DGII - Earnings call transcript Q2 2018

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Operator

Good afternoon, ladies and gentlemen, and welcome to the Digi International Second Fiscal Quarter 2018 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference Mr. Mike Goergen, Chief Financial Officer.

Mike Goergen

Thank you, Sonya. for today. thank and afternoon, joining us Good

highlights Joining President his and today's fiscal call quarter with thoughts our performance Konezny, our is Ron the follow CEO. will our of and me our second business, financial for on on I of Ron XXXX. will provide

will your earnings the after release until prepared p.m. X:XX our Following take Eastern. remarks, shortly market we questions We our closed. issued

the a have obtain you of Releases earnings release, our not may Relations through If you at a copy Investor our copy Financial of section www.digi.com. do website

of only forward-looking this future reflected subject about statements forward-looking believe statements of undertake We as these statements Some to to the We the are are expectations expectations speak that our operating we today's publicly date. and These during and or obligation uncertainties. revise reflect call for no make financial significant performance, in update reason. and risk any we considered and expectations assurance reports XXXX statements are file correct. to forward-looking our section our with prove the the information. to release and on headings forward-looking in for statements XX-K, in Please Form under such reasonable, SEC of Factors Risk be refer today, statement Report give subsequent no our additional forward-looking earnings will our Annual of and or but the any on

accessed X-K Relations reconciliations filings earnings Investor be measures. financial that Finally, Form release including this most required the an information The through exhibit non-GAAP earnings our section be the GAAP of disclosed release. to in certain to about measures, includes is the The information measures, to other call are SEC can comparable website. disclosed these on a also included

to to the turn Ron. Now, over like I'd call

Ron Konezny

and fiscal has and results and Mike, everyone comments Thank second pleased Digi today. you, to had on I'm to an our exciting prospects. my joined our share quarter, that call welcome

our we revenue Digi’s Digi And performance the Concepts, for exceeding fiscal second prior. business our in have the second the trend throughout Products quarter commitment are the Products the demonstrate both quarter and our segment. in for Our and positive newly year. adjusted fiscal we Services, established Particularly to expectations of EBITDA to sequential encouraging, Solutions quarter, XXXX extended improvement Services and had and included acquired IoT Accelerated whose IoT strong results IoT begun

our expect we improve Lastly, to our quarter. in fiscal third performance

and versus with and transitioned our interface within our one more RF, segments, we business, the reminder, commentary industry My around structure business with IoT IoT to and customers will and management previous product two proposition, our customers be away centered effectively a business just family. segments. we Digi like our In Services nomenclature. As to Cellular aligns Products from two exposed portfolio our reporting Solutions. categories our This it as and value better product moving facilitates are leverage

Our IoT and complementary products support Products and services. software Services business and provide OEM and enterprise

President of Our a objective include, joined of Digi Bowen, headquarters. our sales EMEA initiative our Munich few stronger finalizing and EMEA growth the with our quarter, to updates sales, of direct force. Concepts Vice Accelerated strengthened business key the profitable A number addition sustainable, as family. Chris one, last establishing has

our contributions have significant our We large deals. bookings we initiatives, to enterprise believe over win with both a from We on opportunity from account value. increase are top and rate in in key seeing results $XXX,XXX and opportunities significant improve opportunities

our we programs. channel Secondly, improve

few EMEA North management partners consolidated of our and intimacy. provide and in to a We improved have relationship both channel America

provide back which evidence increase, sales channel to our this seen approach. have We

introduction to improved NPI. new Third, our product This remains improve. one opportunities or of top

streamlined of activities. definition, achieve We're and expect the operations. from products all introduced NPI including launch process, collaboration development product identification, We’re to being and new Fourth, families. results in driving our strong about alignment optimistic surrounding the we our

transition we have to expect less X,XXX which year. place manufacturing to contract manufacturing the to the announced our take at our to We be partners, the over quarters. next in our we than fiscal our SKUs end two We expect of than X,XXX before of and less operations reduced Minnesota

advance COM to way. our continue the We of implementation the and solution, ELP common along processes one improving while

