Digi International (DGII) 9 Nov 232023 Q4 Earnings call transcript

Good day, and welcome to the Digi International Fiscal Fourth Quarter 2023 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. Please go ahead.

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

Joining market opened our morning. Ron issued call earnings this me CEO. our the and We Konezny, before release on today's President is

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

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

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

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

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

the I'll call turn Ron. to Now over

Good Jamie. everyone. morning, you, Thank

improved uptime. adjusted and and truck Throughout new million gross for margins. 'XX, We unlocking improving records with carbon turbulent and ARR, set in We EBITDA revenues. connected paid our reducing an What few customer to Digi. service into EBITDA debt footprint millions the for jump $XX our adjusted and things a we rolls Before a year comments. Q&A, of fiscal down fewer savings, industrial Internet, we customers' higher incredible and

next double our And to and X to in EBITDA journey adjusted $XXX We are next begin million achieved million have goals. essentially ARR the proud years. $XXX X our now we to

off of to a that 'XX the customers fiscal our to need believe subset contained a dip their time Although modest start to long-term is period, inventory. we'll be in we deploy

expect of by improvement play secure, role EBITDA than to industrial ARR be resilient grow We to are leading faster There solutions. top is Digi and billions connected need the that continuing providing our adjusted and things line, model. of the and to excited a easy-to-manage

to operator. operator turn back session. for Thank the question-and-answer At this call the I'd to like a you, time,

[Operator Instructions] Our first question Stephens. comes with from Tommy Moll

a in their you Ron, revenue of largely extended referenced the and the relating as deployment to time subset of dip frames. terms customers

may But just be in us on about more you the context you're what point console any same earnings could that think servers you I release. there? the referenced seeing give

Yes. often have quite the them cetera. It's to not need be are together, deploy There's industrial et data products to in customers other taken a like but our original center some vendors equipment, that -- deployed longer There's there of space some Digi inventory. collection a little projections than some But the I think companies in as analogies. taken you've seen sectors this inventory. and with other bit of Cisco, that that just

they And a originally taking matching getting bit profile deployed, little so that is all demand with that organized projected. than longer

of the that Ron, is slowing having logistics a of function demand? do is deployments? function in more stage underlying it timing of and to that you And think -- just Or a

think Yes. Tom, of bit it's little I both. a

cloud. I think long-term are work that moves more the the is more trends and there to

trend. confident in we're So long-term that

around some growth little the cases, also world, the things and rates literally supporting aberration putting logistics of more bit higher an where In that there's deployed can of expected planning. take think some probably and than together. a were these all I are

Okay. helpful. That's

was overall. I flat year, other revenue for had on The guidance your the question

are we EBITDA And segment line, progression similar on down? you're the showing for both the one at so expecting flat And or something level, revenue. up, on one then is is

must that margin be expansion. for there driver So some

If well you helpful. could as would highlight be that

Yes.

we I think Digi's really increase absolute factors important And as the expect of a of as the our just generally if is ARR at gross our like to expectations. whole, consolidated gross And And of where mission down recurring -- we margin on basis margins much to percentage is an we of good revenue being line. and that terms similar overall to slow our we're our in revenue. do the to story higher really than level. Bolin, really across margin see ARR one And a faster. anticipate grow which operators gross is a contributing segments the amount revenue that's to the

play dynamic so seeing And you're the out. that's

question next Our with Genuity. comes from Walkley Canaccord Mike

little And I from flattish guess, 'XX. and that's ARR, that into higher for longer there With fiscal upfront much get more bundling on to on guidance strong sales 'XX. revenue term? impact you the so hardware little built how of the a revenue a the an congrats hardware maybe the growth Ron, that's ARR margin just increased driving might fiscal be lower

many of And become away know, from move solution think ours of more dynamic. important investors sales. a real a a that's theme our and provider as that's and I of Mike, key onetime to is Yes, you

better solutions Digi. is and And service. from we're to sale the course, away so and a increased it onetime some product economics helps to services, upfront, moving for but revenue and we're for seeing that a both of and ARR And lower visibility customer extent, and overall end provides

rather seeing single want into wrapping to and seeing certainly we're onetime than pay for Solutions of segment, in the fewer where So transitions solution. over Ventus those deployment fewer more to seeing, closer increasingly solution, extent, customers monthly -- it we're to together. and services some a our all may a cellular time, And especially group, Ventus that services that expenditure. with you're with router with lead also cellular We of product working but a

as to That's maybe it. And components? get improved guess working follow-up balance demand your and question, flow I capital you just off incremental still some fiscal cash guidance to drive the Are Jamie, for And supply inventory my as in 'XX, flow think helpful. about we hard cash might there how more then in now. Got gave?

