DGII - Earnings call transcript Q2 2021

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Operator

Good day, and thank you for standing by. Welcome to the Fiscal Second Quarter 2021 Digi International Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Jamie Loch, Chief Financial Officer. Please go ahead.

James Loch

Grace. you, Thank and discuss everyone, Digi for us joining Good fiscal thank XXXX to the of second today afternoon, you quarter International. results

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

release the market closed Following our your take after we'll questions. We shortly prepared remarks, issued our earnings today.

Relations through the Financial section website You at obtain Investor digi.com. a copy can of Releases our

this during uncertainties. make are we our revise that as statements the date. undertake to financial and of and of forward-looking risks expectations and We or subject these only no These call forward-looking are and operating Some considered reflect speak obligation statements. performance today's publicly about to significant future statements update

the prove reflected reasonable, correct. be met forward-looking statements believe no such our we of to will any our expectations forward-looking expectations are assurance in statements be or will give we While that

in forward-looking on file For additional our reports XX-K subsequent information, SEC. section section and Factors the XXXX please release the Form of with refer statements and Risk today our to the earnings

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

turn the Ron. I'll call Now to over

Ronald Konezny

recent nearly quarter. million to and of record offering Haxiot. an revenue Quarter what Digi in XXXX to our has acquisition Fiscal revenue acquisition strategy, an Call. and $XX been exciting We Earnings equity Record headlined Jamie, to including quarterly a recurring Thank raised International's welcome and busy fuel continue you, successful annualized Second

an growing We pace. and are even with top at line recurring double-digit profits targeting faster growth revenue

pipeline The potentially more has market well often We acquisitions tuck-in like as if Haxiot, the acquisitions. have an larger robust, organizational even structure acquisition as is never competitive. to support very been

starts $XX but of across as recover year We of forward the digital Demand million as To duress. economy difficult. are success been to market accelerate, and record global business supply more demand customers. comments, positioned. and from from particular, conditions on navigated has the pipeline, this our the customer automation seeing you strong we meet every These intelligent we becoming has pandemic, of and year's proposition are value my offerings, chain to In As continues transformation to Digi's bookings, engaged can for extremely activity from have The building problem in a look partners City commitments. been well our becomes our accessible. zero-touch focus. seeing is resilience, master after opportunities extremely core more increased the conditions believe Smart a last hear date, deployment not challenging we to ended

secure a chain is is on supply there risk to but task, right in the incredible Our components basis. our to ability timely up team the a

we service service and in our necessary, prioritize our components been to use needs. customer our businesses to if We critical we sheet decades, customers. for balance over industries, We've consistent mission-critical Fortunately, purchase X ensure a helping strong

translation all charges. are In addition, increases seeing companies, like in we

first segment line, routers year-over-year OEM servers awarded $XX our Now In X with but sequentially. X% year-over-year, enhanced declined year-over-year enabled applications. Day, million and our offering a project quarters, attach awards Earth products. growth. energy green City across comparable few but conjunction clean quarterly our strong of console we our by Services quarter the agriculture, rates largest with industrial comments as last including Product cellular across tech on Cellular deploy infrastructure and declined management and showed the sequential Lapping pre-COVID year X% grew. management Smart IoT each we about about device business prior, product our and innovative driven segments. of customers our solutions, server Recording console increased

introduction the solutions announced has XG enterprise team routers our router markets. of the OEM target transportation that the and first successfully team. Haxiot cellular Our integrated

We're are model the a and easier product investments showing resilient smart growth has service payment record-breaking first with We leadership and X-ON improved for advancing Console expectations, is with followed IoT grown from and Infrastructure activation, full to partner platform. XXXX. customer-centric in halfway already portables, a installation and enhanced position the generating customer revenue time Management year billing year-to-date in onboarding, quarter improved the above XX% results out-of-band LoRa support, processes. demonstrating customer of since our technical offerings.

