Digi International Inc. (DGII) Q2 2026 Earnings Call Transcript
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Overview
The earnings call reveals several negative factors: a significant decline in net income and diluted EPS, reduced gross profit margins, and increased SG&A expenses due to a recall. The Q&A section highlights ongoing supply constraints and a lack of clear guidance, affecting investor confidence. Despite some positive signs, such as potential future growth and stabilized attrition, the immediate outlook is overshadowed by current challenges, leading to a negative sentiment.
Key Financial Performance
Revenue Decreased 8.3% to $44.9 million year-over-year. The decline was due to a $1.7 million impact from the voluntary recall of certain hormone pellets and lower procedure volume in existing clinics, as well as slower productivity from new clinics.
Procedure Revenue Declined 13.2% to $31.3 million year-over-year. This included a $1.7 million impact from the voluntary recall of hormone pellets, lower procedure volume in existing clinics, and slower productivity from new clinics.
Dietary Supplement Revenue Increased 19.1% to $11.0 million year-over-year. The growth was primarily driven by the continued expansion of the e-commerce channel.
Gross Profit Margin Decreased to 68.9% from 74.3% year-over-year. The decline was primarily due to $1.1 million of incremental costs related to the recall and a higher reliance on third-party supply.
Selling, General and Administrative Expenses Increased 4.1% to $27.8 million year-over-year. The increase was attributed to higher legal expenses and $0.4 million of SG&A costs associated with the product recall.
Net Income Decreased to $2.7 million from $15.8 million year-over-year. The decline was due to a lower gain from changes in the fair value of earn-out liabilities ($2.1 million in 2026 compared to $10.7 million in 2025).
Diluted Earnings Per Share Decreased to $0.06 from $0.37 year-over-year. This was consistent with the decline in net income.
Adjusted EBITDA Decreased to $8.7 million with a margin of 19.4%, down from the prior year. The decline was due to lower sales, reduced gross profit, and higher operating expenses.
Cash Flow from Operations Reported at $3.9 million for the first quarter of 2026. No year-over-year comparison provided.
Cash and Cash Equivalents Reported at $5.3 million as of March 31, 2026. This reflects the full repayment of share repurchase liabilities in January 2026.
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Operating Highlights
Bio-identical hormone pellet: Biote voluntarily withdrew certain bio-identical hormone pellet inventory from the market in January 2026 due to safety concerns. This caused a $1.7 million revenue impact and $1.5 million in incremental costs. Efforts are underway to restore supply continuity by the end of Q2 2026.
Practitioner network expansion: Biote trained over 200 new practitioners in Q1 2026, a 16.5% increase from Q1 2025. The company is focusing on recruiting higher-value OB/GYN and general practitioners to enhance long-term revenue potential.
Sales team expansion: Biote expanded its sales team from 90 to over 120 personnel in Q1 2026, hiring 25 new salespeople to strengthen commercial capabilities.
Dietary supplement revenue growth: Dietary supplement revenue grew by 19.1% to $11 million in Q1 2026, driven by e-commerce channel growth.
Focus on top-tier clinics: Biote introduced measures to improve retention and lifetime revenue outcomes for top clinics, enhancing the commercial framework to support leading practitioners.
Sales pipeline quality improvement: The company is focusing on a more disciplined qualification process to recruit practitioners aligned with its product offerings, aiming for predictable performance and higher long-term revenue contributions.
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Risk or Challenges
Voluntary Product Recall: Biote voluntarily withdrew certain bio-identical hormone pellet inventory from the market, resulting in a $1.7 million revenue impact and approximately $1.5 million in incremental costs. This recall caused supply disruptions, distracted the sales force, and impacted growth objectives.
Supply Chain Disruptions: The recall led to supply constraints, affecting procedure volumes in existing clinics and forcing reliance on third-party suppliers, which impacted gross margins.
Sales Force Distraction: The sales team was diverted from growth activities to address recall-related issues, slowing productivity in new clinics and impacting overall sales performance.
Gross Margin Decline: Gross profit margin decreased from 74.3% to 68.9%, primarily due to incremental costs related to the recall and reliance on third-party suppliers.
Legal and Administrative Costs: Selling, general, and administrative expenses increased by 4.1%, partly due to higher legal expenses and recall-related costs.
Revenue Decline: Revenue decreased by 8.3% year-over-year, with procedure revenue declining by 13.2%, primarily due to the recall and its associated impacts.
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Guidance & Outlook
Revenue Outlook: Biote maintains its 2026 revenue guidance of above $190 million, with procedure revenue expected to return to growth in the second half of 2026. Dietary supplement revenue is projected to grow at a mid- to high single-digit rate for the year.
Adjusted EBITDA: The company forecasts 2026 adjusted EBITDA of greater than $38 million.
Procedure Revenue: Procedure revenue growth is anticipated to resume in the second half of 2026, following temporary impacts from the voluntary product recall and supply constraints.
Dietary Supplement Revenue: Dietary supplement revenue is expected to grow at a mid- to high single-digit rate for 2026, driven by continued growth in the e-commerce channel.
Gross Margin: Gross margin is expected to remain impacted in the second quarter of 2026 due to an elevated level of third-party supply. Full restoration of Asteria Health supply continuity is anticipated by the end of the second quarter.
Sales Team Expansion: Biote has substantially completed its goal of expanding its sales team from over 90 at the end of 2025 to approximately 120 in 2026, with over 25 new hires in the first quarter.
Practitioner Training: The company trained more than 200 new practitioners in Q1 2026, a 16.5% increase from Q1 2025. Newly trained practitioners are expected to contribute meaningfully to financial performance within six months.
