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| DGII > SEC Filings for DGII > Form 10-Q on 1-Feb-2013 | All Recent SEC Filings |
1-Feb-2013
Quarterly Report
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Form 10-Q contains certain statements that are "forward-looking statements"
as that term is defined under the Private Securities Litigation Reform Act of
1995, and within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
The words "assume," "believe," "anticipate," "intend," "estimate," "target,"
"may," "will," "expect," "plan," "project," "should," or "continue" or the
negative thereof or other expressions, which are predictions of or indicate
future events and trends and which do not relate to historical matters, identify
forward-looking statements. Among other items, these statements relate to
expectations of the business environment in which we operate, projections of
future performance, perceived marketplace opportunities and statements regarding
our mission and vision. Such statements are not guarantees of future performance
and involve certain risks, uncertainties and assumptions, including risks
related to the highly competitive market in which our company operates, rapid
changes in technologies that may displace products sold by us, declining prices
of networking products, our reliance on distributors and other third parties to
sell our products, delays in product development efforts, uncertainty in user
acceptance of our products, the ongoing shift of our sales efforts to focus more
on the delivery of broader based solutions which can be a more complex sales
process, has not been a historical sales focus of our company and can involve
longer sales cycles than the sale of our legacy hardware products, the ability
to integrate our products and services with those of other parties in a
commercially accepted manner, potential liabilities that can arise if any of our
products have design or manufacturing defects, our ability to defend or settle
satisfactorily any litigation, uncertainty in global economic conditions and
economic conditions within particular regions of the world which could
negatively affect product demand and the financial solvency of customers and
suppliers, the impact of natural disasters and other events beyond our control
that negatively impact our supply chain and customers, the ability to achieve
the anticipated benefits and synergies associated with acquisitions, such as our
recent acquisition of Etherios, Inc., and changes in our level of revenue or
profitability which can fluctuate for many reasons beyond our control. These and
other risks, uncertainties and assumptions identified from time to time in our
filings with the United States Securities and Exchange Commission, including
without limitation, our annual report on Form 10-K for the year ended
September 30, 2012 and subsequent quarterly reports on Form 10-Q and other
filings, could cause the company's future results to differ materially from
those expressed in any forward-looking statements made by us or on our behalf.
Many of such factors are beyond our ability to control or predict. These
forward-looking statements speak only as of the date for which they are made. We
disclaim any intent or obligation to update any forward-looking statements,
whether as a result of new information, future events or otherwise.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of our condensed consolidated financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, the disclosure of contingent assets
and liabilities and the values of purchased assets and assumed liabilities in
acquisitions. We base our estimates on historical experience and various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
A description of our critical accounting policies and estimates was provided in
the Management's Discussion and Analysis of Financial Condition and Results of
Operations section of our Annual Report on Form 10-K for the year ended
September 30, 2012. There have been no material changes to our critical
accounting policies as disclosed in that report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OVERVIEW
We are a leading provider of machine to machine (M2M) networking products and
solutions that enable the connection, monitoring and control of local or remote
physical assets by electronic means. These networking products and solutions can
connect communication hardware to a physical asset and convey information about
the asset's status and performance, which can be sent to a computer system and
used to improve or automate one or more processes. Increasingly these products
and solutions are being deployed via wireless networks as wireless
communications become more and more prevalent. Our products are deployed by a
wide range of businesses and institutions. We compete for customers on the basis
of existing and planned product features, service and software application
capabilities, company reputation, brand recognition, technical support,
relationships with partners, quality and reliability, product development
capabilities, price and availability.
Net sales was $47.0 million for the first quarter of fiscal 2013, compared to
$46.7 million for the first quarter of fiscal 2012, an increase of $0.3 million.
First fiscal quarter 2013 results included the operations of Etherios beginning
November 1, 2013. Etherios recorded net sales of $1.4 million in North America
during the first quarter of fiscal 2013. We believe that the acquisition of
Etherios will further enhances our solutions offerings and provides another
channel for net sales of our networking products. Our net sales were impacted
negatively in the first fiscal quarter of 2013 due to a lower than anticipated
closure rate of large new customer projects, particularly in North America.
North American net sales decreased by $0.8 million, or 2.7%, and international
net sales increased by $1.1 million, or 5.8%, in the first quarter of fiscal
2013 compared to the comparable quarter a year ago. In the first quarter of
fiscal 2012, we announced that the flooding in Thailand had impacted the
operations of our contract manufacturer located near Bangkok, Thailand,
resulting in a reduction of our net sales by approximately $3.0 million.
Revenue from growth products and services in the first quarter of fiscal 2013
was $25.8 million, or 55.0% of net sales, compared to $23.8 million, or 51.0% of
net sales, in the first quarter of fiscal 2012, an increase of $2.0 million, or
8.6 %. Revenue from mature products was $21.2 million, or 45.0% of net sales, in
the first quarter of fiscal 2013 compared to $22.9 million, or 49.0% of net
sales, in the first quarter of fiscal 2012, a decrease of $1.7 million, or 7.1%.
Our growth products portfolio includes Etherios' consulting services, all
wireless products, as well as the ARM-based embedded module product line, which
leverages the iDigi® platform with both wired and wireless connectivity. We
believe that our serial servers, Rabbit-branded modules, chips and USB products
are mature products and we expect that net sales of these products will continue
to decrease in the future.
We implemented cost containment measures in the first quarter of fiscal 2013 to
achieve targeted expense levels. Total operating expenses were lower by $0.8
million in the first quarter of fiscal 2013 compared to the comparable quarter a
year ago. First quarter of fiscal 2013 expenses included $0.8 million of
expenses that were contributed by Etherios.
Net income was $1.2 million in the first quarter of fiscal 2013, or $0.05 per
diluted share, compared to $0.7 million, or $0.03 per diluted share, in the
first quarter of fiscal 2012. Etherios impacted earnings per diluted share by
less than one-half of a cent for the first quarter of fiscal 2013. Net income in
the first quarter of fiscal 2013 included a tax benefit of $0.1 million, or
$0.01 per diluted share, resulting from the reversal of tax reserves for closure
of various jurisdictions' tax matters. Net income in the first quarter of fiscal
2012 included a restructuring charge of $0.2 million, net of taxes, or $0.01 per
diluted share, offset by a tax benefit of $0.1 per diluted share, resulting from
the reversal of tax reserves for closure of various jurisdictions' tax matters,
and gain on the sale of an investment of $0.1 million, net of taxes, with no
earnings per diluted share impact. We estimate that the flooding in Thailand had
an approximately $0.05 impact on earnings per diluted share in the first quarter
of fiscal 2012.
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