DGII

Digi International Inc. (DGII)

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Digi International Inc. (DGII)

F3Q09 Earnings Call

July 23, 2009 5:00 PM ET

Executives

Subramanian Krishnan - Senior Vice President, Chief Financial Officer and Treasurer

Joseph T. Dunsmore - Chairman, President and Chief Executive Officer

Analysts

Jay M. Meier - Feltl and Company

Greg Lever - Investa Capital

Henry Schein - Wedbush Morgan

Presentation

Operator

Good day, ladies and gentlemen. And welcome to the Third Quarter 2009 Digi International Incorporated Earnings Conference Call. My name is Melanie and I will be your coordinator today. At this time all participants are in listen-only mode. We will conduct a question and answer session at the end of this conference. (Operator Instructions).

As a reminder, today's call is being recorded for replay purposes. I would now like to turn the call over to Mr. Subramanian Krishnan, Senior Vice President, Chief Financial Officer and Treasurer. Please proceed.

Subramanian Krishnan

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 website at www.digi.com.

Second, I would like to remind our listeners that some of the statements that we make in this presentation may constitute forward-looking statements. These statements reflect management's expectation about future events and operating plans and performance and speak only as of today's date.

These forward-looking-statements involve a number of risks and uncertainties. A list of the factors that cause actual results to be materially different from those expressed or implied by any of these forward-looking-statement is detailed under the heading Forward-Looking Statements in our earnings release today and under the heading Risks Factors in our 2008 annual report and the Form 10-K already on file with the SEC. We undertake no obligation to update publicly or revise these forward-looking statements for any reason.

Finally, certain of the financial information disclosed on this call, include non-GAAP measures. The information required to be disclosed about these measures, including reconciliations 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 also be accessed through the SEC filing section of our investor relation website at www.digi.com.

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

Joseph T. Dunsmore

Thank you, Krish and welcome to the call everyone. This is the 26th consecutive quarter of profitability for Digi in an environment that remains very challenging. Our results were within the revenue and profitability guidance ranges that we provided at the beginning of the quarter and exceeded the street consensus on both counts.

Revenue of 44.5 million was down 5.5% year-over-year and up 10.9% sequentially. Wireless product revenues continued their positive growth trend up 18% year-over-year. Wireless product revenues around 35% of our total revenue, up from the 28% of the third fiscal quarter of last year. Revenue of this quarter were bolstered by the large Fujitsu deal and the one-time Net +50 chip last time by sales.

Next, I will comment on the current environment, the opportunity that it presents Digi and the additional actions that were taken to capitalize on the opportunity. The economic environment and markets of Digi sales continue to behave in a recessionary mode. One positive sign I can point to that we have seen are daily bookings rate improved in June over the previous five months.

We believe that this is indicative of increase in inventory replenishment needs of our customers and this trend has continued into early July.

We expect this trend to continue and increase in the current quarter. Another trend that we continue to see is the continuing shake up in consolidation across virtually all industry sectors including the M2M space.

We, at Digi, choose to view this time period as a tremendous opportunity to improve our market position through talent asset and company acquisitions leveraging our strong financial position during this challenging time.

As I said in previous calls, there will be clear winners and losers by market sectors, you move through and eventually emerge from this market downturn. Digi is positioned with its stable balance sheet, strong operating margins with highly differentiated positioning to gain share and emerges a winner.

With this in mind, we completed the acquisition of the assets of MobiApps in June. MobiApps is the developer of wireless M2M communication technology focusing on satellite, cellular and hybrid satellite cellular solutions. The asset purchased positions Digi to satellite products and technologies that complement its wireless M2M strategy.

MobiApps has a strong technology and product position in the Orbcomm satellite ecosystem. MobiApps' India presence positions Digi to be much stronger in this targeted international growth market. MobiApps employs 53 people in India, including sales, marketing and administrative staff, as well as approximately 30 engineers with strong wireless expertise.

MobiApps employs an additional five people in Singapore and three in the U.S. This cross functional group of talented people provides a strong foundation for growth in India and South East Asia.

Now let's talk more about the strategic cultural and financial state of MobiApps. Strategically, the acquisition of MobiApps satisfies two target areas in Digi's acquisition strategy by providing leading edge, M2M satellite products and technologies and providing a strong base of operations to grow Digi's Wireless Solutions business in India and South East Asia.

Key aspects of the MobiApps strategic take would Digi include the following. Strong knowledge in M2M satellite communications, customs satellite basic we use across Digi products as needed, strengthened focus in India and South East Asia, authority to leverage the broader Digi global sales channels, especially in Europe and the Americas, a common customization and product differentiation strategic orientation, product synergies with iDigi wireless solutions and several of Digi's wireless product lines.

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