Digi International (DGII) 12 Nov 202020 Q4 Earnings call transcript

Ladies and Gentlemen, thank you for standing by and Welcome to Q4, 2020 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. [Operator Instructions] Please be advised that today's conference may be recorded. I'll now like to hand the conference over to your host, CFO, Jamie Loch.

Latif. you, Thank and discuss everyone Digi for us joining Good fiscal thank XXXX to the of fourth today afternoon, you quarter International. results

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year Digi earnings and and fiscal of Jamie fiscal quarter to welcome fourth XXXX you, Thank internationals call. end

our potential. and finish to the with both excitement record a We to fiscal are year future on pleased

Infrastructure solutions the implemented records heavy zero the and and bring beginning earnings with Roberts. revenue. offerings quarter the of commentary structure growth automated, several continue has those to gross setting and we've and the cash Wiley structure. Digi's unprecedented stage Inspired leader Brian generation incentives year. Gary XX,XXX has our line quarter achieved strengthened success have proposition customers, Kevin and have pay Each their organizational Cellular model respectable lead our new the able with and accomplish these cash value by seen And We already the touch Management Steve pandemic. the fiscal Kirkendall at debt, goals previous annualized changes Technology are their with Services Ueland, future. revenues, XX% connected margins, in and on Mike strong subscribers profitability, year-over-year. Ericson; our Consistent aligned with implemented business lines. to adjusted EBITDA product team their remote, new These And records, competitors XX% benefits segment. growth new product both our keyed were for Digi to in of with fourth all quarter's performance. new OEM Tracy of from collections Our fiscal cloud recurring Marks marketplace, and the of the focus Routers under the SmartSense We're $XX team last of annual embedded subscribers in double-digit organizations. to leaders leveraging Opengear, of exceeded the million and Solutions, to implemented key in over new we our Over margins. our call, in from performance SmartSense, demonstrated down maintain intelligently

quarter. mass as Products in services products decline impact other customers server from is during business Now includes our of to which our on each XX% moderated the last a year. line and in this drove the an continued by some increase console again, IoT over of segments. offerings and Similarly, revenues Services comments our growth few Opengear Once pandemic product a

achieved in our improved XBee over Year tools over Remote router We XX% We continue We offer Fi received launched a new fiscal XXXX, and the are is revenue CBRS greatly in product our to XXXX. for investments And $XX offerings. launched make fiscal Digi year of service offerings XXXX. our the XXXX million from Manager; we go-to-market. Wi prototyping in Electronics which in Industry first Design XG Tool Engineering We fiscal X Development award. cellular introduction innovation, of

opening registration servers lineup Our server, of new and the capability console to gaining flexibility with portals auto traction of market a and automation the We're both purchases and band partner segments. implementing simplify of support success, renewals. new ease NetOps and which console deal is up combined new NetOps customer smart their

go-to-market and world, hiring operate to physical the product We strong delivering of that teams our are a connect makes is all difficult our marketing customers IoT products. and Products sales. in the at team additional in it new expanding Services results new lines time and introduce with with and

virtual have we tools, to often skills other sales and our access company's meetings. customers ourselves in their limited to for and while reinventing Our are person labs and environments and tools positioning Through travel marketing restrictions. due

fiscal seeing SmartSense remote are over through software in Solutions take building the higher in IoT with pandemic $XX management We We powering subscribers retail and failures. evaluation, remains with but added verticals. pipelines subscribers in lose ended and X,XXX the by million XX,XXX high subscribers revenue. induce product about we quarter did recurring rates Retention year over and with our driven the annualized the increased payoff healthcare win year rates. XXX business

and And million on mobile be X, recurring agreements next legacy few of expansion destination, two four and of of have fiscal a team SmartSense officially SmartSense by one established, innovation, regional in XX,XXX collaboration achieves steadfast existing commitment now and relentless retired give We're pipeline per X,XXX to the position consolidation grocery all strong by strong Newly we're years effectiveness. of path visibility customer expansion services in chains, XXXX. that to sites. targeting we large we growth. success. restaurant innings business level, pharmacy we're bookings continue quarter interface we the annualized and to [Fresh the X.X SmartSense cloud The progress of to and over revenue maturity, leadership over The a corporate to over Schwan's, its early and X,XXX of success remains sites key efficiency Digi's At XXXX. to XX]. us the lead for With implemented markets, focusing X,XXX the could the signed with a end our a adding of subscribers market sites quarters. on a $XX establishing and throughout sites customer

have subscription revenue recurring in million define and our value over will across services and $XX We entire analyze company. now success. Software customer the

