Q4 2021 Digi International Inc Earnings Call
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Thank you for standing by and welcome to did you internationals Fourthquarter and fiscal year 2021 year end results conference call. At this time, all participants Arnie listen only mode. After the speaker presentation. There will be a question and answer session to ask a question.
During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded. So does you require any further assistance. Please press star zero.
I would now like to hand, the conference over to your host did U F. C. T N CFO Jamie Lee.
Thank you good afternoon, everyone and thank you for joining us today to discuss the fiscal 2021.
And fiscal 2021 yard results did you international.
Joining me on today's cars, one could ask me.
N C E O.
Well I'd have to buy the thoughts of our business and I will follow up with the highlights of our financial performance.
Why am I prepared remarks will take your questions.
We you should our earnings release shortly after the market closed today, you may obtain a copy through the financial releases section of our relations.
Relations website at <unk> Dot com.
Some of the statements that we make during this call are considered looking at a subject to significant risks and uncertainties.
These statements Rebecca expectations about future operating and financial performance and speak only as of today's date.
We have to take the obligation to update publicly or revise these forward looking statements.
But we believe your expectations reflected in a forward looking statements are reasonable we get noninsurance such expectations will be met without any of that.
Okay statements will prove to be correct.
For additional information please refer to the forward looking statements section and our earnings release today and the risk factors section of our 2020 10-K and subsequently that's on file with the SEC.
Finally, certain financial information disclosed in this call includes non-GAAP measures. The information required abuse goes about these measures, including reconciliations to the most comparable GAAP measures are included in the earnings release. The earnings release is also an exhibit to eat K that can be access to the SEC filings section.
Although investor Relations website.
Turn the call over to wrong.
Thank you, Jamie and welcomed the digit International's 2021 for fiscal quarter at the end of the fiscal year earnings call.
We are thrilled with both the finish to a record fiscal year and the excitement on our future potential with the addition of vendors.
Double digit year over year growth fueled several new annual records.
Revenues eclipsed $300 million for the first time.
Gross margins of 54% fueled by high growth recurring revenues.
Profitability cash generation subscribers, an annualized recurring revenue of approximately $38 million.
We were able to accomplish all of these goals, while biting through the pandemic induced supply chain challenges did.
<unk> has never been better positioned to add more value for our customers as they accelerate their digital and Iot initiatives.
Did he has a unique combination of revenue growth profitability growth.
And cash generation combined with accelerating recurring revenues.
Leveraging our successful equity raised earlier this year combined with access to affordable that capital we acquired Ventas holdings to further jumpstart all of these metrics.
That is a combination of leading to I think I'll design lightning in implementation.
Impeccable uptime and responsive experts service delivers managed network as a service to distinguish customers like IGT Cardtronics and indeed us.
With that this the new Digi model with service over 250000 sites and more than double a recurring revenue.
We have multiple opportunities to further events success with account mapping.
The router cooperation and international expansion.
We welcome the vet this team to the digit family and are excited to capture revenue growth as well as supply chain and R&D opportunities.
The supply chain clearly has been our biggest challenge the past few quarters as customer demand continues to outstrip, our forecast as well as our ability to secure all components required.
In addition increased material costs labor costs and transportation costs as further pressured our operating model.
I am privileged to work with did you supply chain team, whether variable storms to ensure our customer demands are met as best as possible.
We anticipate the supply chain situation to limit our full potential for the first half of this fiscal year, but we're seeing signs that.
Could ease for the second half of our fiscal 2022.
Now a few comments on each of our business segments.
And Iot products and services.
Our council server infrastructure management and embedded product lines drove in over 8% increase in revenues from last year.
This growth was moderated by a modest decline in our side of the router product line.
We have a new side of the router leader and we are already experiencing positive results.
We are experiencing increased take rates of whitehouse and digit remote manager and now joined by the Exxon Laura platform collectively this field an increase in AI are to nearly $14 million.
We launched new and enhanced customer and channel partner portals.
To better service and engage with our channel partners and end users for marketing materials.
Registrations and software purchases and renewals.
Record bookings led by embedded cancel server and saw your router product lines and built a mountain of backlog showing the trust our customers have placed indeed.
