Digi International(DGII) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Unaudited Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 FY2022, detailing operations, balance sheet, cash flows, and notes on the Ventus acquisition and segment performance Condensed Consolidated Statements of Operations For Q1 FY2022, total revenue increased 15.2% to $84.3 million, with operating income of $3.8 million and net income of $1.2 million, a turnaround from prior year's loss Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three months ended Dec 31, 2021 (in thousands) | Three months ended Dec 31, 2020 (in thousands) | | :--- | :--- | :--- | | Total Revenue | $84,257 | $73,146 | | Gross Profit | $47,881 | $41,019 | | Operating Income (Loss) | $3,799 | $(146) | | Net Income (Loss) | $1,187 | $(307) | | Diluted EPS | $0.03 | $(0.01) | Condensed Consolidated Balance Sheets As of December 31, 2021, total assets significantly increased to $866.2 million due to the Ventus acquisition, with total liabilities rising to $392.2 million primarily from increased long-term debt Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 (in thousands) | Sep 30, 2021 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $47,188 | $152,432 | | Goodwill | $342,498 | $225,522 | | Intangible assets, net | $322,794 | $118,029 | | Total Assets | $866,230 | $619,531 | | Long-term debt | $275,340 | $45,799 | | Total Liabilities | $392,198 | $147,014 | | Total Stockholders' Equity | $474,032 | $472,517 | Condensed Consolidated Statements of Cash Flows For Q1 FY2022, net cash used in operations was $9.9 million, investing activities used $348.0 million for the Ventus acquisition, and financing provided $252.7 million, leading to a $105.2 million net cash decrease Cash Flow Summary (in thousands) | Activity | Three months ended Dec 31, 2021 (in thousands) | Three months ended Dec 31, 2020 (in thousands) | | :--- | :--- | :--- | | Net cash (used for) provided by operating activities | $(9,885) | $8,312 | | Net cash used in investing activities | $(348,047) | $(777) | | Net cash provided by (used for) financing activities | $252,724 | $(12,793) | | Net decrease in cash and cash equivalents | $(105,244) | $(4,866) | Notes to Condensed Consolidated Financial Statements These notes detail the Ventus acquisition for approximately $350 million, financed by a new term loan, and highlight strong revenue growth in IoT Solutions driven by the acquisition, alongside other financial disclosures - On November 1, 2021, the company acquired Ventus Networks, LLC for approximately $350 million in cash, funded by cash on hand and a new $350 million credit facility[24] - The preliminary purchase price allocation for Ventus resulted in $116.9 million of goodwill and $211.0 million of identifiable intangible assets, primarily customer relationships[27] - The company entered into a new credit agreement providing a $350 million term loan and a $35 million revolving credit facility to finance the Ventus acquisition and for general corporate purposes[43] Segment Revenue (in thousands) | Segment | Q1 2022 Revenue (in thousands) | Q1 2021 Revenue (in thousands) | | :--- | :--- | :--- | | IoT Products & Services | $65,744 | $61,780 | | IoT Solutions | $18,513 | $11,366 | | Total Revenue | $84,257 | $73,146 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 FY2022 financial results, highlighting a 15% revenue increase to $84.3 million driven by IoT Solutions and the Ventus acquisition, alongside changes in operating expenses and Adjusted EBITDA growth to $17.0 million - Consolidated revenue for Q1 fiscal 2022 was $84.3 million, a 15% increase over the prior year, with operating income of $3.8 million compared to a loss of $0.1 million[110] - The IoT Solutions segment revenue grew 62.9% year-over-year, largely due to the acquisition of Ventus in November 2021[118] - The IoT Products & Services segment gross profit margin decreased by 349 basis points due to product mix and increased supply chain costs[121] Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | Q1 2022 (in thousands) | Q1 2021 (in thousands) | | :--- | :--- | :--- | | Net Income (Loss) | $1,187 | $(307) | | Adjustments | $15,783 | $13,284 | | Adjusted EBITDA | $16,970 | $12,977 | | Adjusted EBITDA Margin | 20.1% | 17.7% | Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate fluctuations, notably from its $300.0 million variable-rate term loan, and foreign currency translation risk, with a 25 basis point rate change impacting annual interest expense by $0.8 million - The company has significant interest rate risk due to its $300.0 million variable-rate Term Loan; a 25 basis point change in interest rates would affect annualized interest expense by $0.8 million[155] - Foreign currency risk is primarily related to the translation of foreign subsidiary results into U.S. Dollars; a 10% change in key exchange rates would impact stockholders' equity by 0.8%[157] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[159] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[160] PART II. OTHER INFORMATION Legal Proceedings The company is subject to various claims and litigation in the normal course of business, with further details provided in Note 13 of the financial statements - In the normal course of business, the company is subject to various claims and litigation with third parties[80][162] Risk Factors This section refers readers to the comprehensive risk factors disclosed in the Annual Report on Form 10-K, as no new information is presented here Unregistered Sales of Equity Securities and Use of Proceeds During Q1 FY2022, 605,847 shares were repurchased at $22.46 per share, primarily from employee forfeitures for tax withholding, not a public buyback program - A total of 605,847 shares were repurchased during the quarter at a weighted average price of $22.46 per share[163] - All repurchased shares were forfeited by employees to satisfy tax withholding obligations and were not part of a publicly announced repurchase program[163] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[164] Mine Safety Disclosures The company reported no mine safety disclosures - None[165] Other Information The company reported no other information - None[165] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate documents, credit agreements for the Ventus acquisition, incentive plans, and officer certifications