Digi International Inc. (DGII) Earnings Call Transcript & Summary

[Audio Gap] utility grids with IoT. Today's webinar is sponsored by Digi, and I'm Teresa Hansen. I'm the Vice President of Content for T&D World, and I will be moderating today's webinar. Before we hear from our expert panelists, I need to go over just a few housekeeping items with you. First of all, if you have any technical difficulties during today's webinar, please use the questions window to let us know, and our technical experts will help you out. Also, we recommend that you disable any pop-up blocking software or extensions in your browser because these can cause issues with the webinar player. We are counting on you to participate in today's webinar by asking questions. We will answer as many questions as time allows. We'll begin today's webinar with a short introduction from each panelist and then we'll move to a moderated discussion. And we want to include your questions in that discussion, so please submit them by typing them into the question window on the side of your screen. Also, please be aware that today's session is being recorded, and it will be available on the T&D World website within the next week. You'll be notified by an e-mail when the archive is available and that e-mail will contain a link to the presentation. So you can use it to go back and review the webinar. If you miss part of it or you want to go back and look at something closer. Also, you can share that link with your coworkers and peers who maybe weren't able to join today, but you think would benefit from this webinar. It is free, and it will be available on the T&D World website for several months. Now that's it for housekeeping items. I'd now like to tell you a little bit about our speakers, our panelists. First, we have Ben Tucker, who's Director of Product Management, including infrastructure management solutions at Digi. He has 25-plus years of experience in various roles developing and supporting communication solutions in diverse industries such as energy, financial, retail, medical, government and hyperscale data centers. He has worked in countries all over the world, and that work includes transmission and distribution projects in North and South America, Europe, Asia and Australia. Also joining us today is Curt Ahart, and Curt is the Vice President of Business Development for Digi. Curt has 38 years of experience with a broad range of information technology companies. He joined Digi in 2003 and has held leadership roles in product management, sales and business development. In addition, Alec Jahnke is joining us. He is a Digi's Senior Product Manager who owns and manages the XBee Cellular gateways and XBee Cloud services product line. Alec uses his engineering, product and customer expertise to close sales opportunities and offer technical assistance as a subject matter expert covering hundreds of different embedded and radio frequency products. Welcome, gentlemen. It's great to have you here. Before I turn the program over to you and we'll get started with our questions, I wanted to just give a little bit of background on today's webinar. I think that everybody knows that the push to decarbonize is driving a transition in the electricity industry. Power generated by fossil fuels, especially coal is on the way out and more renewable sources of energy like wind and solar are increasing. And not only has this created a shift from central station baseload power to more distributed power, it's also creating the need for a grid that can accommodate increasingly intermittent sources of power. Also, efforts to decarbonize are creating a big push to electrified society, and we're seeing things such as electric transportation and electric heat pumps for buildings and some of those that may push. And this is prompting the need just for more electricity in general and also the infrastructure to deliver it. So as our dependence on electricity grows, we're adding more demand to an already stressed grid that was not designed to accommodate distributed energy resources, intermittent resources or 2-way electricity flow. And utilities and grid operators are struggling in some areas to keep up and to provide reliable and affordable power. And while this all sounds a little bleak, the good news is there are technologies and solutions that are already available that can help with this transition to the grid of the future. And specifically, in this webinar today, we're going to talk about some of those technologies and solutions that are associated with the Internet of Things or IoT, is playing an important role in comparing the grid to meet these quickly changing and growing demand. So like I said, I have some questions I'm going to get started with. But first, I'd just like to let each of our panelists introduce themselves a little bit more to a little bit more about themselves and give us a little context on this topic before I get started with our questions. So Ben, I'm going to start with you.

Hello, everyone. My name is Ben Tucker. I'm a Director of Product Management for Digi's Infrastructure Management products, which include a wide swath of communications technology capabilities that are used in transmission and distribution as well as in power generation. I've been working with Digi in the power space for about 20 years, and I serve on both the NERC CIP and the security response teams within Digi.

Okay. Great. Ben, do you want to go next? I'm sorry, Curt, you want to go next? Sorry, guys.

I'm Curt Ahart. I'm the Vice President of Corporate Business Development for Digi, and I've been with the company now for almost 20 years. When I joined the company early in my Digi career at the pleasure of leading a team that started our first cellular products business. And it's interesting for this discussion is our first customer was Florida Power & Light, who is really a pioneer in using wireless technologies for back at that time. It was a backup of their substation, wireline connections and then doing commercial demand response. For those that don't know, Digi at the time was the first company to bring industrial cellular routers to the market. We had some very interesting things at that time. We offered remote management capabilities and also dual SIMs and failover, which were kind of pioneering things in the industry.

All right. Great. All right. Alec, we'll move on to you.

