DGII - Earnings call transcript Q3 2022

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Operator

Hello. Thank you for standing by and welcome to the Fiscal Third Quarter 2022 Digi International Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Jamie Loch, Chief Financial Officer. Please go ahead.

Jamie Loch

you. Thank everyone. Hello, Good day. to talk again. to you getting great It’s for earnings results us today’s on the discuss to call of Thanks joining Digi International.

Joining our the is CEO. me Ron Konezny, our call on President We earnings opened market issued before release this morning. today’s and

letter a morning. also supplemental a shareholder have presentation and We posted this

on shareholder provide digi.com. Releases performance You our section our may release, Investor obtain a This presentation take supplemental Relations of copy and a at morning, of will Ron through comment press website we’ll questions. then the letter the and Financial your

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

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

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

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

call will turn the I Ron. Now, to over

Ron Konezny

fiscal chance letter. gets to everyone. morning, Good third I you, Thank everyone hope a review shareholder XXXX quarter our Jamie.

proud rewarding achieve our strong leading this was end We grew I last it to At our year. last from basis for over quarter our Annualized debt from questions-and-answer year. from XXX paid $XX Digi few the industrial is quarter. another I’d Gross operator. year-over-year. particularly of backlog. revenue quarter, who for million Details first EBITDA Internet $XXX revenue, confidence. provided release morning, to performed quarter. in up guidance Demand covered in our Things in challenging in quarter into we revenues exceeds to comments year-over-year. increased $XX quarterly Q&A, share. now recurring have robust, showing leading adjusted of our the back We a EPS XX% remains with this Thank margin increased am last Before the turn have revenue, million the quarter our session. down well It our we EBITDA We fourth continued shareholder of fiscal last XX% exceeding exceptionally the of offerings $X to recurring up call jump first conditions. team million on the incredibly as three letter points the adjusted XX% press increased earlier published company’s from challenge. of you, of the been Adjusted biggest time like to critical earnings quarter. remains of the the Access quarterly by in in records the million new set annualized and history. quarter. XXX per Highlights of and time, operator objectives for Adjusted bookings in components

Operator

with Our you. from Kumar Harsh Instructions] Piper comes Thank Sandler. [Operator question first

Harsh Kumar

Yes, hey, guys.

translates growth – give strong, Ron, very The you much would this? growth to and you Ron, number the I things to guess are the Jamie. the a achievements, was of and market other mentioned much. think little $X what in all, stronger quarter, are in of First just for a huge cap, just I the like console I And And then It ARR. thought. curious center data can strong I seeing appreciate growth you all center? us proxy you quarter. that the Any a bit am color surprised jumping if strength billion do us? data congratulations to this led what on the than you quite

Ron Konezny

as well And excitement team, on is has Good industry. Yes. edge. product in to console it They center the a been the store may there brand the a as remote data done Harsh. edge owner server question. on really side, which leading we Thanks, access The receive revenues name about our to we see the provider a where tremendous themselves or which that half on footprint, both of Opengear that are established Marc be goes retail in wanting that as job. much really the have office. people growth has line in that as And

so we also internationally. growth have seen good And really

And so an world. the be our more we to story increasingly America we are of used around footprint and broadening

Harsh Kumar

queue. Thank then Ron. And get in ask one you. Understood, more will can if back just and I I

good are share to to your solutions cold you has chain of curious are and traction sort people like be kind my are to seem concerns for that the around I’d restaurants always restaurants? we try people up. go flocking to a seeing but seeing should the things is opened you have travel, viewpoint is back if world if This it out supposed to go way I IoT calling with to or be. On – wanting people to the Everything really there business. booking the are I post-COVID. for the side, have be be of economy, full. and know solutions

Ron Konezny

keen Yes, observation. It’s question and Harsh. a really a good

was there they in key and pressure As vaccines. were you know, system of temperature-sensitive delivering COVID, on healthcare a lot the during

And And the sector fuel it’s hard labor. as have food SmartSense as on everybody now we on much has growth a been strong, helped to hit whether stronger really that that’s by added during you been so prices absolutely that that of while are sector, And and food period. well knows, inflation, as input something.

in protection asset that interested as as they optimizing are in they so are And labor.

food increase that about of good from see TAM represents half we a sector, SmartSense. so, And the for which do in interest really

So, welcome sign. it’s a

Harsh Kumar

supply, you across the the – you to specific one it mentioned challenge. don’t brought items, mean for board, things your biggest last Is on like the But a or hog supply? Hey, chips earlier it is guys. going let’s up Ron, just that’s you comments few to in on, I say, podium. up are tight

