Earnings call transcript Q1 2023

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Operator

Good day, ladies and gentlemen and thank you for standing by. Welcome to the First Fiscal Quarter 2023 Digi International Incorporated Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Jamie Loch. Sir, you may begin.

Jamie Loch

you. Thank everyone. day, Good talk to again of discuss to joining Digi thanks us today the to great and you for International. It’s earnings results

President on CEO. me today’s is Konezny, Joining call our Ron and

release before a posted this We issued letter our the opened and shareholder this well. as market morning we’ve morning earnings

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

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

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

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

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

call Ron. the to over turn I’ll Now,

Ron Konezny

Thank everyone. you, Jamie. morning, Good

ARR in first of in with our of annualized remaining $XXX our goals XXX we quarter annualized adjusted We the We $XXX million another million $XXX revenues, adjusted goals like EBITDA. Q&A, I into or ARR records for first, just revenue, and million highlights. jump recurring sound Before closer over climb quarterly a revenues. sustained to but broken record, new few set of of and EBITDA. we a three

We important to a role play in become digital leading unpredictable increasingly our environments. in excited customers’ has are macro transformation, which

demand We has our helped see strong a backlog, improving elevated exceed continue by expectations. to as while supply gradually a chain us evidenced

fiscal We throughout expect of our those to the year. balance continue dynamics

tremendous Lastly, enable and experiences of and progress answers differentiated systems to like to services call accelerate making driving you, growth. operator. time, back our for our to the the are and superior At I’d Thank with processes, solutions customer increased the ARR turn we operator this delivery session. questions

Operator

from line Our first [Operator or Moll is from Moll, Mr. comes Tommy question Instructions] open. your line Stephens. comment of the

Tommy Moll

Thanks Good my taking morning. for questions.

Ron Konezny

Tommy. Good morning,

Tommy Moll

and if wanted quarter I chain a ago? ‘XX I confidence think those the you beat So that they or dynamics, to curious, your is the letter appreciated? And about stronger I you the at be And the start of we first spoke off, related I in language better gotten outlook. have fact was just have, having Ron, supply quarter demand that primarily context look some would saw any versus if to when the in

Ron Konezny

demand like really to good continues Tommy very robust. feel Yes, question. We be

We performance more enabled that that more And to availability by our in some So, happen us challenges. supply. the exceed first had supply quarter, has supply dictated expectations of been we still fiscal you the there. have chain saw do

a or are that alleviated yet. – are of them seeing not are we in not year they ago, less they but saw We a period

we So get the supply expectations. extent and additional that meet exceed potentially we can

Tommy Moll

why fairly outlook or Is down expect the walk conservatism on you And through next given some constructive. quarter-over-quarter? be outline That’s the just fiscal you helpful. there in then you Thank us quarter zooming second for in backdrop, have sounds quarter. revenue With there you you. would that any Can to assumptions? which

Ron Konezny

it’s chain a supply really not issue. it’s our demand visibility Yes,

We a robust have got backlog.

getting goods. key it’s So we really finished components that into turn to can access

supply with to consistent make If that that chain expectations certainly, be like we had are we’ve sure So that visibility. that. would improves, communicating our we

Tommy Moll

And volumes or that is a is to on margin function simply chain the other would of constraint call lower supply associated quarter-over-quarter, that there you EBITDA noise out? compression in want any

Ron Konezny

we the No, some investments down, we far to still to And to components those access sure get And ahead in put components, especially make there continue assumptions we business. coming associated ourselves. don’t want There to costs. make costs. want that with have some again, slow investments, we we those that can down work extent do although the for I considerate very have of we we think the are to we mark those experience. don’t some to too increased And to are improving at get customer

Tommy Moll

I and I’ll in context appreciate Thank get back the you. line.

Ron Konezny

Thanks, Tommy.

Operator

you. Thank

next Mr. Our Sandler. your open. Piper question from line Harsh the Kumar, comment is or of from Kumar comes line now

Harsh Kumar

start Yes. solid simple. quarter. leaving the guys us revenues still and off guys. much with on be? another Are characterize something might table could me that you Hey, Congratulations you Ron, let on for yet how

Ron Konezny

in to are not given able are. We to do think period. But absolutely in demand. that of millions we the as ship normalization meet some still all that occurs. It’s right there customer still now, of chain be are our any the dollars we could supply double-digits, Yes, we not eases, able

Harsh Kumar

I had chain cold then a question And business. on your great. Okay,

should that? international angle out if us, you was business. see curious maybe for eating out in European And side, is chain a cold can people frame for growth particularly are if tailwind you everybody you the out I to was know your business. the in milling on how expansion, there talk around So be an tremendous could curious that and I that