acquired IoT to well contributed Our joint our and out Accelerated The and cultural and Digi we’ll digit evolution. model our training begin for to margins. integrated to together. results, Accelerated Products worked products Digi’s and conducted have X% to and annually, Accelerated teams has double partners. financial is and EBITDA rolling while We’ve materially Services XX% grow both achieving January was in channel

a technology fragmented teamwork and focused penetration. competition best strong have low we a strong collective The and growth. and technologies. our R&D product has and market go-to-market. plans There grow is with business in Solutions roadmap, recurring management to addition, joint joint subscriber between to $X.X In synergies with a and significant to best common are addressable practices billion created IoT believe We the product our teams, has that business on revenue position leadership leverage

the Our the significant and X,XXX continue approximately signing year. talented facilitated and enterprise growth technology customers throughout some team will that of subscribers added ensures our

the industry alerting cost handling, condition surrounding the sensitive distribution the conditions analyzing we effective launched and better mission brand, SmartSense role and and and describes embodies First, of rallies the business automating, leadership behind core flag. tests our storage one goods. which SmartSense and our safe in

we with sites. our subscriber of Second, XX,XXX exited a quarter second fiscal almost base

existing marked health expand will we implement rates Our transportation. new both in wins and subscriber two customers, further large and by as

Our in from increase month recurring calculated quarter, XX% figure. exceeds the the now annualized a representing quarter’s $XX revenue last last million, is which of revenue by annualizing the recurring

set the amongst to product breed starting of optimize onsite best is technology in We a with that path four defined a stacks, acquisitions. have the consolidated

clear consolidate mobile unlocking strategies. Our next is and to challenge go-to-market the and applications, significant productivity host

million three digit years, growth. million growth by revenue Solutions year. sequential our five to expect in $XXX can strong fiscal iterate the business throughout we double We to reiterate next we We confidence IoT the fueled the - to experience over that grow $XX to

As of current our with seen announcement have fiscal transitioning new CFO quarter. our our Mike after earlier is today, Goergen Digi you opportunity into a may outside

Mike’s him and Digi miss I for the to process transforming and our Chief Mike his thank We new today. him wish talents next will the Officer. personally we success in started past three want worked company it and we the together, to exciting role. into already leadership, years congratulate We’ve is secure Financial

quarter Mike and expectations Mike? turn detail I fiscal and over in full to our XXXX on our more Now will fiscal for XXXX periods. second the the quarter it third fiscal performance year of for

Mike Goergen

Ron. Thanks,

team. the a we allows do set company here that return itself to to for is It’s in great a Ron’s decision been for three to tough out the local many comments. a and and of me and over company by to presented years executed on First, the We’ve I appreciate position obviously capitalize. the A side great environment. leave XX. initiatives to Digi I’ve opportunity private

the and results guidance attractive business and on profitability. Our again is with supports scale, product leverage firm ground,

poised part everyone Digi. of great I transition. be expect else our I'd a a balance the orderly a business recurring hands. of predicated ROI for is XXX% fuel and to leave strong in to team with with to delivering I model an on be on and here Digi Ron think for like and focused revenue. allowing me quarter Solutions the growth, be to We've built

fiscal the are to we well more exciting as how of happy progressing. as performance, is QX the our turning balance fiscal financial with So news, year

our going on each before quarter are about continued We in a I'm talking both for guidance. operating our track highlights and segment on momentum few segments. touch to for the

is a with transition revenue topline existing adjusted that the over Eden year. eliminated consolidated quarter, quarter. many to and in we rationalization, phased Prairie, on facility impacted. Along exceeded a upper to and transition acquisitions, manufacturing year-long guidance will and do Our transfer our range result, business end quarter business the fiscal announced EBITDA, better. XX the of Subsequent manufacturing the a things negatively a positions initiative more we XX% in Minnesota our grew Unfortunately, both Eden from of organic improved of SKU to for as the Up to Prairie focus manufacturing be two of than will a result majority plan employees will partners. the approach. be a both of year efficiency, fewer The

enterprise you’ll total approximately And two IoT $X.XX and quarters $X This or acquisition We manufacturing Accelerated recorded savings provider intangible model accounting to expected earnings discussion into XXXX, backup more is stock will per finally, result million adding will insight during assets of XX, fiscal the Products amortization services and release, we over we segment. annualized LTE within additional fiscal approximately our primary notice provide Tampa our XXXX. of of reported is started amortized Services IoT that to charges share to incur cellular million. and networking to based craft grade fourth January purchased third $XX $XXX,XXX $X be of equipment $XXX,XXX IoT to The resulted segments, seven new Solutions. in purchase outstanding in total diluted outsourced our million will On in restructuring The be applications. expense for of five initial approximately years, secure Concepts, connectivity the and quarterly of fiscal and between Products our that all a of for XXXX.

