DGII - Earnings call 1 2024 | Digi International Inc.

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Operator

Good day, and thank you for standing by, and welcome to the Fiscal Q1 2024 Digi International Inc. 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, CFO. Please go ahead.

James Loch

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

President earnings on Ron closed me call and our CEO. We Joining yesterday. issued after release today's our the market Konezny, is

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

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

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

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

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

to Ron. I'll Now the call over turn

Ronald Konezny

Good Jamie. everyone. morning, you, Thank

next ARR $XXX double comments. into our jump journey begun million X and to EBITDA we a adjusted few to years. We've Before Q&A, in the next

the exceeding revenue product to resulted the in of in in quarter Digi demonstrates the controls, XX% driver, a record. Digi's solution for year-over-year, and profitability significantly our a our ARR enabling now stronger time ARR from We've history. ARR quarter. adopted cost company's The in progression journey quarterly first provider quarterly helping was the our margin improves in strong set profitability. and primary visibility gross first

chain levels free cash flow. brought generate efforts optimize Our our supply and helped us down our inventory to significant

We needed to by our million expect of $X this at our the amount debt year. refinancing reduce debt cash will service least

approximately fiscal reduce debt world. in quarter, our the approximately we enabling gross to During share Internet solutions and paid applications portfolio $XXX around of off us the our is service $X.XX deep, debt a customers and first to to of Things most demanding broad industrial million. Digi's

time, in security, and We technology will adapt relentlessly customers the innovate to Thank session. our turn operator the back and call customers our succeed. At service I'd this regulatory, an operator. ever-changing our environment, you, like helping and business questions-and-answer for to

Operator

our comes question And Tommy Inc. Stephens Moll Instructions] first from [Operator from

Thomas Moll

trends the I ARR solutions. wanted to for start on

a the you're mid-singles low on below quarter-over-quarter, but trend So up the range in basis, little in is to aspiration. long-term which up year-over-year, a bit percentage

So if And dynamics any the some higher have growth the returning I wonder you visibility there? of seeing do could of into unpack soon? rates some anytime just you

Ronald Konezny

over rightsizing, strong double-digit ATM think that Ventus producing with term sectors we the some be the the say, to combination SmartSense But financial going in networks. and delayed bright has question. decision-making addition here, the been be improving that We've in quarters Good Thanks, Yes. with do think Tommy. recent to Solutions dealing I'd a We going we we're think to, future. especially of are really growth. services long in

Thomas Moll

you down to debt. It to like in looks pay As management cash follow-up, strong, you then refinancing. there allowed was just I flow the -- in wanted capital was to some completed pretty structure. the a And turn also Q quarter the

debt that about aggressively outstanding forward. year? progress level want pay do continue do of How So the think it's a to How you through as to question go X-part we really as we you down? the And your that on us run gone the everyone on changes to Maybe just to given on just the something quarter, expense rate give with best set now. have second work interest then guess there. fiscal your level

James Loch

great Yes, interest restructuring puts think deal in us. capital rate. for a Tommy, the aggressive the overly it's structure on leave downs of a and we It perspective. from It pay I be debt lowers our was it -- that more ourselves the flexible more a not can exposed

similar our the down So and primary working to with capital I paying would aggressiveness allocation. objective It's our anticipate FQX, debt. continued

foreseeable the And so we on continue that will future. for

debt round to the of In on math that do down the expect work that could just at, continue sequentially at million would we the and to as year. that bill FQX why we a terms here would of is interest down reasonably we where rate about interest expense, and about part through aggressively move levels I based say $X all pay

Operator

And from our next Searle comes Scott question ROTH MKM. from

Scott Searle

was sounds Ron, it quarter, feeling we end inventory, demand I'm I wondering, sequentially in you're as there's the of wondering some where walk of could you still look about there and if that? like March kind markets. you're of through how strength overall seeing are where stabilization pockets the channels into some some

also wondering to demand it are that related China you're issues, benefits relates you front? seeing if of And on the Quectel/Fibocom to as seeing some some an impact

Ronald Konezny

for question. thanks Scott, the

is industrial in that across portfolio very really that across Digi number a different a One bad. a up company. times of verticals, is the good service we're geographies. And different think broad attribute and things that I We holds companies of about unique well

is certain Mass commercial after example, sectors but there is really Residential and soft COVID. is softer. shattered coming Medical being a are during are very solar, area, that back remains solar for farms strong. devices really solar, strong. so transit And consistent

for think So much run necessarily we're we really fast cheetahs, And as turtles. well but that we've don't as Digi. than holds up oftentimes lower the portfolio we stated,

and certainly Chinese-sourced question, of the impact There suppliers out concern Fibocom east. been do be of good hasn't are have both it made. I to case and their companies second from to radios. suppliers your on think And Quectel us a the dramatic for -- for Now pockets and we as those business seen competitors some the the to it's yet. But dramatic impact on those around obviously, on, cellular are say, them. haven't advocating Western choice,