Ron Konezny

we of all got really with quarter, and contributions really have geo. this across were happy we Harsh that Yes, offerings all of our balanced from our

side, core but restaurant strong us a grocery the well. part quarter has right, of rewarding continues you’re a success, not for was as a And to been that it food of be and So business’ Harsh, absolutely included, SmartSense. just big vertical that

to expansion, very be considerate. want On the we international

of we that customers have domestically. But still very expansion. plenty want the scenario, are have expansion. about us international and We to Europe presence. multinational look be towards would geographic land we opportunity especially a being considerate broader most likely We calculated as

Harsh Kumar

under then was I along all as And you? very do that other then think time? it’s curious an portfolio your something time similar if of this Ron, And about a an sort at thinking you point Ventus was control Ventus. are far taken else of to angle, of you to angle cash question, had from at care with adding on international if think time it’s integration start you and integration how I of this done well? if And maybe to uses or in or maybe then there for

Ron Konezny

good questions, again, Harsh. Yes,

Ventus making systems. of customer conclude of do in that a a have is their great and year. the inventory, international integration. are us that’s well about similar milestone the we sure enter ERP excellent We middle presence in for are asking that The is improve us great that. largely But converting making is that’s and particular one great, – underway uptime, have and CRM the good being to the which European we sure markets. complete will implementing which team which SmartSense We people, big this Ventus very for systems, will a to the the that with some expansion in company’s There calendar shape. to the way have you Part customers those that’s larger processes which that of includes have experience and is

CRM ERP we really the and to integration middle our implementation of with pace And that want this year. so

So that’s opportunity. definitely an

Lastly, looking for we grow inorganically. are always opportunities to

We out integration you we pipeline execution, our We focused are there. have know, – leverage. robust a as reducing on

And the and so We prepare rates ourselves. it’s priority, though but especially to think rising delever that important slowing remains environments. down, maybe

bigger are smaller fewer biased deals. deals We towards potentially than

owner that so to And the a can those and get are confidence businesses. the take little operator and of those we curate best longer

Harsh Kumar

enough, so much. Fair Thank you guys.

Ron Konezny

Harsh. Thanks,

Operator

Thank you.

next comes or from Our the Canaccord of Walkley line Mike Genuity. question from comment

open, is line Your Walkley. Mr.

Mike Walkley

and three Great. the your XXX on towards the progress to you Ron. Thanks, goals. team Congratulations

from pace impact on the any near-term hardware such model cellular to can How product a this and routers update stronger should one-time and gateways want I the growth revenue mix? of we revenue? of and to sales if just sales recurring mix on, from about to as Here more us business transitions recurring rates focus the journey think away you

Ron Konezny

the Yes. Good morning, a for Mike. business. Good imperative tremendous question. It’s

momentum very as being success crawl year. run experience. if very, very, that of sure and I who And a are think it And of pace these processes enablement and this you channel and through the we system through of partners are stages we a doing with critical thoughtful with will We that some phase piloting that customer gain our is deliberate there in making we incredible going considerate walk generate are programs. are through, going are with an our systems our will, fiscal we starts we part

to attach really fiscal businesses and that expect run other with that where stage as at being in We began routers, that rates. really that experience the well, our committed of but solution parts particular to fully has ‘XX strong

Mike Walkley

against that Jamie, this working up backlog, of you sense kind you down strong with a time stronger makes you That Great. built the the are flow lot of over levels? burns a transition. the to backlog? keep capital Do ship inventory as might quarter, we this look at as kind thoughts inventory impact in to And any going how on progresses just year free that you these for cash question think and of

Jamie Loch

where inventory there do there. are improvement, I be optimistic also will are burn think – trying is some Mike. I But the while we constraints to morning, out we seeing think still Yes, down.

