Earnings call transcript Q3 2023

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Operator

Good day and thank you for standing by. Welcome to the Q3 2023 Digi International Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. advised conference be being Please Instructions] that is today's recorded. [Operator

the now to like would conference to Loch. I Jamie hand over today, your speaker

Jamie Loch

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

Joining today's shareholder well. morning, this and Ron posted a call Konezny, CEO. as President and opened me issued the our market this on letter morning We earnings is our release before we

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

are subject significant uncertainties. the and statements to we of this that and call during risks Some forward-looking make are considered

our these operating obligation undertake statements. We performance statements and today's as revise expectations no only These future or financial forward-looking of publicly about speak and date. to update reflect

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

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

Finally, call certain this financial measures. information includes non-GAAP disclosed on

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

call the Ron. turn I'll Now to over

Ron Konezny

everyone. Good Jamie. you, morning, Thank

into jump Q&A, comments. we a Before few

million thrilled revenue environment. in deliver is annualized revenue. to which this pleasing announce three second achieved recurring our We the We're we constantly $XXX especially our quarter, of evolving are consecutive goal in XXth record macro to excited

Digi provides quarterly in continue today. final connectivity and our assets assets, connected gaining EBITDA. we the of $XXX annualized goal confidence million of million management sustain $XXX are and world's We in adjusted to most revenue, not in more capturing are and

to and easy to opportunity well session. turn our call our for like questions-and-answer is this this operator to secure, positioned the with the Digi capture back manage At I'd to time, solutions. reliable, scalable

operator. you, Thank

Operator

Our comes Moll, Tommy Instructions] Stephens line first the from [Operator question of Inc.

Tommy Moll

got Ron, I've ARR. on two

So higher I where was has we'll some the on start penetration there that big P&S rate time. priority a a up, that side, been step driving know and for

seen, So come? what can behind how tell to you the we've more us is is trend much

Ron Konezny

both really good is have Yes, of in We all were improvement two very and quarter-over-quarter. lines. Tom, really the going obviously really There's on: things to in year-over-year growth a that year-over-year question. product one seen we see excited our pleasing really

of it's course, partners employees, lot the importantly, customers certainly of the preceded understand that that our And and, a work sure our complete result our of making value a in this of most solution.

on. And that We increased so also that number. with predict, are it was other catapult nice but deals nice Enterprise renewals. one to take Enterprise came really work there helped harder well secure rates quarter. that have close Those that there benefited were deal do larger one we're we as last and seeing to We to

Tommy Moll

you Enterprise would of have I solutions the the story? on Ron, originally the trends What you tell taken that out, letter, the And about than you deals close believe, of some called us side to in on shareholder then, longer those expected. side, can ARR have

Ron Konezny

losing increasing, question. We is equally deals. we pipeline Yes, the aren't news and good good the -- is

before testing roll process share goes they the taking to point that out. We being are Customers in letter. really longer. making sure are, It's more and well the inspecting the

and is to into convert hard that, of pipeline the we've that excited ARR. got course, work we're still So there, to

Operator

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

Mike Walkley

Ron face demand or due quarter. midpoint, Jamie, the into come is consecutive with flat that on fiscal September or You much it impact does September at to how sequentially for congrats when during the Is early an guidance the get the still said to to in slightly to 'XX? multi-quarters of just XXth of quarter you into hard-to-get fiscal might down quarter And be as 'XX. do balance? think that components? come supply And start we balance still

Ron Konezny

question. Yes, Mike, really good

battling As been you we've chain challenges. know, supply

finished have goods. with parts that to these together thousands a products of are variety of We needed put into

little and Some to of bit a terms birth their of secure. harder older in those parts dates are

So we're still Those some facing supply chain are gradually. improving headwinds.

out, degree the we're as of headwinds. think parts we give like you've trends need. the can an to last the can but normalization, fiscal we of have in that quarter we we but We where we're 'XX seeing And I we expect quarters, to secure seen the exact couple still near-term with confidence guidance call some don't see facing

in to And we've recent the most that we're philosophy sticking those that work quarters. as guidance that been know certainly parts guidance fortunate the well. our enabled and we're opportunity some has can us secure, go outlook, off some into quarter is embedding beyond we additional September to there some with enough the get that that hard we in to But paid chase

Mike Walkley

Jamie. That's follow-up just helpful. And a for question

-- you as capital distribution right should pay better where supply quarter, the Jamie, should clean free to more some partners about think longer how come have debt? but continue how down we demand your just term in about December and you then to might of their to balance, inventory a lower. an and that we tends supply, your levels working for as area also up where be might seasonality tend And little get bit up think inventory Just that the into

Jamie Loch

Thanks, Mike. Yes.