Scott Searle

the lot Great. And of quarter. Is a in you profitability margins. a questions. step you in on dive less in if specifically had that tremendous of on the other that are front? And a the of Ventus out then there's standpoint quarter, like sustainable? But a console as on that channel. see there cellular the wondering I'm that, starting like part as a as products itself is we quarter visibility of It if of could that sounds wondering there the up from a more inventory wondering [indiscernible] into a headwinds and multipart little think one of bit. what front. gross being could front? down when what improved assuming my with on Solutions I to the IoT side I'm products, growth I'm was terms follow-up, of in little to recovery, I'm hardware start SmartSense the in called the rectify bit table last you'd kind the recovery server, see

Ronald Konezny

margins important on think sustainable. think question, It's Scott. is Thanks model. SmartSense's do a We showing and that's the for gross the One of picking up of you're trends. gross I Solutions' an the that, Yes. power couple really on margins. Yes, ARR Yes.

subscription-only. group our Solutions reminder, a is As

more more that OpEx XXXX preferred of an model for in We force Ventus opportunities don't customers We seeing business. do product revenue SmartSense mentioned particular customers, it of an services. to that's much did or an model, also is doing as there revenue where as earlier OpEx some what we of call in an a question, asset or we multiyear because financial move are embrace a model. The those baked And for into way model onetime to but pressure a that some isn't from want situation, some pursue I we see in contract. that

an about ATM the regional on some did crisis is that that know You bank have really think We behind us. networks. all impact

so we does and job console an channel. last now to forward, The question their grow. amazing want highlight and And that with has we as stabilized to think ready team on the Ventus I Opengear. server look

And that customers. expect larger We so them, positively. a in had customers challenge for their huge major that these didn't few highlighted deferred communications are of see the as does start really -- upon slowed of too been me, never inventory the we've will return impact sorry, couple with and job to server channel is do doesn't on a that they from those a go sure contribute have will that really We deployments so Opengear us. excuse had and their future a shipments We December on, go quarter. the quarters based years nice some a the and quarters. And customers console much making and to the

of still on even back quarter-over-quarter year-over-year, really we down almost grow did Opengear customers. it though what we're but as label down would exclusive was our strategic the

Operator

from question Canaccord comes from our And Mike next Genuity. Walkley

T. Michael Walkley

-- improve where Nice balance to the maybe is with still kept to flow do in excess I sheet. inventory, you're up that much see year? your tied terms highlighting how seeing But you for IoT cash be the as in the year, think it exiting you inventory Jamie, in working on guidance kind will your versus industrial inventory guess, you Qualcomm think excess of working capital this speaking they're inventory of channel. down especially your

James Loch

namely, still part I dollars were that our do the to investment of talked Mike, seeing last that shortages. there's there, are Yes, tied ability about we where thanks year for in question. components we up procure made was the that we think

where themselves come goods. finished really work inventory that those so into is a will relief And as lot components of from

year of finished it I are runoff those to the part kind take -- reasonably it us will because say, So think through be would those. of components and able obviously I will be slower work goods, to a

I quarter. we in saw good the a here first down step think

maybe and you flattens You'll then a flattens a quarter it maybe take another or steps something a probably little of and couple could bit it of less out and line see and it's get you a would then the side. we step straight where that's at over to continues would next on that itself quarters will work that out component look say that's that, X through. is I real step. But movement to the something come continuing a little bit And

Ronald Konezny

Yes. million that's And traditionally be excess higher we've of specific, And of components. an more $XX have. we to much got than even

buys. time would last case We These X $XX component. have million worst be maybe

that there's worth inventory off hold. to will $XX of worked But normal have not million we $XX times, time. -- in over should be So or those we million

certainly bit the So an we that to there's inventory over from of benefit a quarters. dividend expect following

T. Michael Walkley

Great. And question. maybe Ron, follow-up That's just a helpful.

integrating option script, as to seems like it you successful a highlighted lot a but the Solutions of maybe focused you build now product take debt your acquisitions did when a point from debt, the product generation. been on to EBITDA there in on structure an more but to adjusted -- out You've that strong capital you're company Digi in paying is your restructure debt, given down

terms type So what's this focused for if in what maybe acquisitive, view Digi the of longer still of your be areas of drive you're And shareholders? might acquisitions? are you in to value some on market

Ronald Konezny

just IoT industrial massive. question. Digi opportunities, continue select of both with for The There's the market Thanks Yes. complement opportunities. inorganic will is organically is also ton we think a to massive in be growing, fragmentation but that -- and IoT leader a

to 'XX can but inventory quarter see as So and we've had, inventory. And disciplined have really some we of as customers. think, to I have strong 'XX very That, and more our and I down here really certainly, have opportunities from service a as bias of looking -- well. I patient and we with we Jamie active. posture that in really structure, a and interest to also our risen, our We still can this very especially been not we're capital rates to out needed you our needed funnel maintain debt. that recent we are been comments there towards type pay of say

capacity Now us down move we for paying right giving can strongly the debt, more into more opportunities.

