DGII - Earnings call transcript Q3 2024

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Operator

Good day and thank you for standing by. Welcome to the Q3 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 first speaker today, Jamie Loch, CFO. Please go ahead.

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

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

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

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

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

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

call the Ron. I'll over to turn Now

Ronald Konezny

Jamie. everyone. Thank you, Good afternoon,

customers of quarter, year-over-year. solutions of logistics, expanding of a business and existing or ROI-driven health in few the annualized ARR, end new care a highlights. as and with service IoT way, SmartSense record questions, third recurring diverse drove in food Digi's resilient take fiscal adding the industries. X% we portfolio revenue, and customers led up Before $XXX the million industrial

performance record a as drives services rates metrics, represents ARR revenues. With high in quarterly periods. IoT retention well. products now XX% attach in visibility of and future increased ARR to contributed our Our increased

margins margins adjusted improved foundation EBITDA In ARR the with drove fiscal record gross strengthened addition, third and its a significantly balance quarter. Digi record sheet. in

operating disciplined inventory by reduced position million. $X line in our kept and Our expenses model

result, to million the and nearly time. this than down million paid $XX XX% in lower debt. we debt. years, our paid generated in a have $X.X $XX in fiscal less this As million nearly during at than million quarter, reduced interest period This cash payment down year In quarterly has we X last $XXX

expands acquisitions continued capacity expect debt the potential which our in for future. payments, We

remains strategy acquisition Our focused IoT strong on potential. ARR profitability companies that well as meaningful industrial growing generate as

on hit revenues expectations. With We ARR projection opportunities. offense remain on and the potentially for future while way, exceeding the on Digi last quarter's expect will stimulative capitalize profitability to our fiscal policies monetary to XXXX

As complexity, for and our solutions easy-to-manage is combined positioned you increases with service to world secure, uniquely and expert passing in it Digi support. Operator, reliable to responsive questions. provide

Operator

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

Thomas Moll

we've is recent obviously, the closed talk was solutions quarter-over-quarter some you in big million sales sequentially, In quarter. biggest quarter, time. ARR up I think but pretty Ron, on there, heard this $X elongated step-up it cycles quarters, this deals some which about you

going you of environment think? Was context So I'm trend state some the the Just you just a there reenergized curious is on? durable do what there? timing one, can give, what's this favorable

Ronald Konezny

really a It's good Yes. question.

cycles. the elongated have We we've sales been growth. on have you more as to SmartSense And been mentioning explosive ARR highlighted, dependent

number in necessarily come do of that future to periods. realization some extensive those to sales have improved, we the have Fortunately, ROI cycles We in the could validation. and a of conclusion things do testing not after came think stabilized, but pipeline

Thomas Moll

wanted to on just of some on capital cash Okay. generation touched and flow Ron, you circle but allocation. in back I this prepared, the

the cash by aided On partly generation, been year-to-date, inventory. significant there's flow

you you the do so clearly cash, there delevering, year callout more on been do the much but first And on important, have deploying to work the you how are it just I'm then curious, as this to too. And which think has think inventory is acquisitions front?

just priority current state us of acquisitions So near give likelihood play a any of the on and term.

Ronald Konezny

Yes.

position is periods future moderate we'll over in do time. to question think first improvements The we will in start -- see that our inventory

We're the have, acquisition-wise. less there. from enough on cash tailwinds if see remain inventory out that there active we'll position offense, still we'll side. So there's will, an of down. We the But some getting on you very dividend still inventory that

a have Acquisitions offense. I position. to the are thing right sure disciplined, terms of but difficult very a timing, that remain the in on making also but We predict target, got do very think right very, we capital the been active combination finding of and we've

Operator

comes line the Fish question next Our Piper from of Sandler. Jim from

James Fish

at how software to You of point? further do software the should about we think to guys or the the guys 'XX, mentioned modules? attach coming guess software we team about sales changes way adopt you expect, a customers I any as pretty incentivize either were rates And this attach think good. fiscal to

Ronald Konezny

Jim, in it's We've a improvements seen really question. attach rates. good incremental

initiatives it think on some We've some well. more been that we've So there. we some to the ARR of are got expect to work those growth And our planning can do room end go. with contribute pleased as back progress underway, we 'XX even there's further. systems and good improve the doing We to

James Fish

rather question have -- I decided And the networking that the partner it. of Atsign you partner that or into guess Can and security just why space this guys my Ron, given really, here us not Got to sort IoT buy? through then, to is that past crux of move overlay walk build week. you with not you why than more already. here rationale just

Ronald Konezny

really an Yes. good either/or think to of but as It's like it and. We'd a an question. not

opportunities There products, other we've plug. our limited that to certain underway. not communication ignition designed of security. It like like security protocols it's into technology, got and and So an and initiatives got can or be we've customers certain incredible amount spark are

in both we've add-ons the particular got but our can do on design security there's we like either customer. bring a then or where to industry that we So an for solutions,