that the start as inventory on finished inventory side, way the components easing chain two normalizes, definitely elements I are think into down do the those as think their balances I supply goods. the converted components will of

around numbers, finished goods. I look think Finished Xx historical up pinpoint it's Digi -- over And goods, that in that on inventory normalizes balance tick. if kind turn a of is kind of up you

So kind a off of I period there. cliff. don't see not think time it's there's drop you're And I of -- a inventory going to think just

over think a on will operating time. really a a But aggressive our going as paydowns and enable on comes posture point, that's to to more I your that's have inventory probably be of cash, down. going good it impact debt period to that balance

So I down, a don't off but it it will come will fall think cliff.

some at issues terms In does you for fiscal undoubtedly, least our it of of to seasonality, seasonality quarter to. first pointed that have element

They more It's they budget typically may that budgets. be customers and our traditionally little will will you for partners. inventory maybe of of up a dependent, lot the coming bit end certain work year-end their lowering They balances. -- have at a on their are

have different do You cycles. some

similar traditionally the to the QX cliff, quarter, to I year. inventory and not a that it won't kind through off a works first rest then it's, its the little say of of seasonality. ticket there So the again, story. fiscal in it gradually but of is just tick probably It's has a for bit a way

Ron Konezny

The is that definitely seasonality. a revenue, approaching which total of our X/X ARR, is buffer against

little years element So that gone it's less as Mike, of there so, in by, bit but still well. than a

Mike Walkley

I'll And helpful. line. Okay. Ron, the I guess, pass one That's one, last

letter you're appetite in for Digi generating, environment? shareholder of track for Just the consolidating just and you valuations in given is right the this the And three given talk so about IoT flow what kind some your comments industry? million M&A the maybe Can about that had far, now you strong $XXX M&A. cash record

Ron Konezny

remain Yes. It's assertive on another posture good We our acquisitions. question. in

part ARR larger significant those to continue As we've strategy on opportunities our that of solution picture. you focus have as up financial fewer know, a to opportunities, been and overall build really muscle wanting our that

-- until treatment. increasing maybe better think, a of have and I'd tired say deal as properties expectations the dichotomy, their to there's I to, there things a that of compared insisting robust year and or first of some on are that flow investors times are, lot valuation. refresh that say, the where portfolio. on looking as a well think, more the gone also is either stronger fatigue I but maybe waiting there's are bit or Those half had And

as want FY to us our realize inventory to opportunity in probably prepare we've than more that active meantime, But of. the timing we're that the 'XX aggressively control position course, cash to the going be certainly more the better debt, for down date. the have, available, not And latter. pay going dividends, in probably the of in the active we But to done We're in compete. to more we don't as this quickly, always, be we capacity mentioned, former there. more We're Jamie we're

Operator

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

Harsh Kumar

some I margin to color think business? generates, appreciating software and could business Ron. business maybe or you or Street's the give op clarify versus a us the if margin gross ask of to coming software hardware profitability your I at level, around your profitability your it on that the But

as do appreciated. be start can base? color -- it Any long what hardware you see in line term? higher can down to business Like would the And the hope what your getting get midterm, penetration

Ron Konezny

been bringing of more value for the We're thanks proposition We've of the question. mindset. Harsh, on focused really the our solution customers.

doorstep remote assets value have lines as on So feeding add that's their cycles. those how highest much our in they and the well engineering their focus customers making brought really as to are uptime and then insight the more their can the data of sure then performing into

really in that which really we're to that message how arguably at ARR, measure think progress important much focused the that's company's And our than margin. shown value is being here higher ARR we're comes a resonating. we And margin gross on overall most at Digi is And making.

see to really line. So that you as gross start contribute ARR margin grows, to the

flow see that and see ARR then as almost adjusted up And sequential line, it's continue seeing the you're margin us that as operators our the we've want good that and lifted obviously sure got we're performance, to up, in our make that to gross well. that you profitability progress OpEx and can down And allows to XX% to has to improve. that profile that EBITDA

as progress certainly, to margin important going gross we're ARR well. it and then adjusted with And time at EBITDA that as we we to really that it's impact But I And think and look can at as on think to see going if continues jump some this ARR that point build. we progress it's acquisitions, over well. margin continue start

Harsh Kumar

it complete opposed Is that would I'm -- software now side? maybe sorry, used. side you you as solutions acquisition look fair Ron, the sentence look can will well? look to Or be on as you software some last if that be you hardware at at any push any in to that assume you at I would

Ron Konezny

Yes.