building to with SmartSense remain high, subscribers. nearly on the committed showing experience and in teams. represents last XX% verticals. care quarter at of in added value the ended are increased the and driven a ARR retail IoT world-class in growth by to about We enhancing showing XX,XXX in installed customers million Show the of X,XXX revenue base, base. ARPU new a health are support We customer quarter, service This recurring digital over we XX% higher tend and and differentiation. the bringing annualized subscriber $XX subscribers offering. in increase year nearly our Solutions our We many than

SmartSense subscriber services the partnership been renewed with now their of of largest X for XX% a interface nation total our who and the customer nearly cloud our years. XX,XXX subscribers valued another has mobile or consolidation since for base. One XXXX SmartSense customers, of

slowing our live customers migration possible, IV. customers SmartSense We experience to all best going new efforts are almost on down get ensure the are but

are the more with strong growth, We pleased even strong but to pipeline. pleased see

annualized part recurring management market we from XX% increasing brand the XX% rates. growth Solutions some will last position $X revenue of our our in is market expect SmartSense, and million and digital pandemic, notable across in the IoT As from objectives. demonstrating be extending penetrated At take foodservice corporate This leadership that a achievements. we it than its less recovers the nearly for monitoring. is is year. critical have billion over company, level, now up condition $XX task We intelligent software had a

significant opening team favorable and who people chain more got billing worked to cash position Macroeconomic improved have collection capital our service -- $XX economies our customers. getting and processes Combined million net generated the conditions the more offering mentioned with are more vaccine have equity our million. even safely with accessible. over comfortable and we special supply on-site A earlier. moving agreement, resilient supply and our model, thanks $XXX Their capital-light to credit thrilling becoming at nearly of putting new jobs a around. rollout, Our gathering chain of with challenges

benefit success government directly target markets, a ability more In over which for to detail during pleased, been efforts incredible many light results. of period. team, performance. on our turn will commitment could Jamie to financial the call so improved Digi our lead dark could pandemic and an has adaptive stimulus the now their to addition, I'm I

James Loch

financial organically equity flexibility results. and Ron, of to amid able contributed was uncertainty, second and our restructure we good were significant top quarter, the exacerbated offering strategies pursue us the profit the provided and everyone. growth Thanks, continued place our aggressively our Today, On continues global debt to fiscal expansion. I'll which results took that the growth quarter. record and post have supply highlights afternoon, trend by macroeconomic of quality activity growing It inorganically. our that And start some to while of of key with a and challenges, that,

organic The QX first XXXX. quarter second acquisition having entirely of full closed the fiscal fiscal of quarter marked of results, Opengear our in

share EBITDA that quarter. GAAP excess and diluted of On amortization, was $XX.X revenue this adjusted our the performance million of mentioned, record quarter. Revenue year. shy marks non-GAAP our XX% beat XX% of prior to over $XX.X growth Consensus both were million, excluding EPS for and were led of estimates the of EPS was a off basis, just in quarter for pre-equity for adjusted counts or offering. share I margins the consensus $X.XX, a XX.X% were margins, and for adjusted EPS is Gross As X.X% per represents and quarter $X.XX. which based revenues. of EBITDA Gross EPS our

even account additional estimates. in after still beat shares offering, consensus the However, issued we taking into the

revenue We year X% Recurring million, and $XX.X annual high have revenue. now Difficulty]. reached recurring recurring quarter. [Technical record XX% prior in from Total prior from up overall is

Solutions year-over-year business from year-over-year. prior services increased business [Technical did increased Recurring Difficulty]. customer. and products and IoT XX% XX% sequential to XX% our Our decrease From significant quarter. see by revenue We reduced in one driven entirely

prior products from consideration customer, year-over-year X% Excluding business. IoT and our revenue of quarter and the overall in grew crewing XX% this services