And to for revenue take to to we going capital that. of that really side able the backlog, that coming that us of our out especially forward-looking secure present and are to component way so in themselves advantage when that’s be deploy opportunities the

That’s blind happen little of say, will would clearly you a course or quarter you quarters? levels. time Does on over areas. because tell back certain the So, inventory I normalized are that tell to hard in one to bit still two down that come

to all opportunity your still knowing evaluation that buying we’ll sudden, you of a when components an and golden so sometimes have through screw. arises, don’t that an And go period proverbial decide

going you for know it’s that to quarters. so even And two in inventory quarter a sit or

we bit but most bob opportunities that will present come themselves, think it inventory and forward. think do but So, it comes down, I evaluate they little those likely, I weave as a as could

Mike Walkley

Right. Makes just about past pass last on left strong when I’ll in talked Then you Are trends table. the you sense. the demand and you line. anything one Ron, seeing the just question It’s demand guidance that customers of low-teen kind range? in strong? just or that’s really of XX% terms still demand or in supply too just patterns is from over keeping your your

Ron Konezny

so been availability that’s our much Yes, performance supply governing it’s really of the demand. more than

some cases fiscal in backlog goes really We nice of contributions strong The to those their that want is verticals stretches we next segment, data well has for the retail. seeing got earlier, not EV into vertical four segment, about different has as are actually good ensure a charging, what’s but demand. be mainly strong a have talked And up geographically, strong quarters, it whether delivery we for products. ‘XX across just been device renewables the medical SmartSense, but food center, been

nice to tack a it’s see So balanced if will. you

Mike Walkley

questions congrats taking year. start Great. to the my and Thanks the fiscal strong on for

Ron Konezny

Thank you.

Jamie Loch

Mike. Thanks

Operator

you. Thank

Our comes Craig-Hallum. of now the your from open. Mr. Anthony or next line question line comment Stoss from is Stoss,

Anthony Stoss

the last you of I the where either hone from little divisions? geographically or then maybe you my But if backlog, maybe segments? a of the lot if been splits questions Ron. business follow-up kind seeing be be A well. on up within three any can amongst as or us in three bulk asked. any quarter? might of how have Was it would And that with more the weakness, just sequentially share it of bit And could are Congrats

Ron Konezny

at Yes, we It’s look levels. remains very good at a carefully. really question. it’s elevated It something historically

struggling the to meet parts all of get our to customer are We needs.

we four spill as said drove is seeing earlier, ‘XX. does our easing next quarters. into mainly Although clearly the quarter some which outperformance. we there, are It backlog in last That

rising energy have Europe, war been inflation, the Ukraine, really particular, costs. watching in with We in with

that we truck has in That times is urgency on – And most rising think I Europe could input appear have to have on accelerate But transformation, if ROI about. the that really been held digital costs, to these even on We save save that area anything, concerned labor, rolls. really dire. compelling with was been the pleased really up.

of out So than we performance the with especially pleased are theater. expected, better we European

Anthony Stoss

guys. Thanks,

Operator

Thank you.

question line or comes now line Scott next of comment open. ROTH. Searle from Our Searle, from is Mr. the your

Scott Searle

have continuing in. quickly Ron, maybe improving, be am Thanks have to my wondering current the questions. would what pretty you things for level quarter a terms at do in are And you particularly you this job ups. had of if to to you conservatively. of the I color guidance, range? it’s it of lower probably jump visibility like could guided some taking give guys. then guys at I I us are point, couple follow end good. Nice the the sounds of but supply on imagine Hey, just constrained,

Ron Konezny

I morning. issue Yes. as us. been Yes, mentioned, Thanks, Scott. an Good for has demand not

our to are those they we how and aggressive are past components and to sight people So some not a improvements too I our manufacturers. it’s approach their deliver is what are to enhanced key ability as really that perform? assuming line reasonable of will partners taking many We our components. And will that think on making to trying assumptions we deliver we too perform are be contract in the in

to goods. Our into healthy manufacturers and are ready finished that turn

we got reasonable So a approach. have think we

Given especially our a is sticking sort of put used that automotive that have, that. But still are have reasonable we we we allocation. we with points, components, information industry think of into contention by some the some we assumptions see we to level are get got those in there

Scott Searle

it. are results, are the seeing am Opengear how I if could had outlook how that could, in two that some color I a front, if the perspective, good. good of to things shaping wondering December up provide in there, on color pipeline you And on that from end perspective more terms you gateway margins the is business front, September the what from quarter from gross in and product terms maybe sequentially, of up Got bit progressing of you little elements a look being an markets? this

Ron Konezny

Yes, year-over-year one rewarding again – grow I company’s think of our success. every to offerings contribute we see to the have really and seen

the starting are particular, about we retail in has is segments. One than the for of that XG past, the momentum gain it excited little in things more a is to bit and

So we cellular of Opengear course businesses kick start that to also extent. to a router are but lesser XG affects excited to business, that see and in and gateway like our

Scott Searle

could bit it wondering were up? how to the flattish read be at anything much. Great. that but little into front, Thanks IoT ARR And lastly, if accelerating book of to I I grown solutions if am a there, that pipeline a is revenues hadn’t shape is pace. on so starting particularly grew, there and business

