Digi International Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Digi International first fiscal quarter 2020 conference call. At this time, all participants are in a 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 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, CFO Jamie Loch. You may begin.

Thank you, Lateef. Good afternoon, everyone, and thank you for joining us today to discuss the fiscal 2020 first quarter results of Digi International. Joining me on today's call is Ron Konezny, our president and CEO. Ron will provide his thoughts on our business, and I will follow with the highlights of our financial performance. Following our prepared remarks, we'll take your questions. We issued our earnings release shortly after the market closed. You may obtain a copy through the financial releases section of our investor relations website at digi.com. Some of the statements that we make during this call are considered forward-looking and are subject to significant risks and uncertainties. These statements reflect our expectations about future operating and financial performance and speak only as of today's date. We undertake no obligation to update publicly or revise these forward-looking statements. While we believe the expectations reflected in our forward-looking statements are reasonable, we give no assurance such expectations will be met or that any of our forward-looking statements will prove to be correct. For additional information, please refer to the forward-looking statements section in our earnings release today and the risk factor sections of our 2019 Form 10-K and subsequent reports on file with the SEC. Finally, certain of the financial information disclosed on this call includes non-GAAP measures. The information required to be disclosed 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 a Form 8K that can be accessed through the SEC Filings section of our Investor Relations website. Now, I'll turn the call over to Ron.

Thank you, Jamie, and welcome to everyone that has joined our call today. We're off to a good start in our fiscal 2020 year, capped by the closing of the Open Gear Acquisition. We welcome OpenGear to the DIGI family. As indicated by the OpenGear acquisition, the growing maturity of our IoT solutions business segment and our annual guidance, DIGI is focused on profitable growth. Because of our low capital requirements and acquisition activities, we've been presenting both GAAP and non-GAAP profitability metrics. The non-GAAP metrics, EBITDA and adjusted EPS, provide our stakeholders with a one-rate view of our operating profitability. Growth will continue to be an imperative will be viewed with a profitability lens for both our organic and inorganic initiatives. In that context, I will provide an update on our business segments. Our IoT product and service business segment now includes the results of our OpenGear acquisition. To reflect the integration of OpenGear into Digi and to comply with SEC regulations, we will not be providing standalone results for OpenGear. We are ahead of our new product revenue projections, which we expect to increase from $40 million to $70 million in fiscal 2020, led by our cellular product family and enhanced by new and improved service offerings that complement our products. We continue to experience high win rates on our key accounts and top opportunities with strong performance from our direct sale team. We've commenced deployment of our Smart City project and have a strong funnel built to take the collective experience to other opportunities. Both margin improved and operating expenses were well managed to produce strong profitability. We're working hard to improve our channel partnerships to ensure they are supported and enjoy profitable growth while managing inventory levels. With the addition of open gear, we expect fiscal 2020 and our most recent fiscal quarter, second fiscal quarter, excuse me, results to show higher revenue, improved gross margins, and expanded EBITDA margins. Our SmartSense IoT Solutions business experienced subscriber additions closer to both our history and expectations. We added over 3,000 new sites with virtually no subscriber churn during the quarter to end with nearly 67,000 subscribers. We have approximately $15 million in annualized recurring revenue. Growth margins improved, reflecting the contribution of higher margins from our growing recurring revenue. We have transitioned nearly all of our customers that were on 2G gateways We continue to progress SmartSense 4.0, which is the destination consolidated mobile web platform. We are adding new sites and expect to transition some existing customers throughout the year. Larger enterprise deals slipped out of the quarter, and we are working hard to compress cycle times to bring value to our customers more quickly. We did not lose many opportunities during the quarter. and we are highly focused on gaining customer confidence and moving quickly to capture ROI. The IoT Solutions business had a modest loss based on lower expected revenues, but we expect growth and a profitable fiscal 2020. As indicated last quarter, top line growth will moderate year over year to reflect our focus on building our subscriber count and recurring revenues through bundled offerings. At least a portion of our new customers will elect an operating versus capital pricing model. In any event, Subscriber additions will continue to be a key metric to follow. We expect top and bottom line performance to improve throughout the fiscal year. At the corporate level, we've made progress in our journey to simplify and automate our business model and processes. Software, services, and subscription will continue to be emphasized across our business segment, leading to higher overall annualized recurring revenues. We went live on our CRM ERP system for the entire company in fiscal quarter one, which was an exciting and rewarding accomplishment. We now have one database to run the company, and we'll get better at both using the system and making it easier for our customers to do business with Digi. We closed $150 million in attractive debt financing to close the OpenGear acquisition without shareholder dilution. We are in compliance with all of our covenants. We expect to lower our debt position as we generate free cash flow, which will help prepare us for potential future acquisitions. We have more work to do to improve our working capital as inventory and accounts receivables increase to end fiscal Q1. We have process improvement and resource changes in supply chain and finance that we expect will produce quick results. The coronavirus outbreak is serious, and we are monitoring the situation closely. We have worked with our China-based resources to ensure their safety and health is protected, including closing our offices temporarily in China. In addition, we are monitoring the impact of the outbreak on our supply chain. While most of our manufacturing is outside of China, many raw materials are sourced in the area. It is unclear what impact the coronavirus will have over time, but we work to minimize its impact on our results. Lastly, we consider DIGI to be sensitive to our environmental impact, our social standing within DIGI and our communities, and to a diverse and independent governance model. We are embarking on both documenting our ESG efforts and pushing Digi to do more. Expect future updates on this key initiative as it's important to all of our shareholders and is increasingly becoming a key investment criteria. I will now turn the call over to Jamie for more detail on our financial performance.