comparison on We purposes IR will for to information post our section website. historical our

fiscal revenue, results. and million our products, $XX.X of compared I’ll services consolidated We in guidance million Fiscal $XX We revenue year over growth year second to to million. million year revenue quarter QX a speak $XX exceeded Now $XX.X of range generated our solutions. enjoyed ago. our in to total

acquisitions. decreased comparable relatively Asia X.X% million decrease X.X% year inventory Geographically, Temps and increased In in QX to $XX SMART revenues Latin $XX Combined revenue North and by prior resulting with versus dropping quarter. incremental largely with addition, remained in America TempAlert, channel a XX.X% showed revenue the our of year. America momentum, in XXXX, fiscal year over from Accelerated, our POS from fiscal revenue fiscal by EMEA from QX. flat, million in QX

by increased Our higher the compared performance year expense year ago quarter quarter, to profit Gross overall to in increased due the hardware partially an expenses ago product in gross gross to strong XXXX. gross XXXX margin quarter. QX the related margins, margin in increase fiscal XX% to Operating increased increased and by and Accelerated, to IoT fiscal which primarily compared XX.X%, versus XX.X%, our in amortization offset from has QX Solutions acquisitions.

However, the Temps an year. expenses related recorded to $XXX,XXX of $XXX,XXX excluding for SMART income million year quarter comparable $X.X acquisition, to accelerated the year TempAlert of tax were first the compared operating ago. provision the a expenses quarter, incremental We over and in

we Job XXXX. QX fiscal Act’s date provision the recently last call, our Cuts by on Tax XXXX-XX adoption mentioned enacted year in impacted ASU was As our and to of

result a of of one of Tax the Job re-measurement first one-time lowered $X.X our is tax cuts the XX% a and net the to which corporate as XX%. The US related rate tax deferred Act, from adjustment to million assets

revenue, share, ASU related an $X.X is per second $X.X additional of million for expensing the EBITDA fiscal requires the total Net diluted adjusted $X.XX of adjustment compared net tax appear diluted XXXX GAAP million range acquisitions. EBITDA EBITDA and loss non-GAAP or the incremental paid of our of our fiscal of share our of share, at awards recorded fiscal per total stock million The our In QX is in was was $X.XX in guidance quarter Included $X.X of million associated of including for share, a or million. to with to of that income financial end $X.XX was Adjusted of $XXX,XXX quarter historically diluted or this XXXX-XX, expense or to in per Reconciliations revenue. XXXX. $X.XX $X.XX the loss X.X% $XXX,XXX or capital. share adoption FASB per and were million in measures, adjusted second $X.X of $X diluted the compared QX loss, which XXXX, quarter XX.X% diluted release. $X per of to of the deficiencies fiscal in second and the XXXX amortization

September at decrease investments, Accelerated and million, totaled sheet, term TempAlert related over the a XXXX. comparable in acquisitions decrease million balance cash $XX.X of consolidated the including XXXX. to investments, long XX, to the directly $XX.X cash in was fiscal and The balance Moving

to expect return to positive We in QX. cash fiscal

set our primarily common of XXXX, XXXX. This on return to As repurchase authorized May mentioned this a new XX, stock, shareholders. May authorization and $XX to up to replaces program of in April million directors X, program our earnings release, capital to XXXX our expire on to expires repurchase the board X,

same compared discuss QX $XX.X $XX.X to million XX.X%. the the in an experienced period versus of $XX.X million, Products segment. larger $X.X second like million I'd a result EMEA. revenue ’XX, in Product Product to X.X% of QX in of $X.X in increase and our and million in was XXXX was XXXX, of year. fiscal of was results year Accelerated. fiscal Now stronger revenue incremental America, We XX.X% Services and million fiscal year to embedded servers revenue quarter in of sales $X.X million IoT IoT the modules $XX.X the related North Services This or to primarily services million increase. sales over a versus increased terminal ago,