Ron Konezny

a it’s good Yes, question.

the are targeting is, we that’s really sure a larger make there, that that move of approach a in for ROI And We deliberate the to needle. growth excess will, revenue we’ve if got the rollouts have growth ARR. that there confident especially got we is to with you do pipeline, start opportunities real feel

help a larger small that further you as push you go will gaining bit year. little to of we really we So on do are book scrutiny, see fiscal the if growth to expect your continues our of But more kind medium-sized progress. the business throughout those I opportunities but think opportunities ARR

Scott Searle

just the a start look follow-up, gateway transition an business some And the you to model. quickly back as half expecting look Should maybe to that the to Ventus Thanks. we ARR more of front, into in of the calendar acceleration as managing on particularly we year? at Ventus around and and of be Ron,

Ron Konezny

routers key the growth synergies together. It’s are between very and of it’s particular. Ventus closely one teams question. Yes, working in a had and Digi good cellular Those we

same best with NRF sure in make solution. So in exhibit were we customers example, those are area, York providing those New for really Show held the the at Trade working City, teams recently the to

Scott Searle

Thank Great. you.

Operator

you. Thank

Mr. Cantor from or question comment of line next the Fitzgerald. from comes Derek Our Soderberg

your is open. Soderberg, now line

Derek Soderberg

model? make the subscription curious Hey business solutions, my you taking of hardware my Thanks that embedded you the it’s understanding congrats I Ron, which on wouldn’t sort Should My Is portfolio, you to the as and we you attach business? I about the do can to questions go can a is subscriptions? you Yes. for How your guys. results. talk of portion well you maybe was think if portfolio drive of some limited mean for subscriptions? can can business half it XXX% of portion think is think think Cradlepoint products, of agreement? sense areas drive sort and sort what gateways? about, What routers rate? you product should it of take you successfully product

Ron Konezny

not offering We really feel of those exception be will XXX%, level. towards us offering. solution Embedded strongly that that the OEM the with and business solution our our working embedded can our with companies at engineering push are typically we the

mean, of a would our part XXX% not ARR businesses. all We expect it’s it. like necessarily business, going IoT our can but of solution, but that doesn’t That be of not out we improve in to are their we

businesses are Of we course, infrastructure there, really are and where solutions management, going Opengear, already compelling cellular have our box in but even that we offerings. like think to

Derek Soderberg

move Got gross maybe talk just effect margins? And can, if think it. puts Jamie, of then slightly you year? will you Thanks. kind move the the gross Can margin think what’s the they year-over-year. here, or on And sort down having gross quantify were takes and we about do margins throughout then front, where on of an as on from you I

Jamie Loch

Thanks Yes. Derek.

that. of certain price take there on you above accounting to are really impacts our things the inventory. we have up price purchase purchase that those is time that purchasing In And components drive of our a the biggest what is been that. and constrained one variance And got seeing couple have that pricing you in going I of standard policies at think see. pricing the environment, variances

see get through up, the more do as little we that bit we purchase inventory P&L. price one going So, the is of a variance challenges goes

that opportunities equation scale, components, on working you down, capital. that a That timing components pricing coming theme where it’s again, is terms do the is the it. kind that issue, part another to on is you the are it’s the that to of where depending of some trending. that buy, still of you depending think And are We those how degree in of seeing the see pockets that of large back deploying the are kind on on that is we pricing we

probably the that biggest And so seen. impacts one that’s we of have

cases, talked in we margins to to On it’s you get to gross price. that that strategies and In able cases, about in in our customers. we other side, have for some our and are with have made determinations the the appropriate pricing past that reflected investment make how the relationship us

think have their us seen way through. supply really you I as challenges the have navigated

total a I We at are will regular, greater think stabilizes, that. chain And to margins level. revenue consistent as really the portfolio, that continue that And supply those ticking watching of which seeing you see the just up. strong into mix are a revenue becomes as sequential gross provides pretty mix a recurring you

making elements, those to you I time through that flow will allows to as that, the as way continue see those So, P&L. think gradual two through its improvement

Derek Soderberg

Got it. Thanks That’s guys. helpful.

Jamie Loch

Thanks. Yes.