Ron Konezny

It’s Yes. Harsh. question, good another

seen some beginning at than moderated have pre-pandemic. higher Costs We spiked certainly have at side. really the a year They at and end the of this albeit level relief on last year. transportation pre-COVID the of up

There availability as So, under do the transportation costs have The components. of has some softening in industrial segments remain people have biggest challenge read. consumer is segments pressure. still been The some moderated. the

a So you parts parts. compete hard-to-find have those can. And pay for as trying oftentimes, to for really it’s to those there as is in components, many premium we

increased So, that that’s by has thing our complicated demand it’s the us much. biggest really back the access holding fact and parts is enough so to

got than So, get. traditionally. the that’s need what for just We And reason to we constraint don’t in get the – part and more we used big the parts backlog. need to growing

Harsh Kumar

And Thank line. Understood, guys. congratulations. so you I get back will in much and

Ron Konezny

Thanks, Harsh.

Operator

Tommy next question Instructions] [Operator with Stephens. Moll from Our you. comes Thank

proceed. may You

Tommy Moll

thanks and my for morning Good questions. taking

Ron Konezny

Good morning, Tom.

Jamie Loch

Tommy. morning, Good

Tommy Moll

time that something for to still stick challenge. it’s minute. supply pretty a some chain have well, It’s on wanted I dealing been but you a for Ron, with

say, I worse, better, you last wondered qualitatively same. can So just talk versus quarter today

just as And the not, into you that there Just give there you revenue chain. would like then in helpful? or some any indicated any Is can you be there due that well? looks as you look if helpful QX, constraints frame to be color there be what anyway guidance again give to supply can would quantitatively, Thanks. would context

Ron Konezny

Yes, Tommy. questions, very good

So, supply on front. improvements we some first on qualitatively seen chain the very point have modest the

instead with one Now still the you parts that complete product. you four can’t said, part missed of

for we QX able while to them. at not in of there’s you, any we parts, put we would modest are in million laps. had be ship if to revenue some where some have seen So with victory F our we of excess that point And the a guidance, are $XX we running improvements, context

of you supply performing, tolerate delay indefinitely. So will a able delays, is to tirelessly confident to do the it it chain a but of team is that, because, got And And customers the we am on we can’t front. still the challenges work tall our it be well can gives how although I we’ve but both some some scope order.

Tommy Moll

will Yes. I Thanks That’s follow-up, ask on Ron. two-parter the as solutions business. a a And helpful.

a item it just First, of quarter, I materials. didn’t I think last housekeeping on sites, XXX,XXX. the it in today’s number see was

strategic would helpful. update be that, higher-level a on And If you Ventus. question that us can on

of discerning expectation a synergies. potential you You you and you detail quantify of revenue there. qualitatively to and talked and are those cost us I can whatever it, you. give talk proceed? maybe your am for both about is where of process Can share upsize more the some in sense any you goods as the all curious Thank

Ron Konezny

absolutely. Yes,

the have And segment. Solutions has provided been So, sites. site in traditionally, we count our

are focus building putting company. We the really ARR increased across on

has solutions dynamics services course, as and but business our And leader segment ARR opportunity that, has set the Of different have a subscriber in product etcetera. we in of a been to grow well. and tremendous that ARPUs,

of growth been the and of have average of and in both ARR bases dynamics are we really revenue to because those So, number different, per emphasize ARR quite unit. the wanting subscribers subscriber

business. more ARR relevant side, as out our becoming grow more we did and less subscribers service quite of bit, the solutions a product On but get it’s we and

very our So, intent it that our in that journey. metric on deliberate our ARRs was judge really using there progress will

There synergies a we as really do they is right right second play in needs out. and take the sure the making Ventus’ are customers’ growth have is levels time fit thorough solution. great well service place. question, on as technical the – the It to seeing demands synergies solution the but understanding very On Ventus,

probably got proof opportunities to the one-time and of take concepts, particular, in to going to our maybe will that We add went contribute ‘XX. in of term that another are cellular our trials FY revenue, start ARR, and that ARR, and was you we have see think really will solutions competitor some in group we expressing to and exciting or to and in traditionally

are of we synergies but course, side, goods some of the the enjoying front, service. of On cost increased in goods to the the manufacturing also on, cost provide

we So, there. made actually progress have some

most clearly excited to are end But the here fiscal are see the ones going to that yet before some impact start are of about. We growth we synergies the ‘XX.

Tommy Moll

turn Thank will you, and I Ron. appreciate it back. I

Operator

Thank you. from comes Genuity. Our with Canaccord Mike [Operator Instructions] question Walkley next

You may proceed.