the Accelerated incremental to in Our expenses IoT Products margin year IoT the operating incremental XXXX. fiscal primarily This gross ago $X.X to servers. the to in million increase compared quarter. $X.X Products stronger and terminal in performance of Services was XX% gross primarily XX.X%, well by million of as current increased XX.X%, QX to profit compared Accelerated, Services The was was quarter. of related a as increase and operating result fiscal due expenses

incremental and was income year. $X.X $X.X in compared these down million expenses the IoT IoT operating costs, million to quarter. operating Services Excluding over year strong leverage the period were same $X.X last XX.X% year. Products and prior was year Products or this segment. EBITDA EBITDA XX% the million $X.X adjusted to improvement in or compared adjusted million reflects in to The Services

our year primarily segment, IoT revenues in was of Solutions ago. period in compared $X to $X.X XXXX of This a related acquisition the million, second by TempAlert. the IoT fiscal Moving revenue quarter million to driven $X.X the million Solutions incremental same to was

and the were in we nearly XX,XXX additions now are approximately servicing X,XXX, quarter sites. subscriber individual gross Our

fiscal sold. by Solutions IoT goods primarily gross to XXXX. driven was This onetime QX decrease margin a XX.X% in Our increase to XX.X% and was cost compared TempAlert of product

to is balance back and expense the settle in of Amortization margin $XXX,XXX margins respectively. gross included We high of expect into year XXs. $XXX,XXX

year operating was increased to was quarter. due of XX.X% the $X.X $X.X period $X.X gross a $X.X XX.X% and to expenses incremental TempAlert. year with fiscal expenses $X.X compared to million loss was Temps the period. ago million amortization, million prior Solutions to The margin $X increase to year. million, million, IoT SMART Excluding in compared IoT compared adjusted of EBITDA a IoT And in $XXX,XXX associated Solutions quarter. million was prior loss loss compared operating in same Solutions last in of primarily the to the

full quarter updated includes of guidance, year the I’d to like our Now provide which third and the XXXX. fiscal

of XXXX, of company EBITDA and to in Adjusted quarter earnings range million, revenue million $X.XX. in of to net third expect $X the to million diluted $X the range $XX to $X.XX. income of per million, For adjusted is $X.XX total the be the share we and $X.XX between per to projected share range be and in

million, $XX to net be between a to are For to of EBITDA share projected revenue the Accelerated are full full and to loss open a the projecting is time, of and fiscal this year be million in diluted $XXX we At completes in guidance be is call remarks. acquisition. adjusted $X.XX questions. range $XXX and million prepared million our range Adjusted our $X.XX. pleased of in to Included the $X.XX a your to share net the income recent in for income. $XX a and year, per Ron $X.XX earnings I That to range per

Sonya?

Operator

Mike Genuity. question comes [Operator first Your the of from Canaccord Walkley from line Instructions]

open. Your is line

Mike Walkley

done will best and of Mike's to we first in - I in should the and about the savings quarter few think of last a $X $X the efforts the or in cost solid the how guys our over timing still year? the on that? million years. overall opportunity. cuts wish there getting for job question great areas I guess other the think you him we over about million in Congrats have model And model we is, the Yes. we new Are appreciate the his efficiencies business, how into next then should coming

Mike Goergen

into which the $X the let is So that question, of the me first pace million to $X part take million.

see over we rata of And pro really expect we as really that go you'll improvements course benefit it of the into full marginal think XXXX. fiscal to I FY QX. then kind some get would

So first look that I to kind really year, but of spread kind throughout evenly quarter that of can really think of XXXX. range next you we

Ron Konezny

Yes. question. second This is on Ron the

a in getting chain towards pivoting the of better. more growth know productivity resources. focused really higher getting done our fewer out on We’ve more a work focus company lot We’re as things doing you and the of athletic and of on value getting us

really really, initiative, so more growth. on this after we’re So focused

We’re looking opportunities always for more become to efficient.