set most of with and mechanics doing we're different quite think pure value. can performing It's expertise. so think We a think what I valuations. polarization can hardware-enabled recurring. consistent And software growth have on an have squarely it's business we're we in we area add of we probably say, profiles that got focused frankly, than, it's a extreme

to are A software when they're heavily lot of smaller, investing businesses, growth. their fund especially pretty

software so recurring, the spot. would may for profitability be is be profile the And companies at Digi. of not we our sweet that think But that hardware-enabled helpful the

as some a and get assets can times, can performance, in up an be quite of to see hundreds it once often connectivity deals. then you it's effort some to them, be close very remote you keep because sometimes cases, those thousands perform, deploy from and or you It's our long-lasting running. harder relationship But just of it could it

there's bit different to pure we're recurring, hardware-enabled is which a little So software. takeaways, than if any

Harsh Kumar

maybe presence I Ron, opportunity for with in highlight Absolutely. could us Europe. you chalk tremendous I out more, business down If Ventus you could one or think Europe, where the and in some also and what solutions some you you've opportunity for you've you Could ask us your got that and got for be stand can line?

Ron Konezny

wonderful have a our American is the good theater go North a had lack cultures, hit our good Spain, it's it because of local local of the a things. know, question. them a regulations, the Europe opportunity. when other America solutions lot presents on it's EU, and France, evolves although not growth expectations. And of quickly U.K., Most into Europe, local to after Germany, having really you the into get as focused fortune to you business market and language We've Yes, North of

I going than, to So But be just be base dragged we're our storefront. opportunity when us. there entire time the up And opening future a establishing certainly think a rather for think we're represents theater. camp right, probably is careful Europe the about than country-specific by customers into to when more that and we say,

Operator

next The Searle from comes line Scott question MKM. of the of ROTH

Scott Searle

band. cellular year? is markets, maybe kind in the Ron, seeing without update front routers the demand, back looking particularly of to I'm on give open of half around the us of and how a look where you're the gear some on channel into we the inventory wondering gateway an if dive gateways the could on end as and particularly you calendar

Ron Konezny

Scott, see our across line. we were pleased really results product strong to

So that gyrations look that was see. our little you have a benefit for that And product our to of think, say, performance. at area focus of different in portfolio, vertical to. real Each lines Digi that the -- that's in one terms where if of really has exposed you I in overweighted good higher they're is, can not, maybe a we're verticals

centers to, opportunities center example, say, driving for look at you where frankly, Opengear console they're ago, real than was the flipped quite if three data the the server that really our growth. line, look getting if data more So product years you the on edge

that retails, companies. of presence remote the storefronts, into banks, has So extension extended insurance IT offices,

good see. So to really that's

you in COVID EV devices, during solutions cellular product and in business, OEM our smart essentially Medical strength as in we're transit, public was thankfully, you down. continued solar, know, shut continued line, router a in city renewals, -- renewed at which, our strength If look charging, strength seeing

of looking addition and well, upgrade uptime to In and monitoring public networks ensure private at, which segments, grids utility are performance. to the to their

distribution to were also of the but the pleased performance we verticals. see across So performance, both that

Scott Searle

of there that I by follow current If helpful. seeing on Very that any could concerns run it. you're at up the Are time? pockets are vertical inventory

Ron Konezny

not our overweighted one. to multi-vertical -- We to going really. be partners, not and typically they're No, channel

have particular concentration don't vertical. we So any by

Scott Searle

if you. one just could, Got And one. I last

there business, those And model. the channels to convert a Ventus How progressing? we've of at talking are into that gateway into traditional is that How 'XX? what out look stream receiving revenue been thoughts the we Looking off the about potential that more message? high-level recurrent the are fiscal as model

Ron Konezny

really good Scott. question, it's Yes, a

closely audience side, as may much that their directly end a than of partners. part with there MNOs solutions users, I knows works critical As group, tend with going with partner be be to well, router think end cellular channel channel. well cadence. as Whereas on the a very the a user working actively obviously the managed the more through you but so involved, working That's

a on it's different channel lot managed we think be going so doing And rates the a some into an as intuitive that we thing been pretty will educating start time to evolution, date. offering not them. revolution applies as to really network it's to because It it's take for model and they've be for And not can of the a successful. as work introduce the service But them, doing software that take we're well. we really

Operator

Fitzgerald. question next Cantor of Derek Our comes from Soderberg

Derek Soderberg

relationships. Ron, mentioned the kind you strong building of customer of importance these

model. would with you we these conversations this think really of saying, you're sort I mentioned recurring you having customers guys think hey, from benefit

of onetime won't the sales past conversations or those turning you're I'm curious customers what they conversations you if talk are what subscribe? product customers a -- And that really about with lines, lines happening if today? Are where down your that new when to of you're return take going happening bit? those -- that sort you think with move degree model? in most to to handful step product a do towards of Can