We recently received the Iot deployment of the year Award from Iot Worlds for our work with the Chicago Transit authority emphasizing the Royal digit can play as the recently passed U S infrastructure stimulus Bill in part targets mass transit improvements.
We look forward to leveraging venice's experienced and technologies to further the value propositions for each of our product lines and build recurring revenues.
The supply chain challenges mentioned earlier have increased lead times and it forced us to direct some of our talented engineering resources to update existing design and components.
This decision is consistent with our customer centric approach.
Smartsense are Iot solutions business segment added over 2000 subscribers in the quarter driven by healthcare in retail verticals.
We have invested an additional account management resources and customer success to ensure we had continual value and experience strong retention.
We ended the fiscal year with over 81000 subscribers powering over $24 million and ALR, which grew 38% from last year.
Rising labor costs and increased interest in Digitization feel a strong pipeline of opportunities for continued growth.
Smart sense for the destination consolidation of the cloud and mobile interface now services.
Definitely 44000 subscribers or 54% of our total customer base.
We are prioritizing growth and innovation as we look to expand our leadership position and add more value to our customers implementations.
We remain focused on a key vehicles of foodservice health care and transportation. The multibillion dollar opportunity has significant greenfield opportunity and smarts S as well positioned to capture increased market share.
With the <unk> acquisition completed we will be head down and integration on execution.
This marks the ninth acquisition of my nearly seven year tenure, and we're confident in our ability to leverage our newest collective team and offerings similar to the 2019 acquisition of opening here, we've leveraged affordable that capital to finance. This stage of our growth we have proven experience, but we will not take anything for granted.
The new Digi model will target double digit growth.
Hi, 50% gross margin and set our eyes on 20% adjusted EBITDA margins era will exceed 20% of our combined revenues and we will generate significant operating cash in our capital like model.
As the pandemic continues I'm, so happy to be leading the <unk> the safety and health of our team is utmost importance.
While no one knows how conditions will evolve I'm confident digits resilience and commitment to our stakeholders will not waver.
I will now turn the call over to Jamie for more detail on our financial performance.
Thanks, and good afternoon to get everyone to.
Animal style with the key financial highlights that contributed to the results of our fiscal quarter and fiscal year and for 2021.
Did you continues to set records ending fiscal 2021 with nearly 38 million in any era, which is up 30% for the year three.
$386 million in revenue, which is up over 10% for the year and over $152 million in cash.
We delivered $79.1 billion in revenue in the fourth fiscal quarter represents 8.1% grow little prior year.
Gross margins around 53.9% in that one too and adjusted EBITDA of $12 million or $15, 2% of our revenue.
Gross margins, excluding amortization were 55, 4% for the quarter.
That performance plantings annual adjusted EBITDA growth to just over 20% or 20 saw revenue growth for 48 $3 million for fiscal 2001.
On a per diluted share basis or gap EPS was 13.
And are non-GAAP EPS for the quarter was 25 cents.
That brings our total gap EPS for the year to 31 cents per diluted share only increase of nearly 11%.
Our adjusted EPS goes to a dollar per diluted share of over 10% from the prior year.
Revenue adjusted EBITDA, and adjusted EPS Abbey's Concessive consensus estimates for the quarter and I am exceeded the high end of the ranges we provided in our guidance.
Among other financial highlights Digi has generated strong cash consistently in this quarter is no exception.
We generated 23 $9 million cash in the bold fiscal quarter of 2021.
This type of consistent cash generation, a strong indicator of the value our customers receive from digi and helping them deliver on their missions.
We maintain our expectation that will continue to generate positive operating cash for the foreseeable future.
With that with that cash while we ended the fiscal year with $152 $4 million in cash.
Which one time to a net cash positive position of 143 million as of year end.
An ending that position at the end of fiscal two four was 48.1 million. These figures do not consider the treatment of leases, which based on the new economy standard.
$21 million of what is now classified as that on the books was $18 $4 million of that classified as long term.
And subsequent have been transformed the acquisition of beds, just replaced and retired or credit facility that was outstanding at the end of the fiscal year.
The acquisition will Google's acquisition up and then we went on finalizing the syndication of that that will provide more details that syndication is complete.
We are in compliance with our bank facilities Covenant and remained in compliance through the retirement of yoga as our new that structure is finalized will provide an update.