Mike Walkley

off hitting million of mark. revenue business. and building quarterly for the high-level question kind overall Ron, solutions, my Thanks just on congrats your $XXX Harsh’s just question on the but

industries given issues like but recession? digital whether IoT workers certain shortage, you the transformation, it’s seems have are – demand you to worries should is parts it’s the of recession realize you Europe and it maybe proof, trends a to talk chain in I recession you more recession, strong any where resilient. provide of I have your While Can think are weakening no several signs a about for industrial supply any about business, the next years. Are seeing due or products, what

Ron Konezny

we are our than side fiscal the something once companies taking there. of head in Mike, are it’s as little exceeded bookings such revenues And to again because you some cost again, don’t a want slowdowns. good a put carefully in To-date, And you seeing on headlines consumer sand the I seeing It’s mentioned, you we our the question. bit anticipating see in more industrial watch QX. side. actions,

Digi is we about confident. seen future there at if bookings, Digi, sure grow. of different for your of lot a last industry And backlog know slowdown. very, public are And our not point, the looking very the and so say again, a continuing thing lot we our But are to look and resilient. closely if economic will would And people since in company talking you I describe has so our is very One XXXX, we conditions. I estimate make have to to remain pipeline the to been a to as we

We are very distributed in our vertical markets.

megatrend, transform combine if distributed you is are that feel will to will, this a this we in that longer you with economic conditions. our real term businesses, sustain do urgency And customers’ like our We offerings.

are we slowdowns, we to again, immune resilient. not think we are although So, do

Mike Walkley

Thanks. picture follow-up Alright. question big picture market. And a on just the of Ron, IoT the

I within of IoT views ongoing integrated, it’s nine Sierra any do competitive your in competitive to your taking are are tenure. consolidation Semtech What of just think taking announced your successfully Wireless, consolidating? scale the have thoughts compared gateway on You acquisitions the Wireless? And router is the cellular position on the maybe industry. with feel they landscape? you Semtech Sierra and How some your on companies in

Ron Konezny

press the this Absolutely, It’s Yes. with good fresh week really the question. a off news.

competitor, a So, to as mean supplier theme. is – do have is working competitor I as to what strong a a supplier are reliable They we as and a we us we the right to well Sierra continue. us we been have expect understand And now very are coopetition well. better And combination. really that that so for

should big around to January. it been the is some transactions, will complete, and businesses, at emerge And mega the Industrial really and And to even bring starting found frankly, which points with their larger lot that get a the gating these fragmentation, like for I to early them But big up, success how I played any on, company more benefit them you think With companies get game seeing a manages which has and we IoT, made they although objectives. to again solutions the in get return saw investment. customers that same be to and them is it to outcomes. the then that the item greater see that companies solution, and are quite the of lot faster, trying of change different think that their of business start players. to bigger after is we help implementation on expected interesting partnering making to has do insights marketplace think have unique be some while, to strategic been customer’s by the end becoming provide solution IoT a decisions industry out struggle the companies as are a themselves two versus that of And what, if can of the to drive combination reach get Digi be matured, you I

it’s particular. early what consolidation So, to in probably think on is understand the but combination the it’s means inevitable, for Digi I – Semtech-Sierra it still

Mike Walkley

the and it or question in your Thanks. I guidance, up X.X implied about gross Last assumed between my guidance? talk maybe Great. to the for divisions margins in pass from you Can on. it two margins. math, will mix to slightly me, stable gross Jamie, just seems maybe maybe

Jamie Loch

Yes. Thanks Mike.

story Digi. put good – The on I can for is it chain the think margin you gross hammer still one supply that a a know. is as really

incremental are costs that you to the inventory. have incur As depending are all spaces, those Freight you after helps. on can how you of seem down, definitely sudden a acquiring some now come

there. – it’s but So dynamic out really

that way it really the at to sequential we growth. So, slight is are incremental looking moderate

there. host I think the team factors. comes has done a nice job. That’s really Mix driven of in by a definitely

I on pricing think a job we have done the side. good

get, team I if go to increases really broker side on good you some think avoid could space. job our the the to operations price into procurement has done especially have out that of that you a

that line Digi where at be and three. it think we is maybe I I combination we I managing top that are, we us handful of But their done So, dynamics think as things margin have job do rate both forward. all got we that keeping talked giving through, I given some have about as move influence and a of think, think a of would a nice from have true potential, current the positive those are dynamics. full realizing

Mike Walkley

Okay. taking forward questions guys from Thanks next week. for look my you and

Ron Konezny

Yes. Thanks Mike.

Operator

Stoss Thank you. from Anthony question [Operator next Our Craig-Hallum. Instructions] of comes

You may proceed.

