Digi International(DGII) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The second fiscal quarter marked a record revenue performance of $77.3 million, representing a 5.2% growth over the prior year [16] - Gross margins were in excess of 52%, leading to adjusted EBITDA of $11.7 million or 15.1% of revenues [16] - Total annual recurring revenue (ARR) reached $33.8 million, up 27% from the prior year and 3% from the prior quarter [17] - The company ended the quarter with nearly $22 million in annualized recurring revenue and nearly 77,000 subscribers, representing a 37% growth in ARR over last year [12] Business Line Data and Key Metrics Changes - The IoT Products and Services segment revenue decreased about 2% year-over-year but increased 6% sequentially [9] - OEM solutions and infrastructure management grew, while cellular routers declined year-over-year but showed strong quarterly sequential growth [9] - Infrastructure Management grew 10% year-to-date, marking the first full year of growth since 2016 [11] - SmartSense IoT Solutions added about 2,000 subscribers in the quarter, driven by healthcare and retail verticals [11] Market Data and Key Metrics Changes - The company is seeing strong demand across its offerings as the global economy recovers from the pandemic [7] - The digital transformation of businesses continues to accelerate, positioning the company well in the Smart City and master-ended opportunities [7] - The company reported a record pipeline and bookings, indicating robust market engagement [7] Company Strategy and Development Direction - The company raised nearly $74 million in an equity offering to support its acquisition strategy, including the recent acquisition of Haxiot [6] - The organizational structure is designed to support both tuck-in acquisitions and potentially larger acquisitions [6] - The company aims for double-digit top-line growth with recurring revenue and profits growing at an even faster pace [6] Management's Comments on Operating Environment and Future Outlook - Management noted that while demand is strong, supply chain challenges are becoming increasingly difficult [8] - The company is confident in navigating supply chain issues but acknowledges the risks involved [29] - The guidance for the fiscal third quarter expects revenue of $75 million to $79 million, indicating year-over-year growth of 7% to 12% [25] Other Important Information - The company generated $21.3 million in operating cash flow for the second fiscal quarter [18] - The ending debt position stands at $48.1 million, with a net cash position of $79.1 million [19] - The company is committed to enhancing customer experience through improved onboarding and support processes [11] Q&A Session Summary Question: What is the growth opportunity with 77,000 sites in the IoT product line? - Management indicated there are over 2 million sites in the addressable market domestically, with low penetration, suggesting potential growth of 3,000 to 4,000 sites per quarter [27] Question: How does the company feel about supply availability? - Management acknowledged increasing complexity in the supply chain but expressed confidence in navigating through it, noting that guidance includes potential supply chain impacts [29] Question: Were there any limitations in the March quarter related to revenue? - Management clarified that while there was no revenue limitation, there was a cost impact of about $1.8 million that affected gross margins [32] Question: What is the expected impact on gross margin and costs in the guidance? - Management indicated that the guidance anticipates some supply chain impacts, particularly on gross margins and operating expenses [34] Question: What are the acquisition opportunities and valuation expectations? - Management expressed a robust market for acquisitions and indicated a focus on businesses with recurring revenue potential [39]