Thanks. Yes. I'm Alec Jahnke. I'm a Senior Product Manager in our OEM Solutions business unit. I manage our XBee Cellular line of products. So this is a smart embedded modem. OEMs can build in to add cellular connectivity. I do have lots of experience in my 5 years at Digi working with many distribution management systems all the way down to generation management systems and helping to have them create solutions based on Digi products. And I also have past experience working at OSI as a project engineer where I helped utility companies to install and test their data systems.

All right. Perfect. Thank you, gentlemen. I'm going to go ahead and get started with our questions. Again, audience, please be thinking about what questions you want to ask these experts and make sure you put those in the question box for us. So Curt, I'm going to start with you. And then if others want to comment, that will be great, too. But what are some of the trends that you see in networking as part of grid modernization?

Yes. First, I'd kind of echo what you spoke about earlier in the introduction. We are seeing with our customers the whole electrification of the world from our cars to our trucks, buses, homes, lawnmowers, even our leaf blowers. And I hope they don't take my guess the way I really like my guess so. But to accommodate all this need, our transmission systems need to increase their capacity by 60% by the year 2030. And when we look at the grid today, 70% of the grid infrastructure is at least 25 years old. Utilities when they go out for investments, they expect these investments to last 30 years. So we've got a challenge here. The government stepped up and they've earmarked $65 billion of investment for grid modernization. This was in our $1.2 trillion infrastructure bill. But as we said in the opening, our grid wasn't designed for distributed energy. It was designed for large centralized generation. So what we're seeing in our customer base and the states that they play in, is that there needs to be a change. And we see in places like California where I happened to be this morning, who are very progressive in their policies towards renewable energy, they're creating different needs for the grid, solar systems and inverters, battery storage systems and EVs. Today, all those sit behind the meter [ zoom over ] the business. And the grid was not designed to accept or manage power from these sources. So these DERs or distributed energy resources, they operate today autonomously, but they really need to become part of a manageable system. So in California, and I think Alec will talk about this, there's something called Rule 21 that started back in 2012 and has been continued to iterate on a standard of IEEE 1547. This is a way for these assets to connect to the grid to be monitored, managed and controlled. So we really need a system for integrating all these assets. And this drives us to investments in reliable, secure 2-way communications to bring these assets into the system. And this is driving our customers to invest cation systems more than they ever have before. And what we're seeing is a lot of our large investor-owned utilities are beginning to -- they're either exploring, looking at testing or deploying private cellular networks. And these investments are not small. They can be $100 million to $400 million. So very, very big investments in upgrading the grid.

All right. Great. Does anybody else want to comment on that? All right. I'm going to move on. Actually, we have an audience question here that just came in, so I'm going to go ahead and can ask that one. One thing that we didn't talk about too much in the intro was -- in addition to things that we mentioned about the grid and some of the challenges and the other one is cyber attacks and electromagnetic pulses. So this question is, does what modernization efforts are being developed specifically to maintaining the grids during these cyberattacks and E&P incidents. Somebody do you want to take that one?

Well, I think one of the things we're seeing is a lot of investments in things that make the networks more secure. What's interesting is, as I shared upfront, we've been providing cellular solutions on public networks. And then also on unlicensed frequency for things like Zigbee and Smart Home, Smart Energy for 20 years. And I -- when I look at the cellular side, I'm not aware today of any attacks that have happened through those networks with any of our customers, which is interesting. But we see a lot of attention and focus by our customers as they're looking at their networks and in the future and things that we're seeing like ransomware and other things to kind of bring some of the IT technologies that have been used for years to the operational networks that they run their business on. And I think as we look at things like private cellular networks, that's one of the areas where they're taking it off of the public network and making it totally a private nonshared network for managing the grid. I don't know if anybody else has anything to add to that.

I can talk a little bit. One of the other things that we're seeing is that as communication flows become more and more critical that people are looking for ways to implement application-specific data flow controls and some of the equipment that we're providing gives the ability to programmatically add that sort of capability into the data stream so that you have essentially a data diodes that prevent data flows when they're not supposed to be encouraging data to remain segregated from each other and thus preventing access to equipment when it's not needed or allowing the data flow only in one direction.

Yes. I think it's important to -- that all of these technologies maintain and fit the NERC CIP and security protocols that are out there, such as a lot of the kind of ransomware attacks and things that we're seeing today are actually generally attributed to social engineering and someone gaining access to particular equipment locally and being able to input flash drives and other things that can then start to attack the system. So I think it's important to make sure that all this information, to Ben's point, is segregated and housed in DMZs and it's able to get in and out of the system, put in a secure way where it can't necessarily attack the whole system at once.

All right. Thank you, gentlemen. I've got another one here that says what are ways we can increase transmission capacity in the short term, could it be DLR, reconductoring or something else? Who wants to start with that one?

Is the question about power transmission?