On a balance sheet items about our <unk>, our position is $43.7 million up to 5 million sequentially from our last fiscal quarter and with no material changes toward reserves.
Or ending inventory balance is $43.9 million down three 3 million sequentially from our last fiscal quarter it with no material changes towards reserves.
Current inventory in the channel is $24.1 million dollar $2 3 million sequentially from the prior quarter, we monetary inventory levels immaterial closely and regularly.
If I move into a segment performance ICT products and services revenue increased E, 4% year over year in the full fiscal corp, $21 million to $69.9 million and gross margins increased 201 basis points to 53.7%.
The year over year revenue impact was driven primarily by sales of our cultural server product portfolio.
Operating income decreased 1.7 million year over year to $6.3 million for the for fiscal quarter, driven partially by increased operating expenses, including items that are added back for adjusted EBITDA purposes, but not for segment operating income purposes.
The increase in margin rate is driven by favorable product mix within at a moment nearly animal product portfolios, partially offset by increased production and distribution costs due to the global supply chain challenges.
Int products and services achieved an annual revenue record of $264 $2 million in fiscal 2000, what a 5.9% increase year over year.
This increase was primarily attributable to nearly all of our product portfolios.
Gross margin increased 285 basis points to 54.7% due to product and customer mix.
Operating income decreased 9 million year over year to $18 to for the full year 2021, driven partially by increased operating expenses previously mentioned.
R H and products and services through nearly 20% from the prior year to $13.7 million.
And Archie solutions revenue increased six 3% year over year and the poor fiscal quarter of 2000 $21 million to $9.2 million in gross margins increased 713 basis points to 55 six.
The increase in revenue was driven by subscription revenue, partially offset by a slight decrease in one time revenue.
Operating income decreased $25 million, a year over year or two 3 million dollar loss for the for fiscal quarter, driven partially by increased operating expenses.
<unk> solutions revenue increased 49.5% year over year for the bold fiscal year of 2000 $21 billion to $44.5 billion in gross margin increased 73 basis points to 49.9.
The increase in revenue was driven Bob.
And subscription revenue.
We continue to invest to support the growth objectives solutions. The operating performance for solutions for the bold fiscal year improved $8 $2 million year over year, resulting in a seven 7 million dollar loss compared to the prior year loss of $15 9 million.
The key measurements of the health and performance are solutions business are sites.
Ah said come through by approximately 11000 net sites in fiscal 2021, pushing a total site called you just over 81000.
Recurring revenue increased three 8% sequentially and 38% year over year to an annual recurring revenue number of $24.3 million.
Now as it relates to forward looking guidance.
We have confidence in our execution annual performance, even in the midst of the ongoing pandemic, coupled with supply chain and break face constraints.
We expect the current supply chain challenges will impact our results adversely for at least the first half of fiscal 2022 at present, we do believe these challenges will improve during the second half of fiscal 2022.
As well as highlight in those regards these expected impacts are not indicative of demand from our customers, which is demonstrated by record bookings that we continue to see.
What part of the whole supply chain challenges, we are providing the following guidance.
Fiscal quarter of 2022.
Using a fully diluted share count as of the end of fiscal Q4 21 of approximately 35.4 million shares.
We expect revenue from $81 million to $85 million promoting growth year over year of 11% to 16%.
We expect our gap EPS to be between a loss of one to a gain of two cents per diluted share.
We expect our adjusted EPS to be between 30, and 34 cents per diluted share with adjusted EBITDA to be between 14 and $15.5 million.
Please note. These forward looking numbers include two months of the acquisition of that just.
The supply chain challenges limit us from providing any specific annual guidance. However.
We do have a higher rate significantly in positive impacts did use financial model going forward through acquisition Adventures.
In large part because of the acquisition in fiscal 2002, we would expect revenues to grow between 16, and a half and 23%.
We expect profitability edited adjusted EBITDA and adjusted EPS level overall, even faster between 35 and 55%.
We see our lowest margin, we're holding firm through the current supply chain challenges and we expect at the end of fiscal 2022, we will have annual recurring revenue of at least $90 million.
