitors in this more challenging economic environment. Here are some key points.

Early in the fiscal year, Forbes named Digi as one of "America's 200 Best Small Companies." Digi was selected from a universe of about 2,400 companies with criteria that included revenue, share price, return on equity, sustained sales, net profit growth over 12-month and 5-year periods. This objectively reinforces the sustained market of momentum in financial performance that Digi has established over a 5-year period.

Digi has a stellar balance sheet, with over $75 million in cash and marketable securities and only $5.7 million in debt, extremely important during times of economic instability. We have reported positive net income for 23 consecutive quarters. We have consistently driven positive cash flow from operating activities. Net cash from operating activities was $24.1 million in 2008.

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