DGII - Earnings call transcript Q4 2024

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day, and thank you for standing by. Welcome to Quarter 4 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, Chief Financial Officer. ahead. go Please

James Loch

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

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

market We today. after closed issued release our earnings the

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

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

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

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

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

Ron. over the call turn I'll to Now

Ronald Konezny

Thank you, everyone. Jamie. Good afternoon,

a looking of wants XXXX. believe to Things is various industrial forward few a leader Internet We building a comments of solution vendors. fiscal rather a committed questions, significant in last Digi a on year take share than provider market we while the fiscal solution the Before to market. be to

is Annual provider demonstrating focus or to Recurring time their success solution single our competencies value. metric The improves to outcomes, customers ARR. on reduces allows and relative approach risk, Our core accelerates Revenue

ARR will our will product represents our solutions favor lines Increasingly, onetime but dampen Digi onetime transition dynamic forego sales time, multiyear revenue consolidated overall in from ARR. solutions. increase this Over a across transactional agreement. sales to of

grows, ARR visibility improve provide and model. our more become greater will consistent, our As results

ARR see XXXX X% to ARR revenue. in reach fiscal results. which connectivity, Products business & where this we also our in XX% total Services in products software. we Solutions segment, our offer our service million, can our record both packages. and with complement represents product, You combining segment, $XXX our grew solutions award-winning more business year-over-year where solution ARR a grew now turnkey of than grew

we our as increased customers and retaining SOC customers both ARR recently to existing with while extending value-added compliance. II Type X and XXX our as increased achieving launched and solutions offerings Digi new onboarded offering such

the margins Our model for achieved strategy. strengthening driven solution gross the in first time company's this history, XX% by

reduced efforts less and than demonstrated supply flat restructured which level our year-over-year, disciplined Cash a inventory these year our interest We organization were margin. net to in the resulted chain throughout reduce EBITDA scalable a which debt adjusted our record from Our EBITDA resulted as generated in We debt X. adjusted normalized. able payments. of to operating combined facility, expenses

Turning XXXX. the page to fiscal

elongated buffer chain data and with is changes. reasons as patterns. by frequent scars COVID-induced PMI for centers, its to to in inventory Supply potential in more caution smaller, order but diversified but cycles quarters, Digi both has increased persists are AI, Nationalism contraction economy's strength talks We part of renewables. create in utilities industrial measured tariffs, health, been supply has experiencing help there uncertainty but as sales levels and normalized, The well in have be chain and optimistic. resulting

XXXX. fiscal but consistent macroeconomic expectations for that we take a With backdrop, approach pragmatic setting to

with We segments. growth from expect business in contributions continued ARR both

As temper. we more onetime to to solution packages, expected is revenue move

expense sustain been that select are lines and adjusted operating improving -- such offering legacy resulting in retiring free Combined, investments in long-term revenue, we addition, by product portfolio our growth of In to generate as decline, expectation calendar flat the net results we Rabbit. an and expect be have of flat in to required expenses end by to cash debt XXXX. EBITDA, this

could potential profitable consistent are We customers on growth. acquisitions the and Macroeconomic fiscal continue and outlook. to our improvement ARR our focus year explore that improve with our throughout benefit

confident $XXX October, anniversary Lastly, year. In we on ARR XXth its million and reaching of X-year in Digi the our targets listing of celebrated EBITDA in in last NASDAQ. remains million established $XXX adjusted

is our went that let went some year, XCom, Symantec exist, companies improvement. independent. celebrate resilience, public Next continuous few Cambridge focus, customer longer innovation alone we highlighted Technology that public XXth XXXX Imation, story WorldCom, independent. were Very remain companies of no birthday. relentless in are XXXX and by Partners and the and Digi's in

change, adapted in core competence success to has is ever-changing vital to the world. an Digi that Over and decades,

that and Operator, we'd questions. open call to my the to like remarks, concludes