We believe that our strong balance sheet position combined with the performance we see in our pipeline are leading indicators of the value duty provides for our customers and helping them deliver on their missions, particularly during a time of global capital and liquidity concerns.
We are excited for the way that bad just is going to transform a bottle and we're excited for fiscal 2022 is going to bring us that concludes our prepared remarks were not available to take your questions could you. Please provide instructions to our call.
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Our first question comes from the line of harsh <unk> Piper Sandler Your line is open.
Yeah, Hey, wrong, and Hi, Jamie first of all congratulations solid results and also congratulations on the vent to steal.
I wanted to begin with something you talked a lot about it and the calls which is basically supply constrained and strong demand kind of have to do two things.
I would be curious if you would be willing to give us.
An impact as you've done in the past of maybe how much revenues you have left behind because of supply challenges are uncovered cost and also kind of like the deep perform my impact on your margins if you've seen any from these two factors.
Yeah. Thanks harsh good to hear your voice.
We've had really good fortune with tremendous demand and bookings and unlike some other scenarios the bookings are showing us confidence in customers willing to commit.
Two multiple quarter's worth of their business to help us with that visibility and ensuring that our product gets there.
Ah revenue shortfalls have have increased a little bit over the over the over the quarters. If you recall, we felt like it was probably about $5 million in the June quarter.
Not able to recognizing that quarter I want to upsize that these revenues are deferred not lost.
It was probably a tick up from that last quarter and the current quarters guidance is yet another tick up.
Our FY twenty-two harsh does anticipate.
Ah more impactful supply chain changes tuition for the first half, but we do see signs of it easing as you know, it's a really dynamic environment. So things can change quickly from a margin perspective, we've been very very careful to to work closely with our suppliers to understand price increases and as you know it's not just the components of transportation.
Asian cost as well and we've had to have good pricing discipline as you can see from those gross margins, we've been able to balance those two pretty effectively harsh.
And cash take run I had one or two more.
You you folded acquired rendition do your full then you're you guys seem pretty excited about it and I was curious if you could you know.
How are we should think about the potential for vendors to grow under the under the <unk> are we talking a lot of cross selling is that what you're most excited about are you excited about just growing renters by itself, maybe just help us thing from a color and qualitative standpoint.
Yeah, Great question Harshman first of all that this has been growing double digit so they've got very good bones in terms of their growth rate on a standalone basis, and we do anticipate that continuing we are exploring several opportunities to collaborate together both from an R&D perspective, and a supply chain perspective, but also of course growth synergies doing.
Some account mapping with our other business units, where we have some common targets and some opportunities to grow together. So we're excited to supplement their standalone growth with collaborating internally and and haven't even stronger go to market.
Great I had one more run and then I'll get back in queue Uhm IRT business the solutions business declined.
On a sequential basis, so so effective even from like $12 to to 9.2 million signing some one time kind of things that that might've been impacted that business. I was curious if you could first of all I'll talk about that and then secondly, the world seems to be moving in the favor of you know kind of like reopening.
And prime amongst status restaurants and things.
Dale, which you're well versed shreds I was curious what you're seeing and how you feel about growth now that things are sort of swinging back around and everything is opening up it should be actually promised you really good for Ya.
Yeah. Thanks.
That iot's Lucius businesses, we want to remind the audience, we really focused on subscribers an annualized recurring revenue. There is one time revenue we get from deployments that will contribute to that top line, but but seeing that annualized recurring revenue grow another million dollars on the back of yet another 2000 subscribers added an eclipsing.
81000 subscriber mark that that those are the the key metrics. We have we didn't have an enterprise deal that occurred in the core that would have added that one time revenue to push us into the eight digit revenue that we've seen in the last couple of quarters, but we are seeing a really strong pipeline and value proposition from our.
And customers into your point harsh.
Restrictions are easing their easing.
Not unilaterally uneven way, there's some are using more so than others, but bottom line is that food service segment, which has been the one that has been the most impacting we're seeing really good signs of them looking for opportunities as they are all facing rising labor costs, and making sure that they get the most out of their team and there was a vision as possible while.
Providing good service. So we are excited about that portion of our addressable market opening up and it is still largely greenfield.
Great guys Congrats again.
Thanks harsh.