It's about -- yes, about, just a way to kind of address some of the near-term problems. I mean, as we mentioned, a lot of this is happening in some areas the utilities are having trouble, not just on distribution, but on transmission as well, keeping up with the changes. Does anybody have any input on that one? And if not, we can move on to another one.

Yes. I think the key here, I think asset monitoring actually can be a key aspect in this in terms of -- as we've already talked about, there's lots of new sources of energy that are entering into the grid now, and it's basically important to monitor how much of that energy is available and how to get it where it needs to go. So not just having the transmission capabilities, but important to understand where that energy is being generated and getting it to the right location. So load management can be a huge aspect with this today that I think can be tackled directly using products that can asset -- monitor your assets.

Yes. Another thing that we were just at DistribuTECH, we were an exhibitor and there was an awful lot of attention this year more than I've seen before in just monitoring of the system, putting sensors out particularly in the high -- excuse me, more in the medium voltage world where they're putting a lot of sensors out on the lines and doing instrumentation and have systems that are doing that monitoring proactively on a real-time basis. So I see a lot of [indiscernible] of instrument technologies sitting on top of the grid, watching what's happening. And to Alec's point, then the whole monitoring of the new things in the distributed world that are feeding in are critical. And I think that kind of ties to what we're seeing with rule 2021 and those sorts of things in California.

All right. Thank you. So Alec, this one is a question for you. It says how can utility connect sources of renewable energy into the grid safely.

Yes. Thanks. So this is really a large challenge for really all utilities in the generation, transmission and distribution space today. To Curt's point earlier, there's many different laws and things that are being put into place, and these things are kind of changing regularly. So as the tools that allow for this as well as the standards for communication and the laws are all changing, I think it's important that you can rely on a company such as Digi and some that can provide equipment to provide these communication aspects in a secure way. Particularly in the electric vehicle space, there is a new standard called Green PHY that is being used to connect and communicate between everything from the car itself transmitting data all the way up into the actual grid. And all of these elements are really having to work in tandem to resolve these issues and provide valuable charging assets for these EV vehicles that are on the road. This is true both in the commercial EV charger space as well as the home automation space. So it's important to have certain standards there. Another asset that's really undergoing broad changes today and needs updated technology to address is the solar panel space where this is once again an area where it spans all the way from full commercial, industrial, solar and wind power firms, all the way to individual consumer homes. And how are we going to monitor that transfer of power and data in this environment. With all these challenges, it's more important than ever. The utilities have a smart connected network that can gather and standardize this information into actionable items into your own SCADA system or your own actionable system. So this network connection must be very reliable in order to be mission-critical needs of that utility space. And generally, these can be connected to the broader ecosystem via wired connections and/or general RF products. So some of the technologies we've talked about today, including cellular, including public and private as well as 900 and 2.4 gigahertz technologies like Bluetooth, Matter, Wi-SON and WiFi. In order to cover this broad spectrum, it's important to integrate these technologies into your product in order to be able to gather all of that data and transfer it in a secure way. And with that, it's important that this availability of that information is at your network operators' hands. So with that, it's important to integrate all of this equipment so you can focus on your important aspect, which is having a reliable network for your customers. And I think Digi provides lots of products that can create an intelligence system to be able to handle all of these and be the subject matter expert on all these items, such as protocols and wireless technologies.

All right. Thank you. So next one, Curt is for you, is kind of going to expand a little bit on some of the things that Alec mentioned. What applications are you seeing when it comes to cellular networks.

So today, we see cellular networks used for management monitoring of typical distribution assets like cap banks, reclosers, substations. We also have a number of applications in commercial and industrial. These include metering, power quality management and demand response and load shedding. As Alec mentioned, there, of course, is the connection of all of the new renewable sources, whether they're commercial or residential. And cellular is also used for backhaul of AMI networks, which today are typically mesh networks operating on license frequencies like 900 megahertz or 2.4 here in the U.S. We believe as utilities deploy private cellular networks, there's a possibility that some of these AMI networks may be replaced by cellular. However, there's pretty significant investments in those current AMI networks, and they're probably going to be around for a while.

Okay. So I mean -- I'm sorry, Alec, do you have something else to say?

I'll hop in there as well. To Curt's point there, I think we're seeing lots of distribution utility companies using our equipment today in order to handle load shedding as plugging into the current connected devices ecosystem. It can be a very large challenge, implementing cellular in a load-shedding smart switch that customers can opt into is a very viable solution for quickly managing network capabilities and making sure that you don't have too much load on the network.

Okay. Thank you. So Curt, I'm going to go back to you. What are some of the pros and cons of public versus private networks for electric utilities?

