Digi International Inc. reported unaudited consolidated earnings results for the first quarter ended December 31, 2013. The company reported revenue of $47.3 million for the first fiscal quarter of 2014, compared with $47.0 million for the first fiscal quarter of 2013. Net income was $0.7 million, or $0.03 per diluted share, compared to $1.2 million, or $0.05 per diluted share, in the prior year comparable quarter. Revenue for the first fiscal quarter of 2013 included only two months of revenue from CRM services of Etherios division, which was acquired on October 31, 2012. Net income in the first fiscal quarter of 2014 included a tax benefit of $0.2 million, or $0.01 per diluted share, resulting from the reversal of tax reserves for the expiration of the statutes of limitation for various U.S. jurisdictions. Net income in the first fiscal quarter of 2013 included a tax benefit of $0.1 million, or $0.01 per diluted share, resulting from the reversal of tax reserves for the expiration of the statutes of limitation for various U.S. and foreign jurisdictions. Revenue and gross margin performance were less than anticipated in both products and services. Product revenue was lower than anticipated primarily due to delays in purchases from certain customers that were expected during the quarter. Service revenue, while posting solid year-over-year growth compared to the first fiscal quarter of 2013, was lower than anticipated primarily due to work interruptions in two customer projects. Earnings before interest, taxes, depreciation and amortization were $2.6 million compared to $3.7 million in the first fiscal quarter of 2013. Operating income was $628,000 compared to $1,672,000 in the first fiscal quarter of 2013. Income before income taxes was $764,000 compared to $1,848,000 in the first fiscal quarter of 2013. Net cash used in operating activities was $337,000 compared to net cash provided by operating activities of $2,288,000 in the first fiscal quarter of 2013. Purchase of property, equipment, improvements and certain other intangible assets were $975,000 compared to $1,427,000 in the first fiscal quarter of 2013.

For the second quarter of fiscal 2014, the company projects revenue in a range of $45 million to $48 million with a most likely revenue of approximately $46 million. The company projects net income per diluted share to be in a range of $0.00 to $0.03 for the second fiscal quarter of 2014.

The company previously have projected revenue for the full year of fiscal 2014 in a range of $200 million to $214 million. In light of the first fiscal quarter results and guidance for the second fiscal quarter, the company expects revenue for full year to be in a range of $195 million to $205 million with a most likely annual revenue of approximately $198 million. The lowered guidance is driven by a reduction in projected revenue from certain of the largest product customers. Additionally, while the company expects services revenue to deliver solid year-over-year growth, the company now expects this growth to be lower than previously projected. Gross margin rates will be lower than those incorporated into previous guidance. As a result of analyzing the gross profit impact from reduction in product revenue and changes in customer product mix, the company expects lower gross profit rates on products. Regarding services revenue, the company previously suggested services margin should be in the range of 40% to 50%. The company expects that it will hit the low end of that range in the second half of the year. Combining these factors, the company expects gross margins for the company for the year to be in a range of 50% to 50.5%. The company had previously projected earnings to be in a range of $0.30 to $0.44. As a result of the revenue and gross margin reductions, the company now expects net income per diluted share to be in the range of $0.19 to $0.31. The company estimates that effective tax rate for the full year will be in a range of 36% to 37%.