well significantly chain on supply showing cloud-based implemented labor-intensive on diversified to capital- deal tools. and regarding year. increased in remain tools replace We've offense earlier to the market resilience. and the from increased perform Our activity acquisitions, premise, continues We

our We will opportunities near significant and tools pursue I our to of eight-month battle bolster and continue adaptability, the success in is Absent team team, easing But confident customers to impressed and not our stamina net in acquisitions, continue conditions Coronavirus. chain, our the segments. sheet our continue in our and in deposition. with We'd IoT both Products what by to business humbled their I to our commitment an we and the Services supply offerings. term. expect feel our and now Solutions and IoT balance Digi and be an

can now to look forward pandemic. our team in more will this the for persevere I and Jamie our call is, person collaboration, turn over detail financial will I more on performance. While to

year. to afternoon, contributed with the some results the Good key that fiscal quarter you're Ron. healthy. our of Thanks, Today, everyone. Hope financial safe and fourth highlights record all and fiscal that I'll our start of

quarter And strong among call believed And basis, diluted noted guidance, again quarter. non-GAAP excess gross That company, continued with uncertainty is slightly position. third an analysts' surpassed mark. revenue our of growth quarter $XX.X surpassed percent adjusted potential for revenue, continued performance per at by to the was and fiscal was perform a while $XX.X an did EBITDA mark of vision provide supports as for finishing operating $X.XX. and quarter combined in our our have share an $XX.X the on fiscal or we the for margin our to quarter revenue our which focus driven despite for Last consensus we EPS for EBITDA XX%. expenses is EPS. fourth and high quarter results. for adjusted quarterly expansion non-GAAP continuing EPS with had The estimates all-time largely margins On pandemic. specific of led we the fourth EBITDA Those of results diligence $X.XX, and XX.X% ongoing $XX macroeconomic the million once our high we execution adjusted that GAAP that ahead million the million the not performance Digi strong all-time EBITDA, trend revenues. our Our fourth fiscal performance by million of the Quarterly the mark fueled of EPS

has back is share. GAAP the in at per numbers highs XX.X% revenue performance Looking up Digi high and XX% EPS step EBITDA all million The by of non-GAAP by that another grew basis, combined XX%. EPS year, per our adjusted of performance seen diluted generates The $XX.X grew of EPS normal non-GAAP fiscal or revenue. two-year all-time economy. to the the change while macro revenue are a resilience of $X.XX non-GAAP our demonstrating On EBITDA completes The Digi. finishes adjusted at Revenue rate XX% $XXX.X $X.XX face annual for XX%. establishing full adjusted year million performance new the a it and about and annual of year-over-year correlates diluted and a for dynamic EBITDA annual a share, is model, and Digi time and growth of

Digi performance our $XX.X we year fiscal and in the cash quarter, $XX.X resemble cash. customers the fiscal fourth key fiscal our million, million opposed our in we flow brings as in We indicated million with QX. our year million indicator operational to $X.X As generated expected for we flow. $XX.X to QX Last value that we the to quarter a cash the last that highlighted fiscal million quarter, closely flow fiscal in more to generated believe ending operating of we the lies in for cash $XX.X continue

another So will future. make facility positive operating our substantial this is cash generate us in we continue expectation paying to quarter. a performance maintain payment flow credit here a the million QX. to down result allowed in cash during that our We This operating in fabulous $XX foreseeable

secured of with we million year, based in bank debt do that a $X.XX of will facility $XX.X level. now fiscal that as per position under at which treatment $XX.X have ending on $XX we cash for paid position figures million right consider what normalized share now Opengear. leases, standards acquisition classified million the Our during on or the our debt down into our net new around we accounting the stands million million have of of add These And $XX is debt $X That million. long-term the just our of diluted books. means balances $XX debt mid not

We ending Inventory increased prior AR compliance. our are sheet with and to $XX.X with our covenants, million material expect up compliance of from position $X.X from at is fiscal up our bank's no facilities million Other $XX.X changes end quarter. sequentially our items quarter to million to balance remain million, last note end fiscal reserves. in the of in $XX.X our

assets a of timing the inventory impact classification to SKU B's SKUs this there reserves do materially our services our or changes and B have the channel To C's We line longer out inventory, past ability a sheet. been deliver to see have over products delivery risk travel at any increases be in to restrained is for restrictions with We not quarters. manufacture are global to monitor work to which we A, do balance obtain and those we While as closely through related, a closures E&O A We've not change. in taking are of We our our the to while inventory customers. inventory work date, or and and inventory. Current to is several levels not expect between to material result little adding themselves meet levels levels any continue million C. $XX.X that the and of regularly. border change some