Sales Pipeline Quality: Biote is focusing on recruiting higher-value OB/GYN and general practitioners, which is expected to enhance the quality of the sales pipeline and lead to more predictable performance.
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Shareholder Return Plan
Share Repurchase Liabilities: Biote fully repaid the remaining amount due under its share repurchase liabilities in January 2026.
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Key Q&A
Q:How did the clinic attrition trend in the first quarter as the recent hires ramp up? Are you seeing some stabilization if normalized for the voluntary recall?
A:Attrition has stabilized and been stable for several quarters, though it remains higher than desired. The supply constraints from the recall disrupted Q1, making it hard to assess improvement. Positive signs in daily volumes were observed before the recall, with a $1.7 million impact cited. The sales force expansion to 120 reps in Q1 was affected by supply constraints, but growth is expected in Q2 as inventory normalizes.
Q:Why is the recall still having an impact in Q2, and why are there still supply constraints?
A:The recall, announced in January, involved a large volume of product manufactured before October 2025, requiring replacement. Asteria scaled production, added a second shift, and sought help from third-party partners, but the process has been lengthy. Inventory allocation caused rescheduling and uncertainty in the field. The situation has improved since February and March, and normalization is expected in a few weeks.
Q:What gives you confidence that the second half will be better than previously implied in guidance despite Q1 shortfall and Q2 guidance down?
A:Confidence stems from temporary demand headwinds due to inventory constraints, positive signs in daily volumes before the recall, pent-up demand from supply shortages, and the new 120 territory reps who are expected to contribute to growth. Additionally, 200+ practitioners trained in Q1 are anticipated to drive growth in the next six months.
Q:Was there anything preventing doctors from sourcing pellets elsewhere during Q1 and Q2?
A:Not significantly, but the entire industry faced production constraints. The company partnered with third-party suppliers to meet demand, which temporarily reduced Asteria's mix and gross margin. Estrogen estradiol pellets, critical for the majority of patients, are challenging to produce at scale, limiting alternatives for physicians.
Q:Did the recall result in much clinic attrition?
A:No significant clinic attrition was observed. While procedure volumes reduced, there is expected pent-up demand to be captured in the coming weeks and months. Any patient attrition remains anecdotal at this point.
Q:What is the current status of inventory build and catch-up efforts?
A:The company is weeks away from a fully normalized situation. Asteria is building safety stock, aiming for two months of inventory. Third-party partners are assisting, and a second production shift has been implemented. Inventory allocation continues, but the situation is much improved compared to earlier months.
Q:What has been observed in April regarding procedure volumes?
A:Pressure on procedure volumes persists into Q2, but the situation is improving. Inventory levels are not yet at the desired level for customer confidence, but progress is being made, and normalization is expected soon.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on April procedure volumes and used vague language like 'weeks away' and 'tremendous progress' without quantifying the improvements. Additionally, they did not provide clear metrics on the impact of the recall on patient attrition or specific timelines for achieving safety stock levels.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Chief
Investor Relations
Officer
Relations section
account
capability
capacity practitioner
change value
clinic
continuity
distraction
earn liability
effort sale
factor
future
gain change
hormone pellet
income gain
increase
level
pellet Health
practitioner patient
priority sale
procedure
product recall
recall supply
sale personnel
section website
share Corp
supplement
supply constraint
value earn
DGII Transcript
Digi International Inc. (DGII) Q2 2026 Earnings Call Transcript
Unknown5-7
The earnings call reveals several negative factors: a significant decline in net income and diluted EPS, reduced gross profit margins, and increased SG&A expenses due to a recall. The Q&A section highlights ongoing supply constraints and a lack of clear guidance, affecting investor confidence. Despite some positive signs, such as potential future growth and stabilized attrition, the immediate outlook is overshadowed by current challenges, leading to a negative sentiment.
Digi International Inc. (DGII) Q1 2026 Earnings Call Transcript
Positive2-4
The earnings call summary reveals strong financial performance with 18% revenue growth and 31% ARR growth, alongside record EBITDA margins. However, concerns about economic conditions, interest expenses, and reliance on acquisitions were noted. The Q&A highlighted positive demand trends, particularly in data centers, and discussed growth opportunities with Particle. Despite not significantly raising guidance, management maintains a positive outlook, with expected margin improvements and strategic focus on acquisitions. Overall, the financial performance and optimistic guidance suggest a positive stock price movement over the next two weeks.
Digi International Inc. (DGII) Q4 2025 Earnings Call Transcript
Positive11-12
The earnings call indicates a positive sentiment with strong ARR growth driven by strategic acquisitions, improved free cash flow, and an optimistic outlook on AI and IoT opportunities. Despite slight revenue growth, the company's focus on ARR, cash flow, and strategic acquisitions suggests a positive trajectory. The Q&A highlights confidence in achieving long-term goals and successful integration of acquisitions. However, cautious macroeconomic conditions and management's lack of specific guidance on certain metrics temper the sentiment slightly. Overall, the positive aspects outweigh the uncertainties, suggesting a positive stock price movement.
Digi International Inc. (DGII) Q3 2025 Earnings Call Transcript
Positive8-6
The earnings call summary reveals strong financial performance, with record ARR growth and reduced net debt. The Q&A highlights optimism in AI-driven growth, effective cost management, and strategic capital allocation towards M&A. Despite flat sales guidance, the company shows resilience and adaptability. Positive signs in demand, especially in North America, and strong shareholder returns boost sentiment. However, some uncertainty remains in Europe and APAC markets. Overall, the sentiment is positive, with a likely stock price increase of 2% to 8% over the next two weeks.
DGII Report
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