Operator

[Operator from Instructions] comes ROTH Capital. question Our line Scott the of next Searle from

Scott Searle

the Nice Jamie, Ron in in quarter. you Ventus then channel for quarter, looking? been to businesses? some in terms thinking job And that then maybe I had of performed about the slowdown, those the Opengear on segments There or just sequential business on think, you're in adoption some and those into as look progression? follow-ups. thinking had some is indications Up of should couple start, I down us quarter, of how could how we that front. what September be And about the a how we sequential give

Ronald Konezny

Yes.

have steadier assertive brought addition channel more really remained at come thought some of new you we has fiscal business, back. had And and we being that year, new by in retention. Ventus that and new the we're we in and strategic business nice that. mainly recall, the strategics We've If logos excited and a this we customers, on some seen on place. The regional business would cited some improvement design some to beginning softness wins side, seen the the driven about

of joined business we a had put a crisis. all forward, had soft as as year, with growth we've And you couple regional that, has for offerings some about we're retirements recall, behind group. and course, bank of and some and of little our last of as things. got the churn us. And looking really Opengear We're both bit If some as lines our other Ventus 'XX. brought been we in ATM from product look step-back in well into new we some We've our leaders leadership a as look that's optimistic opportunities. exciting We cellular and

optimistic So we're about 'XX. really

Scott Searle

seeing at Are now? lines? for And environment, are us Ron, looking now? you about a you of out right an little still there? there Are product better talked inventory What inventory of sitting could economy update that the people more compress feeling to kind about pockets give of You've perspective? delayed decisions. your the just recently an from Is starting bit macro

Ronald Konezny

Yes.

we working you type but your excess never channel. traditional out the inventory. a of POS that if and stocking few had customers inventory have Scott, through, So We've have not had they're inventory really recall, any in had

that had a we've So done nice there. these customers there. job few think their And channel really through working inventory we we are a think healthier we've But isolated. more are

I The we and don't regressed can second sales -- question, haven't yet think think but those. improvement stabilized. part of your things, you in They we of that if call further yet order not sizes, terms will, cycles in

got it potential obviously, potentially I for the election And in with think rates an lowering September. interest there's we've underway. cycle Fed the

any guess I more deliberation of we see there's or we periods. it a We as And But is the those so bit think head see still further. good it I decelerating decaying and don't into caution news little stabilizing.

Scott Searle

maybe hardware grows just back you're about know How that, model. on M&A about on the seeing And valuation wondering thinking from gateway going about that we terms what of end managing more just more a you're the as environment. starting an contribute Helpful. of is and of perspective, of some that if front transition Ventus the wondering Great. to that front, should could color I could, how you're on in I'm the And think versus you ARR offensive to on us front? how I'm I starting then to you're if how some give progression of going. kind think the

Ronald Konezny

We of to A cellular outcomes. ends think going to combination lead a And the providing is more it part more stronger Yes. is customer, ARR. part and think predictable we but that. relationships story with big also value both and up Ventus of in our big that's be we the

growth part the ARR sorry, part going be a Scott, impacted our what to stronger rates second be of but that's of your terms see was top in potentially question? could central You of by growth strategy. rates, line I'm

Scott Searle

seeing valuation going what you're start about yes, environment, there the kind you on as now of M&A out think again. offensive the to Just

Ronald Konezny

lot a out conditions. some pausing. probably -- But larger that that would that cautious. we best be We've acquisitions and We're have active suited are things and seen our that We've are impact really we've business a on more of pretty that can outcomes we due assets think size, waiting to past. actually our the a better for in maybe They're of material for of more Yes. we're flow things opportunities. fewer looking seen healthy seen the properties

financial quite as I their some to for helping lot buyers a financial prepare them where they think not conditions. better portfolio rates are seen We've adding on of be focusing are, tuck-ins with interest improve, the strong. buyers companies,

real larger exit, companies companies to the there waiting different I dynamics, each wanting better mixed a maybe smaller it's having with market for end barbell of out So conditions. think

Operator

hand it CEO, to showing to [Operator this I'm remarks. no I Ron closing And At Konezny, would back like time, questions. Instructions] further now for

Ronald Konezny

you. customers, support. for on We you Sandler's a Digi to Frontiers appreciate plan Piper in Growth your you joining Conference Digi's distributors, Thank call Have to attend our continued Thank Nashville We XX. September and team. suppliers day. our exceptional great and earnings

Operator

your Thank This does participation you conference. in program. conclude for the today's

disconnect. now may You

Digi International (DGII) 7 Aug 242024 Q3 Earnings call transcript