level portfolio, quarter margins XXXX gross fourth in products segment and quarter mix rate the and IoT year. million and acquisition fiscal the to of the year-over-year $XX.X into fiscal Services basis points revenue Opengear increase. acquired XX.X%. XXX XX.X% get full the margin the Products increased Product across of increased the Let's to through for including

of delays with from to year primarily revenue associated XXX XXXX. Opengear our Year-over-year $X.X from for strongest last quarter in Gross For to indicated, basis XX.X%, to our delivered XXXX, of Services growth IoT the IoT all-time X.X%. sequential our fiscal expansions result to fourth as acquisition grew decreased a completed and of Products our primarily fiscal rollouts, This of hit the is recurring to increased margins revenue XXXX, XX.X% million. points a December margins upgrades basis And and IoT prior points average XX.X% quarter Gross in $XXX.X business revenue COVID-XX. Solutions numbers million demonstrating year Ron in due margin Solutions revenue XX.X%. to increased highs recurring high for as the value annual business. XXX model. solutions customer

Gross and prior quarter. of prior COVID-XX. XX.X% result as For XX.X% as IoT million This the revenue increased $XX.X compared XXXX, with attributable basis in mix rollouts, to result year delays expansions from a year, decreased the is Solutions margin of to recurring points fiscal of fourth the greater a the XXX of revenues to upgrades fiscal year. consistent customer

EPS. delivering available the We're please specific That growing improved our relates our as proposition With the to in us your we and questions. as feel take for been instructions growth, fiscal dynamic remarks. value now our circumstances concludes XXXX. Now of hard some is committed non-GAAP confident to that prepared callers. changing Latif, disruptions COVID-XX. and guidance, ongoing, continued team impact profitability, to for experience provide looking Despite year backdrop it anything Digi macroeconomic the our from provide to the forward continue it more conditions, to have customers to is and that, the of

line [Operator the Instructions] Michael Walkley of Our Genuity. first comes of from question Canaccord

on Great, another Congratulations you. thank strong quarter.

So at close guess, debt sheet and of and kind paying question cash level Ron, net the balance over gross flow margin look high your debt highlighted you a debt still longer debt I you're make you Jamie Since for just and with position. business? acquisitions again, an XX% down free to getting would to looking the no to willing levels Ron of like take Opengear? type for or you've opportunity, neutral on What be another grow to that as

hope question, and them talked remain Yes, on to of that past depend it Mike, in we multiple product can target, on wise, and services are tend the the of offense be I well some acquisitions, we've off, doing on we listen, acquisition as first does about and you value profitable they the to as EBITDA.

go, EBITDA to to times on willing it leverage. be we'd up so And got profile many

little - On profitability in different don't if bit the side, it's many story, significant acquisitions term. be those to the of solutions we expect solutions aren't or at they profitable near they them are necessarily

that level as return. say, rule go up comfortably debt But of so of And I'd that want might thumb, four. to we alter the we a to

you year-over-year us rate you what or just quarter the And areas on basis? if run competitors recurring on the the on for a solutions revenue then any certain like on could also mix a update feel strong just you the you Okay, then business, this Can environment the us something competitive there's gross with have that and that's update have? helpful. And on margin is just quarter? the solutions remind don't

about the annualized finished at revenue. recurring We million Yes. quarter $XX

really see really comments, talked pleased segments We've hazard see And about nice with and those really we labor. special opportunity glass the make mass for food have leader really restaurant returning cases continue So back. even back, they've divide encouraged in had looking We've really a and was accounts been healthcare. And XX% at talk in kind if investments hours that distributed. - of we about grocery that potentially especially sure we're for the by quarter. but there, mass the couple being we now adapting into gross come and been talked you piece. Groceries we portion a us. with a grocery margin temperature revenue flex win kind back interest they're vaccine normal And been to many and nice you vulnerable to gives or notice nearly service my folks. has the that for a that of if of about optimizing, - a that enterprise are margin four nice recurring new at previous you pay by they to those they're for is calibrated groceries sensitive see come in to to been it as But healthcare,

nice early think to to changes. it's we're We, this so come in So We biggest the that the activity see big we regards room. grocery haven't seen maybe is back. innings, any And although kid compensate?

changes there. seen out haven't significant We competitive any

on. Great. it Thanks. last pass me, for I'll And question

guidance it's remaining a with So season? you the end? look tough quarter kind year? know Jamie, for stable, seasonality Any to the I of as kind on some maybe channel year I of But environment. know, losing the cautious and thanks tightening channel for inventory there'll of this you next I should think in Thank you holiday on do for know Just, be year. little tough. it's December if sales be year-end thoughts you. maybe the just inventory