Thank you again to ask a question. Please press star one on your Touchtone telephone again, that's star one on your Touchtone telephone to ask a question. Our next question comes from the line of Scott Sir of Roth Capital. Your line is open.
Hey, good afternoon, Thanks for taking my questions running Jamie congratulations on getting to vent this deal done.
I apologize if this got covered earlier I hopped on the call a couple of minutes late and I was wondering if you could walk through some of the details around Ventas I know, it's been growing a double digits, but maybe some color in terms of what you are building into that 16% to 23% growth in fiscal 2002 kind of the assumption of incentives to gross margins, they're kind of the employees and what you've been C.
From a from a turn right I'd be curious as to how Vince is performed.
Yeah. Thanks, Scott Yeah, we we really.
Haven't our assumptions their growth rates continuing at that double digit pace.
As we mentioned earlier were looking for opportunities to accelerate that growth rate because we share a lot of customers in common and there are some new customers that they would like to target.
That recurring revenue piece of course is the one that most focused on it's a sign of.
Really valuable services, you are providing to your customers and their retention has been fantastic over 99% retention. So they have this incredible service oriented mentality in the customer's view that would've been just provides is not only of higher quality, but have a significant lower total cost and if they could do that on their own so.
So we're really excited the expectations for 22 include 11 months Eventus. So it's not quite a whole year. We do expect that growth rate to continue we expect margins to really to really hold at these levels that we just demonstrated last quarter.
And that shows you that that contribution is going to help not only improve the financial model from a growth rate, but also you'll see adjusted EBITDA margins start to tick up and we're really targeting this new normal of 20%, which listen how many companies Scott have you seen growing double digit rates gross margins well in excess of 50 <unk>.
Her scent adjusted EBITDA margins approaching 20% and that adjusted EBITDA cash conversion is in excess of 90%. So this is a really really healthy model that we've been able to construct with the latest help of aventis.
Okay.
Wish I had more companies like you.
To follow up in terms of the sequential the sequential outlook down a little bit.
Once you adjust for the vent. This contribution I was wondering if you could kind of took through the key components in terms of what you're seeing from router gateway standpoint from the console business and maybe kind of group and things together other and if you could dig in a little bit on the supply chain I know that's the headwinds and you guys are clearly articulating that but I'm wondering if there was some specific areas.
That are more challenge than others. Thanks.
Yeah. That's a good question I want to remind the audience that <unk>. One is typically are are are softest quarter of the fiscal period.
Very channel centric in our products and services group and so if you look at last year's quarter, we did a tick over $73 million.
And so what the guidance implies is slower growth than what we've been seeing it's mainly supply chain constrained and that supply chain constraint has been unfortunately free focused on our on our embedded group. Our our team has had to work with existing products to to transition such components are more available we've had some component shortages. So.
Embedded in that guidance and that lower than expected organic growth rate is really concentrated on on a better team we do expect.
That Ah between our efforts and the supply chain easing that throughout the year, you will see improvements and especially by the midpoint of the year and so if you put it in the context of year over year and of course add the vent as you see you see modest organic growth rate in that in that Centerpoint.
Got you and just to clarify console and gateway you seem like they're doing actually pretty well at this point in time and you're not seeing component constraints on that front that really impact that line of business.
Yeah. So we are facing components rates and those but we've been our supply chain team and our management has been just doing a fantastic job Scott working through those cancel service done fantastic beside the router group as has a new leader in place and it's been an immediate positive impact there are infrastructure management team has been has been been day.
Living as well so it's really the OEM solutions, where we're having more of the more of the supply chain concentration. There is still it's got to be fair revenue really they're not able to recognize in the quarter because we couldn't get all the components you want but that revenue gets deferred largely to the next quarter.
Perfect. Thanks, so much congratulations guys.
Scotty Scott.
[noise]. Thank you at this time I'd like to turn the call back over to Ron can estimate for closing remarks, Sir.
Thank you Lucy.
We really appreciate everyone that joined the call today and thank you to our customers.
Our team our partners in our investors next week digits participating in the 12th annual Craig Hallum Alpha Select virtual conference on November 16th and the 10th annual Roth Capital Tech Conference on November 18th stay safe and healthy and I look forward to our next earnings call.
This concludes today's conference call. Thank you for participating human now disconnect.
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