Digi International Inc. (NASDAQ:DGII) Q3 2023 Earnings Call Transcript

Operator: Our next question comes from Derek Soderberg of Cantor Fitzgerald.

Derek Soderberg: Ron, you mentioned the importance of kind of building these strong customer relationships. I think you mentioned you’re having these conversations with customers saying, hey, we really think you guys would benefit from sort of this recurring model. I’m curious if — what — to what degree are those conversations happening where you’re sort of turning down onetime sales with customers in the past or new customers if they won’t subscribe? Are those conversations happening with a handful of product lines, most of your product lines today? Can you talk about that a bit? And when do you think you’re going to take that step to really move towards that return model?

Ron Konezny: Yes. Thanks for the question, Derek. Yes, we’re not at the point where we’re turning down business if it does not include a solutions element to it. We’re certainly leading with solutions, and that’s an important step for us in the past. It was leading with product and then offering solutions as a secondary offering. Now we’re really leading and starting those conversations often. And I’ll emphasize it’s to both end users, but also with the channel and educating channel on the benefit of solutions. And quite frankly, the channel is happy to hear the message they benefit as well as Digi. And also we’re not the first to go about this type of approach. So that’s the good news as well. This isn’t a foreign concept to our partners.

It affects a lot of our product line, I wouldn’t say all of it, in particular, our OEM solutions group, where we’re selling an embedded product to a customer is designing our solution, our product into their larger ecosystem. That’s an area where we’re much more careful. Those are long design cycles. We’re not going to upset existing solutions that the customer is enjoying because of maybe artificial policy, if you will. So that part of our business, in particular, has a much more discerning implementation of solution. That starts rate as they order that kit, as they start to work on their design and then it takes them some time to actually get into production. But we’re excited about the box — part of our business and product services where that’s really where this applies more thoroughly.

Derek Soderberg: Got it. Got it. And then as my follow-up, you mentioned some strength in the clean tech sort of end market, solar and electric vehicle charging. I think one of your big customers in solar tracking, their solution relies pretty heavily on Digi connectivity. It seems to me like the EV charging network will require something similar. I’m curious what kind of attach rates you’re seeing in those markets? Are they higher than average? And then I’m also curious if you could maybe lay out like what’s sort of the opportunity per charging station for electric vehicle chargers? It seems like there’s a ton of funding in that space. And curious if you can kind of lay out what’s the opportunity there?

Ron Konezny: Yes. As you mentioned, there’s at least two different vectors: one, of course, is in renewables where there’s this really important rush to balance our energy sources between more traditional energy sources and renewables and there’s continued funding. Certainly, the warm summer we’re experiencing doesn’t hurt that set deployments. In those areas, we’re an important provider. And there’s a great opportunity to help because think about where these solar farms are located. They’re very remote and making sure you manage those facilities as effectively as possible is critical. EV charging I think is in a — relative speaking, a newer phase, getting tons of funding, there’s this rush to put chargers out. And I think in that rush, the management of that charging platform has been a little bit of a secondary thought.