Ron Konezny

it if solutions then leading product point offering. down important as certainly Derek. an Yes, Yes. and the past. a was offering question, solutions, we're not we're it. We're does business the step solutions in It with the turning where to element for a include that's Thanks at and leading us for not with secondary

channel both to often. and emphasize And the solutions. the really to but also of it's they with channel well we're educating happy the benefit users, leading as is on starting and Digi. quite benefit I'll end channel conversations And Now frankly, the those message hear as

to first the type about not we're of also approach. And go this

wouldn't it, So ecosystem. solutions product line, that's embedded partners. is product of selling larger into well. an to our It our designing an their careful. isn't solution, where This in a our more all we're particular, much OEM the news of group, concept good lot where I a to as That's customer our we're foreign a area product affects our say

not solutions that will. policy, long because Those We're is are enjoying going customer if you of cycles. design artificial upset the existing maybe to

in has starts But them our and part we're -- excited the of kit, more That solution. box to that of takes it then much implementation So of work into design thoroughly. part production. actually rate time to this get really discerning services our they product particular, where a business their some where that's applies about business, on order that they start more and as as

Derek Soderberg

it. you charging. clean strength it. tech my follow-up, and market, some electric And Got solar the sort Got then in of as end mentioned vehicle

one heavily seems network connectivity. something It big in think the charging I on solution EV pretty relies customers tracking, require your me of like to Digi solar their will similar.

opportunity rates per I'm of And charging attach there? out It vehicle markets? sort opportunity what's curious seeing than what's could And space. you can if the of funding then seems chargers? station higher lay you're they if of for a you the that kind of like in also electric what maybe there's lay ton in kind those I'm curious like average? curious Are out

Ron Konezny

Yes.

mentioned, energy there's is funding. important renewables course, vectors: sources in where and sources one, traditional two you energy balance of this there's at continued renewables As our different between rush really there's and least more to

possible areas, these Certainly, help is great we're important critical. very you a They're about located. set manage making are doesn't And to warm effectively those opportunity where solar an farms experiencing facilities remote sure there's summer that we're as hurt and In those the as deployments. provider. think because

think management charging -- rush, phase, chargers to tons of in EV I relative the that this getting a of that out. put funding, platform of bit secondary there's in rush newer charging been a little a I has speaking, And a thought. think is

a for also as operators it's the availability. charger to how providing but opportunity us to they EV the So great conversations providers, the uptime, with have manage

It's as those as many to need And can't in battery, There's then charger. point-of-sale charging with available, up not disappointing get and terminals. much these just more the EV point-of-sale a low as charging of terminals or than to be you up charging access have but showing itself. nothing the

So managing the promote assets. it's more than deploying, just it's

critical just ecosystem, this deploy going to think, I there's, opportunity help So be great us a manage of for not but assets. to that set

Operator

next of Stephens Our Tommy Moll is Inc. from question

Tommy Moll

follow-up fiscal 'XX. we Ron, the as approach on macro your just a

talked an in You but about the exposures in past to debate how around some market about also conditions. talked helped release, recession market challenging imminent your your you the end weather

the you are in there to seeing would next the the just equation you any incremental everyone's mention expectations frame of getting on for anything of stronger side or to weakness the business? So year? pockets Is weaker getting want

Ron Konezny

this Yes, verticals. portfolio Tom, this and portfolio vocal exposure on we've been that has got that that, to we've pretty balanced different

you're because So can especially times. we maybe in provides verticals. At stressful and resilience, And it think, in absolutely and time, portfolio be weakness right. point given there like certain we more any this strength in

overly acknowledged that's a in necessarily We've vertical a gain our that because weighted only we're particular portion also because strength not if that a outsize we has business. vertical don't

call -- this a that and even we medical -- segment on devices, little for So the EV us. had utility strong renewables, charging, discussion very bit remained this earlier

understand. lot I certainly of There would a our things audience that pockets of think are

maybe going to a -- those right certain there's for how interest industry. financial lot banking rates in have that on example, or with the services deposits tied exposure activity with So right, of and affects to now,

this doing, might of and rate this on although is really can that be growth think certainly than sustain think, we be that market may But of double-digit year pockets rate. that And we're whole, at that we like where better growing I there over times type double-digit time performance. there strength a weakness the

for our think may performance. our that that be we've times on exposures allows we got And not we're consistent where the more future there in strength offerings there. quite But in and balance,

Operator

to I'm like showing this the Konezny. would no questions now I to Ron back further at time. conference turn

Ron Konezny

Thank for and your earnings you support. for joining continued Digi's call

August attending Conference, XX Frontiers day. X September Nashville. be and Conference will Piper XXrd Genuity's Growth Have in in we Canaccord Annual Sandler's Growth investors, Boston great XX to For a on

Operator

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

You may disconnect. now

Digi International (DGII) 3 Aug 232023 Q3 Earnings call transcript