Operator

first Our of Moll question Inc. from Stephens line from comes Tommy the

Thomas Moll

the relationship mentioned it call guess, between revenue Ron, reported dynamic could and there's a even. trade-off a I you I where recurring revenue.

there want You And are rev? highlight? so spread old sure product as fiscal constructed some to you discontinuing lines, is could factors one. XXXX, mentioned double-digit that make in Or to the just for flat in you play, your looking other be much how outlook at ARR,

with Just that bridge. help us

Ronald Konezny

provide is It's of supply really pick very thought going up holding can we that certainly much getting factors, and that these life. we're of difficult There's honestly going combination you source be keen and components some that some quality are end I not Yes. more for a to to product to to Tommy, were that. The on chain up those products. of

So stunt. that a certainly be going is to

which also towards And recurring then there's of another moving piece of it, the revenue. is trade-off

the So really two. of it's combination a

Thomas Moll

the And on debt the balance say expectation net end by heard think year... I sheet you the then be I the would free of

Ronald Konezny

year. of calendar the end the Yes. By Yes.

Thomas Moll

of By year the 'XX? end calendar

Ronald Konezny

Correct.

Thomas Moll

that a relatively and -- imply bit. of That unchanged might Okay. that All in... math pace you are generation, cash right. flow change relatively the quarterly a Does baking

Ronald Konezny

Yes.

that dividend, which going pay we're go in, think ago. a now see as down fraction were FY year to debt. you are we Those I Interest kicks in will, they 'XX. saw to another continue 'XX, will in you what down payments a of that if inventory

so And to cash those two factors. inches even closer EBITDA with

Operator

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

Quinton Gabrielli

targets year. good on implied of see was Quinton of it is to reacceleration, kind of This next ARR the if and it that, first you for Fish. the all, Jim Maybe both XXXX for reiteration call really of

that year, going that reacceleration? specifically next drive As for what solutions are about we ARR growth think segments to or

visibility year? we your year, is drivers think there that as relative you to all the about full confident makes seeing that underneath anything for demand then you're the that And more

Ronald Konezny

grew opinion. in X% a to 'XX, Yes. growth my ARR so Listen, isn't out year-over-year fiscal double-digit stretch call or humble XX% in we much of really growth

go good is things product dependent And to hear, better. think see customer. there one see to for right, the do potential both So we'll business vertical, that we that's 'XX as segments. even line, one on contributions you're We overly and one really in from did not

in play so And that will think out fiscal as well 'XX. we

Quinton Gabrielli

more there mentioned you seem sale? market. sense. in that landscape type of coming coming out in a number to of touching Is anything the macro terms improving M&A companies little of bit No, still to on And of an maybe a in you're that active we call landscape, or and Is ton kind the down? makes for have confidence the you're as up seeing rates improving the

Ronald Konezny

Yes, it's a really good question.

to coming didn't to down start their 'XX to market improved modestly to rates I date. until think, on throughout think that's and for really Interest maybe I people's them things or decisions a conditions. maybe hold better companies factor, in recently,

points banks some macro that maybe will the into government. interest a combination think and least a approach out of M&A from going 'XX, with accelerate federal I have rates maybe view at come different optimistic of

there's think 'XX be increase reason to to And will compared so in optimistic M&A that 'XX. I

Quinton Gabrielli

anything it. And surprised just the surprised that Services kind least in pleasantly underneath or Or this line. were Got coming Is kind widespread Products there segment? is, we of upside? one outperformance, numbers our actual last that from was to of at and of kind relative kind we specific with from your across & ARR onetime look of driving as us then at

Ronald Konezny

good the our contribution. product become has Again, that provider. solution the it again, was bit news journey it Each of a own their news, that But a about good to of really No. lines broad-based going broad-based. was they're

Operator

comes Instructions] from question line [Operator B. next Our from Nichols Josh Riley. the of

