DGII

Digi International Inc. (DGII)

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Digi International Inc. (DGII)

F2Q10 (Qtr End 03/31/10) Earnings Call Transcript

April 22, 2009 5:00 pm ET

Executives

Subramanian Krishnan – SVP, CFO and Treasurer

Joe Dunsmore – Chairman, President and CEO

Analysts

Tavis McCourt – Morgan Keegan

Jay Meier – Feltl & Company

Anthony Newley

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the second quarter 2010 DiGi International Incorporated earnings conference call. My name is Amethy, and I’ll be coordinator for today. At this time, all participants are on a listen-only mode. We will facilitate a question-and-session towards the end of today’s conference. (Operator Instructions)

I’ll now turn the presentation over to your host for today’s conference, Mr. Subramanian Krishnan, Senior Vice President and CFO of DiGi International. Please proceed, sir.

Subramanian Krishnan

Thank you. Good afternoon. 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 financial release section of our Investor Relations 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 risk and uncertainties. A list of factors that could 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 2009 annual report and Form 10-K 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 in the 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 be accessed through the SEC filing section of our Investor Relations website at www.digi.com.

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

Joe Dunsmore

Thank you, Krish, and welcome to the call everyone. I am very pleased with our results for the quarter. This is the 29th consecutive quarter of profitability for DiGi in an environment that we believe has stabilized and is returning to growth.

We exceeded the strict consensus for revenue and met the consensus profitability target with results within our guidance ranges. Revenue for the quarter of $45.1 million was up 12.5%, compared to the same quarter in the prior year and 4.9% sequentially.

Net income for the quarter of $1.7 million was up 136% compared to the same quarter in the prior year, and 40.6% sequentially. EBITDA for the quarter was up 50.7% compared to the same quarter of the prior year, and 15.9% sequentially.

All of these trends are positive and indicative of an upturn in the business and a stabilization of the external environment. A key indicator that continues to be very positive is the increase in bookings rate that we again saw in the quarter. Q1 was the highest bookings quarter at DiGi for at least this far [ph] back as we have comparison data, which is eight years. And Q2 exceeded Q1 by a slight margin.

Wireless product revenue for fiscal Q2 increased 12.9% compared to the same quarter in the prior year and was 35% of our total revenue. Normalizing for the $3.3 million Fujitsu order fiscal Q2, ’09, our wireless revenues were up over 40%.

As a reminder, in last quarter’s earning call, I closed out the discussions of our five operating principles for 2009 in execution against our commitments within those principles.

It is that execution, which included continued investment in wireless solutions that has put us in this strong position to grow in 2010. 2009 have accelerated the pivot of the organization to focus on providing wireless solutions to our customers, where is the iDigi platform, iDigi Energy and other iDigi offerings to accelerate this initiative. And as a result, we saw high growth of our wireless solutions.

From the first half of 2010, we are seeing the benefits of our investments in wireless solutions. Wireless products are 35% of our revenue base today and we expect wireless to become over 60% of our revenue base within the next three to five years.

As I mentioned in the Q1 call, which appears repeating, we continue to increase our internal investment focus on markets and applications that will drive this growth. Fleet management, medical and tank monitoring and smart grid our key areas where we’re focused.

We continue to make good progress in our fleet management focus this quarter. The ConnectPort X5 telematics gateway and its following products have put us in the strong position to make good progress with our relationships with Zeta over the past three months, and we’re on tract to begin to ramp revenue in the second half of 2010.

Our custom development of our products for a large customer in the heavy equipment arena began its ramp in Q2 and we have a robust pipeline of other opportunities that we are pursuing.

The medical vertical continues to yield good traction with our major customers, and that’s like connectivity and embedded device connectivity applications. We continue to invest in businesses development and have a strong pipeline of sales opportunities that will provide underpinnings for growth.

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