Good Mike. hear from Thanks you. to Yes.

level, there's is historically, seasonality, has the it's relates as there's kind look table, inventory. of historically, seasonality this there's to of business of roll that already that think in kind been that we is dynamic of been - back QX, as you think watching I it a are I challenges with the one portion channel to inventory inventory

already for it's customers. assigned So

normalized anything a to be that We're a of some of in something but lower be that watch. at than naturally will But and in level, would So would it. level bit now, the a less little it flow is not out range. be right

eye on that for an keeping are So we FQX.

line of of comes Stoss Our Craig-Hallum. next from Anthony question the

a billion, the likely a you'll Acquisition bit, on execution, Shifting - your too how you business to get with this guys. being little in Ericsson refresher us the be through impact will COVID be? you Cradlepoint rates for your offer And that if be, a business, also a second Ron, few more just is maybe refuse detail to of take good you've release know Thank related from curious distribution. it'd would behind that think to $X.X you. an guys if changed do business? anything kind I of your biggest last affect press good cellular a vaccine I'm XG. them. How with regard. then put a Thanks. is And - seen Great out gears weeks you ago. the just vital business growth Have would that chance there an in maybe follow-up you that

business. Thanks, Tony. Ericsson. to to Yes, done job we've of incorporated lot were And a we've they playbook Cradlepoint, they've lot secure team, a what had Congratulations from to sale side they've the able a what router to opportunity, their nice a of our winning into done. that great and customer learn

And will proofing on see and think product go it's at XG got more probably Internet so on assurance applications we're their more prototyping, little first those we've great a where you'll also little we end or adoption, a of future be more has indoor that to the modest higher industrial Things looking speeds be our this bit customers the won't life released people of a year. wanting bit XG and world are the time have offense, it products issues. for and

of and the of do heart open And it's group to and that site IoT shared conferencing about arrived router carriers, us. that technologies that's It's implemented been our as it's our of of really a Opengear important and think yes, we Services year a are view between there's Products the business. important well. if lot valuable a ago So we business. And to

eventually technology able a So the And business. we'll of that XG pairing. that site for be in to to addition our router makes leverage great

shots and On important been pharmacy navigating a they're the discussion we've very vaccine us healthcare to a get A to lot clients get we've desk to are point. shots our of health they're clients their be to flu services and had vaccine and offering about customers, interest. existing pharmacy looking also a lot side, speak great and great of pharmacists of and our lot role. behind those will entry into It's and with the courses got

forward. and well that ready adding incentive sponsoring a maybe about been So we've trigger the Asian nice chain they're additional them as a existing that customer weren't and fitting that's it's as team talking supply pull sensors and but to potential extra to whether been to opportunity and folks move recurring this the all gives for to

it where see from also thanks year been Opengear's an margin can I but them. us follow-up maybe gross margins They've for overall Opengear you where overall go maybe Got itself gross then quarter on now? great say margins ended refresh on on gross the also and if for you gross on a margins. just and Did front the

extent purchased the XX% honestly exceed Yes, probably model increase, help but we're gross we saw you gross to expect, margin margins of why XX% a there specific the biggest hold. a put really for margins, that. to lesser from Opengear to is expect XX% do really EBITDA understand been part met get solutions, we plus the has big which plus And is nice not contribution adjusted of margins targets what really that reasons some too investors what out to Opengear we expectations. we we - those when and single

And & next Sidoti of comes Company. Burns question of from the line Greg

segment products detail organic any on perspective strength you. if What you afternoon. then give weakness bit quarter? Good particular a rate the and on from us Thank solutions the that a And for areas growth product was of of within maybe your or little segment?

you're Greg, question. Yes, for well. doing the hope Thanks

some did in as As was well. saw see contributor products growth, offset decline, embedded business, in strengths really and our a we partially seeing was comments cellular for router by our Opengear our big strengths some it we service a to mentioned in business

be services a of offset hold group product declines and But by by group. through network proud pan. nice infrastructure how continue some in So we're well. have the and result. management and really And produced group expect the will success together that positive that they overall, we complemented business our trends as were And partially to to net the core Digi Opengear do those came

the then And think to like for guess business? Great. is business, manager the of digital you're I what's total and so of the go recurring you big how And or rate I mentioned that number that $XX do like and was revenue, the side? across some services attach million on where you services over And provide couple trying and products years? next the think could the year-over-year,

growth business is been Yes, in really we've a product strong on within seeing our recurring double-digit revenue lower and it service albeit base.