Josh Nichols

more, I for from higher would for see out little thinking year that expansion to I expect know double more margins up margins. And record the be some about for the 'XX. ARR a with think given and the digits, level about the that How revenue. to bit ARR margin there you the gross you're guiding But gross might flat room to growth? ability Good the move as gross line are XX% fiscal and the outlook we thinking

Ronald Konezny

Yes, it's do we gross are there others. good be Within and products bigger much will time. when XX% the services, we have accretive do mix ARR a better that think definitely margins we margin. to, question. have and is pay and than product some do attention to that sustain. a really long plus more that driven outweigh over bigger is gross overall And in mix that it component product our mark ARR we run, will margin by can becoming mix of But

Josh Nichols

insight little looking into revenues, what bit just the I'm you're material. usually because you in a just then slower. that little relatively a Are trends? XQ, in I at it base? fiscal because just lower you is quarter far any change not a seasonally off And Is There's a -- normally, like but fiscal dip that's so bit slower. know very Yes. ordering really anything slight if you're the curious seeing first have a seeing and coming

Ronald Konezny

metrics, "the not interesting. looking are I And themes looking We've know been necessarily, bottomed" has the is our but little at recovery consistent only, I don't at a market It's think that then but the course, unclear. if of benchmarks. Yes. bit

will, continued so our focus on ARR, pragmatic a if And to course. not objectives, I we're help, any approach, reach you needing of taking, think,

Product side. end -- fiscal channel-centric Services quarter, like But you're on right. have last doesn't inventory much typically & as Channel the we're their year. they The to their heavily enter the of

the year to be a can not it's of for the quarter bit unusual little it So last -- softer. be

Josh Nichols

gone tariffs may it diversified given before. then your away done how then But you've the sometime and I operations. I'm like curious just manufacturing has know really for may just change and or you think the branch, this, And right, looking business. industry overall. at impact just you've that the impact what the since thoughts potential on know But executive how Yes. through I'm I it we curious the company you have on touched briefly. like --

Ronald Konezny

about concerned China. I Yes. has the I'll current who was last does, not would caveat tariffs since by, then felt don't sustained and like we've That those I'm that under most increase which sure probably been probability the know, action, but highest the administration. tariff the

out China. digits we've total diversified single have out, of terms but we're a finalize got plans of We're there not completely to as We our that. of manufacturing, and exposure our in

of a group the that's of little probably I'm skeptical Mexican tariffs.

play least a likely, and might there's a think mean think I have harbor. But rattling. be it we saber I at Mexico there. not is there where That the that some place -- found doesn't safe lot feels

manufacturing as as also a to well. countries moved diversify of lot Thailand, like to have We Cambodia Asian different Vietnam, a Southeast way

about. manufacturers lastly, And we if have wall will, to it. maybe potential think transition good of, our this require I action the of talked is is manufacturing U.S. facilities if of most you that can conditions a dramatic portion U.S.-based that's tariffs the we with now which been the sort

most that piece geography well, the in I consider important optimal as So adding to has the is value tariff that structure. that's an the think most you're

I footprint don't manufacturing a of adapt good we've but diversity able potential to So know really think anybody think perfect strengthened is to we're be position. if to I different necessarily, the I in scenarios. tariff our

Operator

to At [Operator I now time, Ron Konezny remarks. would Instructions] closing the conference to like turn this for back over

Ronald Konezny

for solutions complex compelling mission-critical challenges. offers connectivity Digi

about plan Investment and reliable Nashville qualified to history Annual in Conference the industrial a solutions. with long uniquely We attend market interested in in as our week, more the connect investors Stephens to and of We offering are IoT innovative next secure, we'd learning Digi. leader love given

our joining and distributors, day. appreciate and earnings your We Have customers, to great continued team. Digi's Digi you our Thank for call you suppliers a to exceptional support.

Operator

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

now disconnect. may You

Digi International (DGII) 13 Nov 242024 Q4 Earnings call transcript