Yes, -- seeing than the Mike, it's you think challenges improvement. do the supply better we're chain in know I anybody. some

through our to where demand. customer of have supply in us made I were really think through through is I the that handful But that tested. the are still a navigated chain either we we've easing think put some there or buys largely, strategic that meet a position we

we I from progresses, year demand will should we your see working to I perspective assessment. expect see not chain, capital working would us that up realize the benefits not through agree builds degree supply investments needing the as the free capital a that to with as and in that the the and as that maybe both in 'XX. to were that in made of well some saw 'XX

would would 'XX. aggressive And so line improve EBITDA it I expect that probably was a debt in adjusted into predict on cash that that, more paydown 'XX. could conversion equate in And to we where from

helpful. the I'll pass That's Great. line.

with ROTH Our from MKM. Scott comes Searle next question

of Ventus the of as of maybe metrics you're us wanting gateway at terms terms of is base hardware like historically fiscal Ron, move Could onetime impacting model that of around assessment up to in sale what Kind bit recurring much traditional pre-existing towards question, onetime what's quickly been us some more a give to how sale Mike's model. from in little the hardware the market again, seeing flattish model. just you're looking the to you follow that for on an the transitioning sales give of 'XX?

Yes.

XX%. look revenue the segment, of revenue around subscription that's as So our onetime example, by towards the nature total metric sales at recurring an within away moving fiscal at you more in one XX%, been it fiscal That's an from predominantly SmartSense. that's look versus of it and if 'XX, example the 'XX, driven a was Solutions was you

services, saw comparison recurring increase a a 'XX. in we and within As in the fiscal product significant

the a moving subscription recurring XX% greater of our but more and change our channel was management, -- to to take some we're with internally execute. really versus over But a in does onetime. that's towards sale with and It it partners excited work think 'XX. a both and solution 'XX on of rates a close solutions, lot see I progress to also having traditional to extent, the of that combination increase attach

follow to up on just that. maybe Ron,

term. to So like recurring a conversion accelerate, And hardware fiscal what we gradual process is I initially, it sale look as but longer a in -- terms which sounds 'XX to of is thing mix of in -- that a and what's the out it that fiscal based, onetime good in of 'XX. think started the expectation that

gradual question. to a We've to a long-term it's with need lot hasn't move it's to I got think Scott, customers management. Yes. of really specifics, change thing. We've good bid closely model. very we to this we be And going a got but as work careful to be

to forward. And to for So budgets years patient their We show right? with we be up been some CapEx, that we OpEx. say, incorporate of have into deliver them budgeting as and moving want need they

a for question, more timing move we where over it's them to bang than, is a maybe motion customers think from of a So force inappropriate slow big I that event to your perspective. say,

if for seeing just follow-up, where fiscal for December the 'XX. And some some and 'XX, looking fiscal you're of wondering in expectations the of terms the as a broad-based you in could the product lines kind you. different Got into through tick out weakness of for I'm guidance quarter

I'm now? and the of the seeing some on relative right already commented you're could the is wondering channel how other kind You and you Opengear highlight But strength data and performing where if center. out-of-band of areas of

think growth product that previously, the within server. period it's you'd question. be they isolated Scott, in were If as of to seeing Yes. customers they console ordering year-over-year. really good We have primarily subset done

So lot a of does explain that alone the difference. really

expect with recovery see to for baked we 'XX. that And get earlier, what's it digest and will mentioned I X track the or quarter as them on a that's to ordering do traditional assumption throughout but that take really that normalize. patterns, into back As we

Robert question Piper Aguanno with next comes Sandler. Our from

of or versus your about other Aguanno question, you well already? from Robert into Kumar penetration as thinking term had the the are you products mentioned that how in potentially your Harsh inventory as maybe guys you customers geographies strategic the play the of near you're for that large coming a More within markets Can further balancing here. weakness in that buildups. how compare guys you