We maintain cash operating generate continue for of Digi [Technical foreseeable the services expectation other receive generated to we highlights. $XX.X the that Difficulty] in strong our positive and million We future. products. operating cash an Some financial for flow continues quarter. from customers generate of fiscal our second cash indicator value to the will our flows,

common capital into net $XX.X raising In addition, places we million in quarter cash fiscal issued Digi approximately X shares of stock, position ending That positive in $XXX.X $XX.X a million. cash. with million of the million

increase $XXX $XXX replacing with another revolver million flexibility to a secured improved by by million. senior our and our capital $XX.X $XX option loan A also existing million We term an and secured million revolver senior

now add as off the what treatment the now position leases, classified do $XX.X stands new will of of at These debt accounting million ending on based million. consider standard, not $XX.X Our books. which the is figures debt

compliance. in bank's balance facilities' last $X.X we and items sequentially Other no Our our AR our from of with compliance quarter reserves. in our million ending sheet $XX.X are changes end, with position material to remain to covenants note: expect million, down is We fiscal

our year-over-year points by decrease and Annual quarter organic, of in increase fiscal revenue impact of recurring chain. are fiscal in contributor year-over-year our to margin to number our million ending the regularly. project sequential XX.X%. Solutions by material a rate to $XX.X IoT the in year in prior million. Operating for inventory were The revenue from Gross segment margins year-over-year with $XX revenue record XX% a XX.X% to Our $XX.X increasing and to $X.X due our We XX% driven basis last Smart increased IoT performance, [Technical sequentially fulfilled results installation revenue had an margins, of fiscal for look challenges quarter XXXX second recurring Difficulty]. Services at These cost change into large the quarter. to our margins. the in an XX supply is XXXX City quarter. first to $XX.X of overall million, XX% the The second million. the amortization, levels full Operating including purposes, quarter significant by of second discussed quarter Recurring year-over-year Gross the comparison. $X.X fiscal that income excluding Gross end. million. the decreased $X.X revenue from of driven quarter but previously. to Difficulty] adjusted for partially down increased Driven for growth fiscal the primarily our Current increased end revenue XX.X% we that to [Technical Products ladder $X.X reserves. revenue X% E&O for was million are attributable million, operating monitor all quarter. a marking $XX.X is EBITDA back channel added demand million items gross million the were expenses, closely delivering million, had to year-over-year That not If is the $XX.X decreased balance down key the from in annual books. decreased inventory is we margins last of to for quarter no X.X% margin.

executed substantial the existing to upgrades. we're new on In increase deployments in equipment customer large-scale recurring revenue, and addition and

count X,XXX sites, nearly net solutions XX,XXX. count pushing our Our to total grew site approximately by site

growth a We million for continue to year-over-year, performance $X.X operating to for The the invest in the IoT $X.X of year million. objectives solutions to loss the million $X.X of support compared loss quarter resulting improved solutions. prior

we Now and our ongoing closely. volatility related guidance. our positions to economic impact it and forward-looking monitor continue to could The relates global pandemic expectations,

of while new Difficulty]. a As quarter. quarter, the global our over in [Technical move last brought proven as be with continue challenge, by fiscal we record level there for chain our expect have supply quarter XX%. We but Digi a to in million, our continuing challenge providing a our By are through normal execution the year-over-year our have the We and economic uncertainty know And world, revenue providing we and the predictability new million and efforts year. confidence and we broad felt $XX being to believe to performance, another around third integration as $XX we that pandemic, fiscal new vision growing guidance to of normal, follows: of long-term growth makes X% ongoing

between $X.XX EPS expect share. diluted We per to and be GAAP $X.XX our

be to million. to to EBITDA $XX.X share, $XX.X EPS $X.XX We between $X.XX adjusted expect our between adjusted with and per million diluted be

in increase outstanding. them particularly our the We're into in customers now leading during performance EPS to callers. your pipeline provide and take that their questions. time our to calculations While deliver concludes see strong our indicators a we We the concerns. That the our of sheet are believe Digi liquidity of position, with balance capital number prepared shares helping in combined total of Grace, provides take value on remarks. please available missions, instructions account to global our

Operator

[Operator Instructions].

first question from comes from Kumar the Our of Sandler. Harsh line Piper

Harsh Kumar

questions. a solid on Congratulations of Yes. A quarter. couple

your about XX,XXX up? product as and Can is should here comments go how we particularly, opportunity here line. of economy remind about you on we had with in us IoT sites opening what from your the You forward, growth light think Ron, just the