So that much growth. focus, on stop but focused never we'll more clearly relentless

Mike Walkley

the another on great. SmartSense then me Okay, And business. for just question

buyback million solutions all? forward acquisitions announced, versus buybacks a shift about this think the at should the strategy going $XX and how business your is With we in in

Ron Konezny

Ron. is It’s This should buyback opportunity. the really Yes. there place be We in and a good like having question. good a fair

We half are a are of acquisitions lot at a to to work integrate years. last is a and five - moment the in we've two done, we do right which acquisitions now the where we've got

we the but both we out focused absolutely products and not ruling more acquisitions So services future, are as Thank Great. the you. the SmartSense. on in on acquisitions, integrating as side, are well

Operator

Sidoti comes next from Your Company. Greg of Burns line from question the &

line Your open. is

Greg Burns

verticals? at look you could we of idea side give the When food? us the the coming Where most are afternoon. growth? SmartSense of seeing an in in Is that's where business, you it the from, growth what healthcare, subscribers Good

Ron Konezny

out Yes. We've and the growth most of health actually seen transportation.

is subscribers the We the It come of overall onboard food our largest haven't as many portion quite on side. seen pan.

not but as as and So strong That us. rollout has add and of But food a There’s we're slower like. to very segment been been very health many transportation more bit little for solutions. have a implementations, we'd subscribers. to optimistic still variety planning been rollouts

Greg Burns

period customer? maybe typical of a cost characterize Okay. And payback how you your would on in acquisition the

Ron Konezny

good Those We're where time information to level are can It on sure that make yet something give spending we're lot a with we maturity quite at really questions. of you confidence. the not more is we're better insightful commentary getting do But get expect our over integrate have companies around the we’ll craft, we at productivity out as time of these that. our and we go-to-market. that

Greg Burns

able us then you you some expectations. outperformed to legacy making progress make give this Okay. part with cellular? update of you of business? you us that But lastly, going can your segments? maybe the kind idea in what's sounds been kind It progress cellular give on quarter of of on had products And of the an like turning an around Have can you’re

Ron Konezny

Yes. in results commercial We’ve by side been IoT mix. light as very real to incorporated our encouraged well space Accelerated continues as it’s industrial, more the Digi lot of success Digi Concepts. Accelerated commercial, heavy in a both see has had implementation. a cellular, the office in and complementary success more And on outdoor newly environments.

as So we're both Accelerated progress adding pleased with the we're well organically the very with as team. making,

Greg Burns

you. Thank Okay.

Operator

[Operator instructions].

next Your First from question Analysis. comes from Gearhart David

open. Your line is

David Gearhart

Thank my Hi. Good taking afternoon. for you questions.

the for So of I look segment. this question is Solution wanted IoT at Mike. kind to

to at revenue year year, the had million $XX a segment exiting guided the you for million rate for $XX Before the $XX recurring on the to in million run side.

that? wondering on that an update give or you need to change that Just up Is still holding can any us if guidance.

Mike Goergen

Yes.

he be questions Really the I on and account. We’ll year. we during So for having we’re good section in of started the really actually Ron good terms think out of, commented success top success our expectation I of answered the during subscriber one growing when in that transportation. think his kind of

the segment. thinking basis. revenue in a on average a healthcare, site our of the on bit per performance changed in pharmacy little dynamics about how Solid we’re specifically That’s

revenue has site guidance the have lower update where revenue more But having I the than what probably change in per as That the not to food are higher average of we're differently on So higher previously. talked average per we're based site. annualized we’ve will revenue success. mix recurring generally going we that seeing site - think success about our we a

David Gearhart

And weak revenue us like if things you give of of a Can revenue appreciate in the back terms TempAlert, of quarter there's the around bit, just the a of that assuming rather you is? you some it. over the $X some I’d of about that I'm some what could quarter, on hardware quarter. talk if Okay. sense But and coming solution seems that out And out then it just side, QX. kind million. number one-time from mix little

Mike Goergen

Yes.

were a lot quarter kind back terms of things A so loaded. of keep X,XXX additional the in of So on mind nearly adds in gross couple to subscribers, quarter of end quarter. this

shipper recurring subsequent rec our so this start the its And general months. billing revenue month and in rev is

gross in the always you benefit of in So they’re the quarter see current those that the adds deployed don’t in. -