take do rate, Earlier, strongly so not on there proposition. question sell software our believe customers. So that example. it's hit, Opengear a benefit toward in we're to in single the And dollar equipment the less significantly both absolute basis. an impressive Digi was we Actually, the not XXX% happy, value and which provides on give without want norms, XX% up it to they XX% you from Cradlepoint; because get are we obviously is an to historical

having them opt different climbing already maybe really go with back need bit little rate, in. have to versus us and take improve new tells But versus in we've going to that the the for us, decades, a opting switch. that got we out are customers that that's a so And you implemented take of introduce gradual, lot really for more it's existing been a direction rate a we that certainly business who we're that business, we keep as harder But to maybe how we've it's hard opportunity solution. because customer to

outlook of year, Okay. the again, just next just miss outlook And customers, could next through and the you the growth gears customers? solution run ARR mentioned the I you maybe numbers then like some switching the XX,XXX business, for group of your side maybe for year, about of those I to what is think,

up shutdown. quarter addressable - nice businesses the this with to a from - lot we hit year three, just Yes, see quarter XX,XXX by the XX,XXX this is and the QX, date. throughout pandemic, a just of jump line was market their had And to we've it's over really a flattening improve what to finished of really curve group real subscribers sequentially dealing fiscal hardest got last been subscribers, that and sight with signed we've just the solution was or clear nice

those new we'll implemented - so that quarters. of on bookings And few we're well. have next as now get And come

enterprise been X,XXX By And really had to our to it's quarter in return we pandemic. large have driven to the been really these average expect unlocked, restaurants so deals first by and healthcare. sites grocery, a since on as we that X,XXX success

and I Okay, so on, here. just then the expectations understand

to you're if imply that So churn and remain going you're you're or like to three to at XX, does growing XX adding four base? within expecting churn, subscribers' be existing to high the

No, to not we about just already but finished we talking with just I'm Greg, be agreements clear, signed, yet implemented. XX,XXX have at

have XX,XXX We a to we've path just with what signed to date.

we will transcript, XX,XXX agreement a example, bring in us signed to annual So forecast. that we a what That sites. date. gives a I That's over just my in to regional just grocery those booked really chains, release that pharmacy agreements, an visibility couple not X,XXX is Schwan's that press and restaurant for these new what that's with customers, announced chain mentioned

the comes Colliers. question next Dick line of Ryan Our of from

Thank you.

points? playing? back start you capture? vaccine, through and the participation Not necessarily the and would Ron, on touch So, all you And How but you maybe broad other where how manufacturing vaccine guys participate? of guys at the distribution broad and question, transportation could the to could

and candidates a question. you could volatile saying situation. that are candidates An different couple I there it's handle requirements. ultra-low really see Pfizer the freezer from Yes, freezer think requirement, in different different those like a little at Moderna standard is have storage moment, a it's a And the good with

uncover and where that being you dry production it of to not retail pace mentioned make, packaging, as see those being necessarily lots need stored are the most because side. to clinics, that lot as those in of there's still, be broadly ice delivered but portable ultra-low course, participate and wisdom stored of in centralized And that to into the Now, goes time the in the more well has and temperature ability that initially over area. within we But earlier, as chain, I hospitals, distributed that for there's used distribution need. and needs supply to distribution our conventional a it pharmacies,

So the there's benefits for talking we've the in highlights to folks lot new past their customers, either monitoring. need us been with been or business interest a are well certainly for that it additional the relationships, existing as from of and opportunities

not does Okay, upfront least the started any roll at there for that out? that and in sale out? maybe Schwan's, service has rolling Was but sensors, on how September, obviously quarter in

was - will last up and quarter until complete this as the don't they're Schwan's rollout We recognize Yes, running. started those sites subscribers and quarter. really

And saw some with more equipment subscribers recognize last that in revenue start current to a quarter. see bit and the opportunity you'll this quarter. We'll those so then we quarter, little associated one-time

In quarter, December okay. the

In QX.

the back Konezny Ron Thank this turn I'd you. time, like for At CEO, closing remarks. to Sir? to and call over President

We Latif. And appreciate our joined Thanks really thank today. you team, and investors. the to call that everyone our our partners

our contact and is next meeting. Craig-Hallum and earnings November Next Please Annual week the if meantime Virtual safe look I one-on-one Select XX, you'd like forward XXXX. participating to In Alpha Craig-Hallum healthy Conference on Digi in call. schedule stay

Thank you this Ladies concludes today's and participation. call. for gentlemen, conference your

now You disconnect. may