Operator

you. Thank

Tommy is Mr. or follow-up from Stephens. now Our comment question your open. Moll a next is from Mr. line Moll,

Tommy Moll

Just was the confident a growth year. wrap in but as not maybe you the day. overall growth quarter, revenue was not morning this you maybe the ARR you first made are for exceeding still around, maybe up couple this more for the one in comment hoped what to had for materials Ron, was

you any some around detail give called You systems internal more process out and that? there. Can investment in

Ron Konezny

Yes.

that contain goes the data channel, to we And and that are business of to point we when that user, a of that serial of point especially as back. numbers. sale sure sale gets channel eventually that a in we a making end team spending it data what of the inventory that, to Tommy, lot has is a through ship So, get time

create of the go get we the course, basis systems, ingest for customer. system. partners ERP, if CRM data the on activation they into we zero got us channel that a data customer the those that So, it’s account, systems management first the have to a contact And host incredibly our like one seamless then the existing the or proactive important. a we is making us, and sure for and make have into system sure into account, And best account it’s an give any products the so is tools device touch timely

example customer putting place So, in that some is to that you that of an that are make of outstanding gives an plumbing sure experience the one. we

Tommy Moll

follow-up as the discussed thinking just that Jamie, But for wanted inventory clear been which making be on Thanks. helpful. plan this couple for difficult, the the cash, a you I to And any I to to I day. buy have times is That’s on my working will are I know…? capital, of a no hear loud comprehensively of of hear you opportunistically call or think say. a neutral, question inventory. last as least and at a quarter got use working ask given a assumption year, because a source cash, or working you just capital we way has

Jamie Loch

think Yes. of do year, the I has been good, a it Digi you generator over strong look when think cash. at always I

that it think what in as don’t have cash flip you think as now, I am just cash past. up course will from I cash use I end have – of that seen right do of I positive I than less would normal position a in we not into speed. high not flow projecting But operations will maybe much position. as may definitely and the you think continue. as use a

Tommy Moll

turn back. will it I it. appreciate I great. That’s

Jamie Loch

Tommy. Thanks

Operator

you. Thank

comment next from Mr. Our question Harsh or Sandler. follow-up from Piper a is Kumar

open, Your sir. line is

Harsh Kumar

to topics a the The our the mind. I are of love follow-up pretty on is information can then just quick, that the and letter, and all in we comment. guys, first quick call, of it’s this the get just format all,

following software on increasing have got Could ARRs got question And what into software different have us ARRs? as or greater software, a of understand the has really ARRs? therefore, example, move existing got that you better much can question, on of Ron software. Lighthouse, you hardware? for you penetration, appreciate your how SmartSense then – much for penetrated have you couple impact towards the would help you that And is this. how you journey that So, be your a roughly The towards of maybe

Ron Konezny

Thanks the Harsh. follow-up for Yes.

probably rate. our segment, solution most As people attach it’s know, XXX%

business. do cannot You

your if has subscription the attach a well businesses, and will, XX%. You rate, products without part you cannot consume offerings been Within services parcel. under that’s our and

We are moving now systems software XXX% gateways. as with towards our attach rate and increased We as content. containers available both well processes for announced are cellular offerings

the example, their an more connect cloud core market and provided to recently announced customers OEM our core connect and get As business have them security the quickly. services, allow solution which of more to

So, you very bundle software. the towards the device considerate, exception race are demonstrative capabilities we of efforts rate. we well. of course we systems, that service limited our and seeing with on lifetime all is of as opportunities, of the to the process very and think offering attach to can the And embedded, want of very side that But these we warranty, be management going products XXX% into this XX/X and thoughtful the are experience be comprised support, with

we it’s compelling offering market the that see. will a of So, think

Harsh Kumar

process make suppose mandatory? customer from is I software it or you push from not sale when get Ron them, it’s the product with but do the to a mandatory So, you really the now angle, for angle, it, a

Ron Konezny

mandatory. Yes, it’s not

not us where we Harsh, them. customer then and doesn’t from that tell are to into a the parcel we the experience moment moving are for going may full offering having we opt-out be that’s the product that’s lines opt-in the up that. want towards. that and And what part courageous We for fit best that And eventually

Harsh Kumar

it. Got

Okay. Congratulations Hey, it, and team. Ron appreciate Jamie, Ron. again, the

Ron Konezny

Thanks Harsh.

Operator

back the am like questions closing I at time. in to showing turn would for Thank any management the to remarks. conference additional no you. this I queue over

Ron Konezny

you support. Thank continued and for your Digi’s for earnings call attending

For a investors, we XXth thanks Capital’s Point, will March to be Annual in day great Have XX Dana again. California. and attending XX ROTH Conference,

Operator

thank for This program. concludes today’s and Ladies conference. gentlemen, the you in participating

may You disconnect. a have day. wonderful now Everyone,

Digi International (DGII) 2 Feb 232023 Q1 Earnings call transcript