QX I recurring you’ll in as revenue in So think X,XXX units come fiscal those on. lift good another

growth the on still of terms in on So I revenue. think we double I quarter, quarter recurring think saw digit

good I revenue. in Ron annualized So XX% on think touched seeing to improvement a we're the recurring progress there.

segments, think So still we we're this about guide the I going of not the to year. individually but on really half second good feel

Ron Konezny

Yes.

and Just a we’ve last happening current next. this those quarter comments, got wins quarter complimenting are and couple the Mike’s wrote that implementations book we large of in

what so in sequential rolling them booked high real because confidence improvement group the that’s gives had these is that out. we’re in and we And contracts us

David Gearhart

And incremental was confirm said Thanks the the quarter? to for contribution is for one me that Okay. Accelerated, when X.X for for you color. last just

Ron Konezny

Yes. correct. That’s

David Gearhart

right, All taking thanks a Okay. questions. lot. Thanks my for

Operator

ROTH comes Your Searle the from Capital. from line Scott question next of

open. Your line is

Scott Searle

but Hey million hey call is hoping as on $X much million late, savings. apologize. that above guys. move Hey cost to below again, little forward. Mike, of tax rate. hit you over congrats the the tax And on line? couple forward best next could you How of us terms in was I a luck and the expect going earlier bit should line, on look not you quickly said and Ron, of those what rate we I'm numbers reductions $X of got in anything OpEx but call, help absolute if in just out that sure also Thanks. like the sequentially would quarters. terms I

Mike Goergen

wishes. well I is This the appreciate Mike. Yes. Thanks, Scott.

of It's Eden related is directly $X in center So sold. here the the to cost outsourced million to operations to Prairie moving the model. all-in manufacturing million goods and $X

$X this improvement - in had And Because to throughout all just to what So see sequentially XXXX. a QX, to on related somewhat improvement million it lot the million, the it'll we’ll I it's of goods can it's it really, $X and you it's previously think But really can sold. margin in you view see mentioned outsourced starting manufacturing, volume some is that modest now as really to I expect cost year. fiscal rata throughout of be mix. pro predicated we year, well way the spread is as kind QX in fiscal of

Scott Searle

within pipeline are I any backlog, but Mike, in Ron tax there was wondering you And sure the bit follow any And up, as of SmartSense quickly color, changes little you've a to provided I'm well, of if to terms the rate? just close or provided of you will rates opportunities looking if and or of number are what Thanks. are long funnel terms pipeline? that quantification is like size what of of in magnitude and sort of how digesting the or that RFP the the things

Ron Konezny

right, all It’s Yes. Scott.

I’ll tax large operating QX, one even XXXX in net first. rate because tax charge it we was be actual is get your hard fiscal to wrapped for had rate though loss. that going The So the fiscal head around a to

able XX%. some should kind to So We is the what be the R&D take of of credits. model we've advantage built into

the both might our XX%. rate of of use new kind So discretes model some in pop guidance there, well as see as done we've the but is you in what

Mike Goergen

X,XXX subscribers the able previous from approximately to And add Scott, we’re quarter.

we've announced also contracts, press of quarters. roll We couple that both in over that next verticals our signed in two a will transportation release the out and health larger these

we're a we on in as didn't pipeline, metrics them greatly health in into expected, longer as backlog as a we has but convert are to in strong contributed by we encouraged particular transportation. the implementation It's taking we progress of but bit do and specific and that well. rollout. Food not a have small provide So prospects or from segment a lot in making pilot

Scott Searle

quarter. nice Thanks Great.

Operator

I like call Mr. at Konezny, Executive would now questions to and no Ron I to time. further the am Officer. showing President turn this Chief over

Ron Konezny

of by team, and we fiscal business for behalf a and well energized IoT pleased value fiscal market. quarter. our On revenue the company. our second of segments with we support our your results and third are forward Digi’s the summary, We expectations you In updating has that transformative Sonya. you, Digi the Thank Digi Digi entire in within our the interest is look continued positioned company we percentage are the for thank potential large a is of to create our quarter. next increasing growth both to recurring. to story quarter’s

Operator

this wonderful today’s Thank participation for and Ladies conference. your and gentlemen, you a concludes day. have

disconnect. all may You

Digi International (DGII) 26 Apr 182018 Q2 Earnings call transcript