Anthony Stoss

Also, the AR the second end, is growth that million in in per talked about as issue you on IoT the adding My I of business. know then assume new to for million Anything million can of I about the supply. $XXX you a hit. that? had side, goal And To Any of quarter. the rates And guys. probably congrats And there? would changed past, been I to on couple Ron, kind on solutions that’s getting that router well. thoughts talk I maybe Hey $X ARR your $X think Ron, Jamie. follow-ups

Ron Konezny

Yes. Thanks Yes. Tony.

range. still think range that a I is $X good correctly, you playing million million to $X are

we hard opportunity the and was end working are customers. well of real our I range, question We on value continued apologize, second think with on upper got side I Tony, accelerating solutions product as, as where growth provide to growth more have what again? especially some get services the to the to towards the

Anthony Stoss

the components? of on then the seeing router also of rate side are IoT kind growth Just and if you business the solutions overall more

Ron Konezny

Yes, side. the router

a expect DAL. our growth in we SarOS about grow that business solutions, the change a charge Justin So, platform seen on side, operating And from year absolutely double-digit going improvement we ARR now. and through there with And to expect than system Schmid we that. of to have been the faster router have nice

through some had our educate we course, and about choppiness that partners work so customers chain channel the of as transition. supply our And and

were new of a benefits of by were the to used ones, tremendous to to the those but Some moving new devices them just compared way platform. is number there that

that that fuel is So, team there certainly extra for to work continue year-over-year as growth. they

Anthony Stoss

thoughts OpEx down, rate, guys job your go-forward Thanks. then a a And the you curious any going with have OpEx done good just really Jamie, keeping growth basis? thoughts on forward, on

Jamie Loch

sure that’s It’s same Tony, a skis. an at. really we supply is of as we are on full your different things, out recognize Yet the potential really there ahead us we don’t Yes. are as to – macro of making are We question, time, really a are very eye company, where at that as get alluded not right? chain the of trends the Ron because you and allowed good think has keeping to, I a couple closely,

basis. driving a investments weigh continue that can to on to making get that machine that double growth fueling when time have also to and You right digits standardized be is that the

good a in where position evaluate are that. we think I really So, we

we each track success those of got we deploy at look we investments. capital those. investments, the returns those to of have on that on model As We

quarter, to even the past will and right really drive quarters the or quarters think X-year continue growth three X-year eyes forward of And say, investments forward incremental period. type we a two at so opportunities look over, the right I and with and for past time really to forward

OpEx I answer ways evaluating definitely can on. that we how it’s capital that, include the are could eye really are definitive reflected best deploy the in all line we future are that that’s because think forward and to on eyes something But the in we periods. And a are an So, keeping investments possible. trends in continue not worth some macro

Anthony Stoss

it. execution. congrats on again, Thanks guys, And the Got tremendous Jamie.

Jamie Loch

Thanks Yes. Tony.

Operator

Instructions] next comes Searle Capital Scott ROTH [Operator you. from question Our Thank with Partners.

You may proceed.

Scott Searle

morning. guess Hey. quarter, taking top related did you guys. for the able quarter in Do to I some constrained of from of million I margins of outlook. about are relative the the dive upside? and be to of gross quarter, maybe Is that? million Ron, pretty to June on Good gross that a to product talked the into $XX Congrats supply the follow tune up like? have to what Thanks and supply said potential terms you just to September. any million on that And million just questions. perspective. of a last front, the $XX of couple I think in guidance, well. did in? you to think $XX Hey, line $XX what factoring look chain being then guidance you points on in And the actually margin And

inventory in along in have increases? passing up terms guys pretty actually from think How doing are standpoint, were sequentially I of you price you an done they well. think I June. And

think are $XX million. inventories up I this about quarter

couple seems areas. like in of are are that So, pretty front, you still missing but a it on well-positioned you

into synthesize side? So, if sequential product the kind you outlook I could of on was wondering that the

Ron Konezny

ones. Yes. I those remember which questions, all good Hopefully, are

table going have, quarter to Again, line did $XX And our one customers we by of is work really what’s what first September components the if have expectations, able advantage on of like that last I communications try we doing, left And product things there this are that Because secure channel we good to some team, least know and that above is competitors certainly to giving that guidance, quarter, in customers through relationships meet. the at of not partners, unlock we not revenue. the that towards demand. meet pricing, go customer our are of doing. think customers would you quarter’s of to guidance, million parts hard able experienced collective on get achieve we about we not potential really putting don’t The you we and next with they take if our we But there. can our quarter’s the our best current that be question and do last comfortable, the are conditions, of that. we understand with we the say but we potential we confident beyond the to can access feel – feel long-term to to we product outlook, other both what err our we line course, cost have our challenges any challenges visibility, aren’t our on. should

would I cost behind are increases. So, our little generally a we bit say

than better do taken customers first pace keeping sure are try our hold lines on that cost we then secondarily, product our good And and serve feel making increases margins. about of, foremost. others. But our are and to Some care I