Ronald Konezny

questions. first in call, very earnings here your X to There's addressable Digi the over that market welcome Harsh, low our domestically, and million for sites thanks Hey penetration. are

million days. this sites more the recurring others. metric still early to quarter quarter. X,XXX or recurring to sites created $XX group that $X generate particularly We'd $XX than X,XXX equal, quarter-by-quarter. as That But are million in sites that vary can about almost going sites a So suggesting revenue some nice, probably and Last We've is to now X,XXX all since well. from emphasize per quarter. quarter been And was ARR revenue million. much X,XXX a like about does add

Harsh Kumar

I'll a supply my want? know any I and take to talked Ron, business might you guidance you that you with in your for feel you Can got get ability as a your your of supply? follow-up, into feel sheet. And cramping line. you sort about And Great. that supply? you've what you account of because do behind then you've you be talk decades. lot cited then a But been balance risk. I substantial where like about for and you how back availability leaving are a of in how couple know about get you of revenues does think about great

Ronald Konezny

very supply different. to getting a and chain we're increasingly companies, about and job has different date, stressful. you that more question been chain a haven't team across That's Yes. many We and date. that hearing The industries topical no complicated more is issues but done impacted were to really supply fantastic the

low factors of been does going supply include Our guidance the impact our certainly scarcity. of the guidance. potential is on. X There's the incredible chain, One really especially end There's demand.

begin And that's not so all demand we're seeing more and more and component allocation requested. manufacturers necessarily been the fulfilling

are The transportation commitments. customers we're meeting second having We're because committed in so some materials servicing to is cases our expedite and our issue costs increasing. ship to and

is, be we'll We big on this, combination risk. challenge doesn't some see demand. very that supply seeing key with we're increased transportation we're the able through in from certainly lastly, And confident So movement. the And to concert to starting costs is then And is price increases of feel just increase our things that there flex makes but suppliers. difficult. it of navigate chain

long And uncertain how continue. so this it's will

Operator

Instructions]. [Operator

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

Scott Searle

on apologize bit I got late. quarter. little Nice I a

March think my Was in I the built sounds hit limitation on to sure, Harsh related there questions make chain issues. to... supply like one guidance. in just dig that's quarter into of any It

Ronald Konezny

really did $X.X experience -- side. us. million weren't the a revenue not cost on We hurt It we was side. about on No, had the hit that

top our to We more than date. So were through so able gross to fight the that hurt margin our line. challenges

Scott Searle

Smart with you year-over-year to had City, us and growth just clarify, that, tough to was City. a what And help what of x around on there comps the number out understand IoT? Smart year, kind the Is the Great. last

Ronald Konezny

that number. was over X We out share it No. the ship quarter Of products, specific related the particular million $XX and to million call didn't a of shipment. $XX more that did although this largest quarter, project, of had of than it

Scott Searle

quickly, chain real you're bit. see continuing the a It supply elements looking into down are like EPS then Got issues. some you. But sounds of factoring in demand little And that you're guidance there. nice to some

on thought you there the going something OpEx? margin anticipating process I'm else bottom gross as sequentially guidance to Is are wondering, other more of costs some up? gross -- line, I'm the impact, relates and what it or margin So kind what's going impact there? the the some going on some higher into

James Loch

Scott, it's Jamie.

I think supply maybe some in anticipation if our you It at EBITDA a bit little bit little It maybe chain. that a dips look adjusted at the dips below is guidance, hovering of above. XX%.

particularly on of the count One the on there going on EPS. is diluted consensus of out the lot that what's biggest impact our we're a see, to the impacts share against

we the impact. definitely having a thought quarter incremental what an shares have on comparing now would ago So to is

Scott Searle

And What the Got June using be Jamie, share quarter? the we in should count? diluted you. what is fully

James Loch

Yes.

target. we used the million quarter $XX June I think for the as

Scott Searle

Perfect. And little follow-ups. of there's Ron, on of to attach a that terms last I update revenue relates that's Product & wondering that revenue. then any if it you being product as going talked any front quarter, had attach think I'm for bit last recurring the a about I to out Solutions to rates couple recurring And door? able in

