Digi International(DGII) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for the fiscal third quarter reached $70.3 million, a 15% increase year-over-year, marking the best performance in the company's history [9][17] - Adjusted EBITDA was $10.5 million, with an adjusted EBITDA margin of 15% [9][18] - Gross margins exceeded 50%, closing at 53.1% [18] - Operating cash flow generated during the quarter was $31.8 million, ending with $55.1 million in cash [19][20] - The company paid down over $30 million in debt, resulting in a net debt position of $19.4 million [20] Business Line Data and Key Metrics Changes - IoT Products and Services revenue increased by 25.7% year-over-year to $63.5 million, with gross margins rising to 53.4% [25] - IoT Solutions revenue decreased by 35.6% year-over-year to $6.9 million due to delays in customer rollouts and large enterprise deals not recurring [25] - The Console Server product line saw significant growth, contributing to the overall revenue increase [10] Market Data and Key Metrics Changes - Strong demand was noted in sectors such as medical, safe work from home, business continuity, data center, and solar energy [12] - The SmartSense IoT Solutions business added approximately 1,000 subscribers during the quarter, with a total of 69,300 subscribers generating $17 million in annualized recurring revenue [12] Company Strategy and Development Direction - The company is focused on enhancing its channel program and improving customer experience [11] - Digi is committed to capital allocation for potential acquisitions while strengthening its balance sheet [15] - The company aims to continue its initiatives around diversity and inclusion, which are expected to positively impact its culture and operations [7] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to manage profitability and cash generation despite the pandemic's challenges [34] - The ongoing macroeconomic conditions are being closely monitored, with expectations of potential stabilization in business performance [28] - Management noted that while the pandemic has caused uncertainty, they believe the worst impact may be behind them [28] Other Important Information - The company has not seen significant cancellations but rather deferrals in customer engagements due to the pandemic [38] - A diverse supply chain has allowed the company to maintain stable operations without significant supply constraints [41] Q&A Session Summary Question: Can you comment on RFP activity, especially in the SmartSense side? - Management noted re-engagement in SmartSense, particularly in retail and transportation sectors, while some verticals like restaurants are still struggling [31] Question: What gives you the confidence to make the $30 million debt payment? - The confidence stems from the company's ability to manage profitability and cash generation effectively [34] Question: Have you seen any significant cancellations across any of your product lines? - Management indicated that there have been deferrals rather than cancellations, with churn performing well [38][39] Question: How do you manage sites that are closed due to COVID? - The company works with customers needing relief to restructure contracts or payments, ensuring essential customers remain operational [45] Question: What is the growth seen in products and solutions without OpenGear's revenue contribution? - Management indicated some decline in that segment due to macroeconomic conditions but did not provide specific numbers [46]