are but with succeed, it's Digi are the help that working sourcing our I'd right got we're have pretty developing revenue say we particular, that disciplined to model. amount Digi I acquisition making targets. we So and we companies But right growing, potential annualized that and have again, a can partner proposition a opportunity. and look also as improve still, hard It's In on them. profitable, significant ever right value sure the on at of as recurring are think,

Operator

And Kumar our Harsh comes Sandler. question next Piper from from

Harsh Kumar

ago half the and if about of back suggests started your to state the given so sort high or considered full maintained the things all guide, guide, the guide, of Ron, Solid that year. pickup then in expecting you your a year your And I Mike of at quarterly year which as pointed economy. a you're look you numbers, you're end, out, maintaining

assume your that that can that I close tune, safely was safely inventory to of correction we're about, can that with worried business. it? end? and you, And So Is assume coming that the an yourself bottom to we particularly everybody the correction

Ronald Konezny

a improvement sequential without the doubt, think in our I guide our fiscal year. over really performance annual assumes

demand normalizing I think it's think, a I levels. customers and combination their digesting of and inventory

customers are to now behind in I that think, grow. parts our teammates also, it's our the comments much fiscal see the part that got think -- teammates the strategy comments of driven coming that their of the them. starting made to really They've around also in some second we from some by our I we our back -- previous We position year. of half Opengear better solutions is did in be a pruning

combination our annual So confident I feeling think us about has that of guidance. things

Harsh Kumar

then were software hardware And or could And the right going. seen I Digi you I if think on how think to that's that making at I you for a do way profitable companies to us you a update how certainly push I've hardware going? guys very other into push are things making a I sales. Great. that just an give but make curious was lot was of margins. that's go, be curious incorporate would on

Ronald Konezny

long history going a we're quite our on leverage for our providing the and customers deployments. and company with going differentiate company solution-oriented progress satisfy software is in the a but priority to is Yes. device, from more frankly, edge being for company. outstanding to We're That of Thanks rich increasingly, and this devices. But to to #X the remote both, in the question. also cloud product-oriented

be to that themes are So are going going mega those to themes last.

prospects. I brief product, this it. we're what regulation, one our internally story changes almost X-year that of quite the respond. had opportunities it in is first time which customers And seeing think and at was me to frankly, happening asked brought the what's and the and software they longer And larger I with my CES year career in for has subscription constant was opportunity set program me security, for technology, no challenges, But it forget I was business the tears. an and

coming things that that market the manage actively to. that IoT can help connected remote in I and and And your embracing You providers that context them solution have it's the think to is and really journey.

Operator

from next And our question comes Anthony Stoss from Craig-Hallum.

Anthony Stoss

gross pressures for us for expect you, pricing curious seeing what a you just Nice the segments? normally better execution. is I'm of Ron, you expect if is be fiscal of worse. you're give then curious Jamie. the which which any or would any business And to maybe view, I'm in you rest above margins year? stable do for your Can

Ronald Konezny

would frankly, get say We're not moderated I inventory. really price than really to necessarily either. was MSAs Quite of tough discussions conversations price But [ around necessarily certainly that. terms would are price. and price, like rapid increases the it decreases [indiscernible] have I see we People are things pressures. price ] from price gone days say, looking seeing more have but increases, more to not on

James Loch

Yes. be I margin on -- the gross side, And we certainly Tony, gross will think stable. think margins that I the

the XX, that point to XX, on or continue for the at sequentially. fact, margins click by points kind I multi year. gross to improvement of think And we'll of basis even XX In now running remainder of continue up think we're stay quarters I basis here see

Ronald Konezny

gross a margins, leads both indicative faster the been is will ARR dynamic journey gross so there, to that discipline we've metric really that first grow We'd solutions prominent really very top it's be because and with provider. margins. like our It ARR, with it has our our of than is to leave the higher than to operational and line. ARR EBITDA Tony, gross margins product higher Yes. The and good

so We're point, perfect, the we've especially going the And trend. I think that's And to to our not that's been quarters. be recent Jamie's exhibited that but mantra. in

Anthony Stoss

of quick generally kind you're with about or quarters Got follow-up. close. that us taking ago, deals longer of Ron, still talking to now it. behind couple Is A One us?

Ronald Konezny

improved I to I back would way a the bit, but things wouldn't used be. it's say little say to it's

And pretty that people companies cost a of in think lot you're I the are seeing are they other still from exacting. form rewarded personnel for whether of that's this -- expenses. or control,

business the have earn is work The but So to we -- we I'd do there, business. you time. to put to have have say more to harder

But finance opportunities You're make the more in well, going close. I to return for still large as to do legal working team it's from posture to final it than think, a bit little I'd I to getting to, sure teammates and help right as traditionally opportunities think stages. we now. longer through a your a have assertive make will taking more those say

Operator

And I remarks. Konezny to I no showing call Ron for to would questions. turn over am back the now closing further like

Ronald Konezny

call huge We suppliers joining and your Have course, appreciate our for heartfelt the and of team. earnings today our and to to support. Digi distributors, a customers, day. great you everyone thank continued A

Operator

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

You may now disconnect.

Digi International (DGII) 1 Feb 242024 Q1 Earnings call transcript