Ronald Konezny

some see Yes. attach our Yes. rate. journey We're improvement. We to Good questions. XXX% modest on did

of by attach year-over-year is impatient see have we the want go and Manager rates. Lighthouse some offerings. us And but faster, to ARR Remote and So improvement really our services rates improved and the I'm software, by Digi did product in the modest driven increase attach

Scott Searle

us could the some some you sheet in things are kind the flow. in opportunistic. I what of on sheet and of to necessarily, are you could out seeing balance footing now updated requires revenue on which if as I'm bundling And and the revenues terms now, things sheet which free give cash thoughts kind think some could, M&A part now million expectations there's a if valuation sheet And them in have. other services perspective, balance with transitions, that there, lastly, if well from ability what just strong positive solutions be of $XXX generating an the nature, with Great. of selling but Ron, of balance as you're of balance the access terms you not guys with that, cash for the pursue you you recapitalized, wondering and that

that and that after Or growing look, you're you So I'm see and a Cradlepoint nice for balance to sheet? the more you how with attach some a kind ARR model? bit expanding seeing looking that little aggressively. opportunity bit access you of got now, of rates wondering what the the are growth of there, it's in sheet evolution in but balance use that terms Do terms to accelerate organic the go little of

Ronald Konezny

Thanks, Yes. Scott. Yes, absolutely.

new one on into the a acquisitions execute to We place put us out market structure first, organizational as allows very So businesses the with Haxiot really some like other robust we've pursue nicely our front, acquisition like in opportunities because there. across it case to the business. Opengear, cases, businesses us brand very or of new other but allow fit still that in

Haxiot side. fits or And That's strong back in the more any that sheet, recurring of our would of businesses are terms really demonstrated and us smaller food of either have that's coming we is SmartSense, absolutely, with case, larger the be brand-new as sector bill. we out certainly getting be sale, and technologies. of expect balance of how SmartSense should looking opportunities, their these attractive. food So In structures they out, point whereas using at bundled that going and a to the as to in likely be are more that lockouts potential how are buy revenue, we offering the to of buy one comfortable for they people you lot look at businesses climb for more to those organizational other existing businesses, on our that looking be here case associated

of and annualized being lead recurring that's will in offering of cases, a share to the some business, lead aggressive likely that we're connectivity. Similarly, about SmartSense higher recurring but pushing a our in going So revenue. overall be revenue, absolutely the in business, to take parts mainly other software bigger side,

Scott Searle

stay there's just here fear pharma. level here? Or if there Ron, one. for is It to could, sustainable? nice coming Hey that at in Is obviously, the but any you. sustained like I one SmartSense last service Got build that roll is a of year? that, been back, Or food in a big it starts over seems later terms does

Ronald Konezny

individual think it's as the of We the I I offering. the sustainable, the in past, vaccine. said We've has concern know more popping folks. And benefited Scott, the majority of vaccine benefited increase or new from We sites benefit benefited administration. for from locations, adding a certainly in directly it's temperature awareness. ultralow macro by we But awareness vaccine certainly most been the of and real this up vast

Some are of the convenience in of that the business areas we've been retail, able to vaccine store and store wave. capture grocery the not in is part

another opens big gives just us attack. So as up, of food market us for to chunk that

about excited success sustaining we've we're had recently. So the

Operator

this showing further At questions. to Konezny would for turn Instructions]. remarks. Ron no over am like back the closing [Operator call I I time, to

Ronald Konezny

Digi. exciting appreciate today. an Thanks, our joining Grace. call We time everyone It's for

has been connect never and world's machines mission the more relevant. Our people to

team haven't vaccinated if healthy, already. We and you everyone, with dedicated look to on you earnings our focused a call. are success. talking blessed We consider our Stay at again forward customers' to next been vaccination

Operator

participating. This conference call. today's for you Thank concludes

now may disconnect. You

James Loch	SVP, CFO & Treasurer
Ronald Konezny	President, CEO & Director
Harsh Kumar	Piper Sandler & Co.
Scott Searle	ROTH Capital Partners

Digi International (DGII) 9 May 212021 Q2 Earnings call transcript