Thanks Yes. the for Robert. question,

dip, other are digits. look that companies private While public think market. think this companies our we near-term When the double significantly we're we in markets confident and outperforming we've this absolutely of rates the as at end well got long-term growth we Digi. as are We down

let to or want So the on we don't they up think we're And better be than most. whether labor capital investments, gas doing resources. pedal we the

in offensive got people the we're So to if opportunities times the is very long-term a in there, so their good just connect dip, a ROI today. remote we the are have of and think short-term we concerns we've trend many more posture to remote there to assets, connect even is compelling. assets times like compelling potentially in The even macroeconomic ROI and is stressed because

reacting that if how you only how follow-up, customers customers that hardware, maybe you getting with to Awesome. on them they legacy on large you put are specifically want and specific, business hardware keeping of your or the situation? too software And the maybe are that just without are my in responding front stick transition, as to the software to hardware

don't good them. very, to them us to value. will, cases, very for, We it's They've want existing convince in question, And on pull We're them threaten decades. relationships. We models. to want relied some if want you a to sell We don't the want we sensitive to to new them. hostage, Yes, Robert.

to solutions over to than with a to different opportunities want earn rather business and new are story. we what So that to understand much it's opportunities, time forcing they it. Certainly work them transition

companies as pursuing And as New opportunities to have party that match. mass convicted -- avoid much do good us ourselves quite alone don't many were going we're journey. There more -- not of earnest other solution opportunities good a in down as those frankly, know, positioning have that are this allows as a a are this. and that on you well courageous

is and that customers' So solution it's need. for our closely story. the very us hardly key But an strength unfamiliar matching with the translating

question next with Craig-Hallum. Stoss from Our comes Anthony

-- on Ron, revenue that you on for basis? any maybe from seen yet any can maybe, then changes thoughts OpEx you've address Jamie, on of kind customers. recurring your of a as And quarterly XXXX

line. to Yes. top the grow faster Tony, than We're excited ARR

lot a rather it's overall, think a internally. compelling And we we're and So solution decide our trust customers, internal with focus seeing a to than managing of frankly, us their message. on it real quite expertise

will, success that's faster the a if manage feel you industrial solution trend companies pieces under to where a, this we IoT, getting themselves. Digi more are with So there and trusting trying mini like having and the entire customers megatrend bits by

we feel and are so we level it's interest. a feel -- -- really that could performing So on first at secondly, on in the best that pacable solutions higher foremost, course, their incredible And journey and they own. could do embolden this and what customer's deliver

the Jamie, And so us trend a side. for that on on really OpEx and position I for. translate, just and let course, for solutions having think good backdrop that's this of comment then favorable you I'll

create that it kind weird a is a period, little really if that result QX of at you wild typical, if get think ends up there's see nothing I OpEx It's Tony, through happening. trend, stand-alone. treatment of look can you'll that it's accounting from in line X-quarter have you perspective, through flowing that's you'll over Yes. that if some look several right, trending. -- over bit look a But you to a just an lines at that

be be to the the investments. to for investments or expense business, would that operating open right continue We whether capital

closely. in monitoring this time project would take manage from ARR more revenue. than that we pretty I bottom and we that say we appropriately faster why recurring we We'll be see line transition part one But in growing of watch as profits that would our place

comes [Operator question Mesniaeff Instructions] from next with Greg Westpark Capital. Our

current third-party Can guys direct give color model versus little in sales terms a bit your you on of of distributors?

On direct segment, are primarily distributor. our we Solutions a

sure primarily of aware with services, most product ROI. of going So to and are that the channel deploy our partner. we're where selling a directly customer how to the the it's solution, is to it, In making the end and get user through indirect, how opportunities and

And go Right. expect you do And how how to has that ratio trended forward? it recently? moving

is Yes. past, the continue. what's trending in to It similar expect to we that done really and

the other side solutions and One have good we're channel on our seeing partaken as them and to solutions embrace they're, well. results of the again, opportunities bring the is certainly because element, really done of select companies some which into them with

direct product the but that the -- on trend is side service So through likely side. think continue solution partners and we to the we're and that channel on

the remarks. time, would That concludes I the question-and-answer session. to back At Ron this closing Konezny turn like for to call

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

Stephens will Have For day. in investors, Nashville. we be XX attending Annual Investment Conference, great November a

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