Scott Searle

bit call product ARR rates starting quarter. it, you was helpful. and talked it’s sounds are about a could, IoT but Very side. million get gateway I to doing attach some you Great. the on will front, if like $XX the little front, And on core I well, Okay. Opengear think Digi it Solutions. And the more this I

the us idea So, if of what could for like kind kind And business is more to attach that look of rates you I potential morph Ventus-like. the an wonder what give today? about

could in recurring gateway and existing Opengear look Digi? for traditional market what As the installed well about revenue as think the you base, like

Ron Konezny

Yes.

better, I have solution to would they customer’s down cycle. our a and from on the foremost in life both it’s customers the But when complete in experience been some but progress of like be go more have We further, course, to is us interest. making because implementation, attach purchase best hands first rates. candid, The

much rates. And can us in be on in more are still than expect we aggressive but think so I the to we attach range XX%-type past, have you been there that

think where to if that installed now. that growing customers So, have product. Scott, we we had should on we the rate, a optimistic, am about XXX% Xx less base you have are an attach back right ideal be rate going I

I think newer are adjusted going because successful and we is. more whatever to be shipments have their to customers those on that “normal,” relationships newer

so And to new attach point optimistic back to in shipments the less moving have I think the at we am I forward. this because base on going opportunity such a enhance great rate

of So, I expect think out you can performance better us.

Scott Searle

helpful. one could, Great. one. I last Very And if

market You provided been and markets you that’s well landscape. kind is some and wonder the in of maybe past. of as some as to kind Smart I wondering cities how competitive other the could strong, coming shaping demand synthesize have up color that I end the am of terms into where it gateway from. relates color provide the in some market. if Opengear demand

following Thanks. was question on Mike’s Sierra it acquisition. think I the Wireless up around

Ron Konezny

areas see in city, mass strength Yes. type that product where are our line, opportunities. smart is for certainly going The in transit we two we transportation cellular, one

really As increasing. some and you ridership COVID. It’s know, transit during is stimulus gotten mass suffered

leader traditional strength where the side transportation side. we communication. on much enterprise the the very new is refreshes have product do there Cradlepoint we IX investments we And industrial excited quite frankly, also ago. the or been both well product a industrial than more is And projects that from quite we our so opportunities see as projects The as Sierra enterprise about increased implemented line were well. frankly, where are we in on But our line, in strong. as years have And some machine-to-machine the side in industrial is

Scott Searle

you Thank and congrats.

Ron Konezny

Scott. Thanks

Operator

from question with Kumar Sandler. Harsh Piper [Operator next Instructions] Our comes

may You proceed.

Harsh Kumar

Yes. the Hi that goals order or how you refresh importance those of that And want you to talk, Ron, you the if attack you could then about maybe goals in them? was guys. wondering have. I view four XXX

Ron Konezny

quarterly Yes. we three we happy to of are about did achieved do last – quarter XXX have Thanks goals Harsh. have talk which quarter. last we revenues, Yes,

EBITDA. of $XX be The would reported of the recurring be million June. second annualized which the just of adjusted over course, as then would revenue, And end last we

near-term. And on so have you those the we can the of ARR. progress are the what quarterly We talked making. in objectives And we we can basis see for three add are some a about big

And hit you are project, Tony quarterly kind basis. as having quickly basis, start a from million run of $XX how $X away course, a there. can mentioned, adjusted we of then, On goal. million, EBITDA, we can on So, are we get to think I rate that

little So, achieve. to that big gives a are we goals of context on really hard that near-term pushing you those bit

Harsh Kumar

congratulations. Ron. Understood, Thanks guys and

Ron Konezny

Harsh. Thanks

Operator

am Konezny closing you. not back further questions call Thank like the And I showing this any turn at remarks. over Ron to would now time. I to for

Ron Konezny

time for Thank for an exciting industrial market you, Josh. IoT This the is and Digi.

the call. will work We the difference. Thank a the are Digi team. Conference to working be you and in the their Annual Growth forward tirelessly to Digi transform will We again to look XX wonderful connect Piper earnings world’s to XXnd machines Sandler people make and our attending Conference Frontiers XX we X. Boston, September August and attending and Growth Canaccord be next

Operator

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

You disconnect. may now

Digi International (DGII) 7 Aug 222022 Q3 Earnings call transcript