Well, first, let's start with public networks, which our customers have been using for the last 20 years, one of the benefits, obviously, is they're fairly ubiquitous and available to enterprises without any capital investments. And one of the things that we've seen over the last 20 years is as we buy more and more smartphones, those networks get bigger and bigger and faster and more reliable. So it's great that our enterprise customers like utilities can leverage that investment. But they are public. So they're shared. So during peak traffic loads, let's say, late in the afternoon in a metropolitan area where everybody is driving home and they're all on their phones, service can degrade. So there's some unpredictability in those networks. There's also the perception that public networks are less secure or they're perceived to be. As I shared with you, our experience in the last 20 years is we really haven't seen any security issues on public cellular networks with our utility customers. But on a private network, the customer does have control over the SIM, which provides the access to the network. So there is definitely some additional security and we'll turn that SIM on and off. Private networks do require huge investments. I talked about putting up a private network can be in the hundreds of millions of dollars. This is for acquiring licenses for frequency, which are very expensive, building out the infrastructure. And then probably one of the most often overlooked and significant investments is the ongoing operating costs of running a private network. So in essence, if you put up your own private network, you become a mobile operator and just like running an electric grid, you have responsibility of running, monitoring and managing that on a 24/7 basis for 365 days a year. So lots of costs and responsibility. Private networks, so they will provide reliable, predictable and deterministic performance, which is nice for things like controlling the grid. So when you don't have anybody else on your network and it's just your assets, you're going to have higher levels of performance, throughput, lower latency and more importantly, fewer drops and retries on communication sessions. With private networks, you also have the ability to control different levels of service for different applications. So you could take something like communications to a substation and give that much higher priority over a meter REIT at a residential network. But another thing is there are hybrid approaches to cellular networks. Not -- it doesn't have to be all public and all private. You can actually use a combination of both. Most of our customers will because they'll never build out complete coverage. But the public carriers also have things like AT&T, FirstNet, which a lot of our investor-owned utilities use today, which is a public network that's [ out ] for very specific mission-critical applications so that your applications are not contending with what's [ used ] on network. So it's kind of a hybrid approach and gives you a little best of both worlds, great performance and security, but on a shared asset that you don't need to invest in. All -- as I shared, all of our customers are looking at building out private networks. And if they do build out a private network, they will still use public networks likely for backup and resiliency because networks do fail, wired ones do wireless networks fail. And they would use things like dual SIMs in their devices or SIMs that are program to failover from a private network to a public network and back on the private network when the private network recovers.

All right. Thank you. We've got one here from the audience, and it says on the DOE scenario on the distribution side is direct DC to home networks being thought of with IoT.

Can you repeat the question? Direct?

Yes, it says, on the DOE scenario, and I'm not sure that's Department of Energy or something else, it says, on the distribution side, is direct DC to the home networks being thought of with IoT.

Alec, do you have any insight into that?

No. Unfortunately, I don't -- I haven't heard of particular customer instances or anywhere where this is being regulated to that extent today. I know that this is something that's been going around as a way to potentially offer better services to customers, but I think that it would create a whole restructuring of the grid and something that's a very large challenge for IoT to deal with.

All right. Thank you. So we've got a couple more here from an audience member. I'm going to start. He actually has a couple here. I'm going to start with his first one. Is Sigfox, the cost-effective solution and is this something Digi currently supports? And the second part of that question is what other recommendations can you give for out of cellular coverage areas.

So I can speak to that. Go ahead, Curt.

Go ahead, Alec.

Okay. Yes. So I was just going to say -- so basically, the determination you're making there is kind of a wide area network, such as the cellular networks versus a local area network. And so Digi does not offer Sigfox solutions, but we do offer some very low-power LPWAN dedicated solutions, right? We have solutions like LoRaWAN within our OEM Solutions business unit as well as other solutions that can -- where you can create your own local network such as our XBee products and then connect out to a gateway that can be located in a separate location that can provide that wide area network connectivity to those internal assets.

Okay. Curt, did you want to add anything to that?

No, other than -- I think Sigfox is kind of gone out of business here in North America. I think they're still operational in Europe, probably France, but that business model was not very successful. I think to Alec's point, we do offer some solutions using unlike license frequencies, and they would fit in the area of 900, 2.4 gigahertz and using our technologies like a standard like LoRa and then a proprietary offering we have called DigiMesh. So I kind of echo what Alec shared.

All right. Perfect. So another one from the audience, and it is why is IoT application percentage spread for electric utility grids between monitoring and diagnostics versus command and control. So like percentage-wise, which is the largest and how does that look?

I would -- that's a really good question. I look at a lot of what we're involved in. And I would say it's more monitoring and management than it is control. Exceptional would be communications to things like substations. But I think a lot of what we do is involved in monitoring demand. Obviously, that's a control function. I think Alec talked about that earlier, where customers, whether the residential commercial can opt into a demand response program where they're offering control of their usage to the electric utility.

Yes. I would -- yes, I would echo exactly what you said there, Curt. I'd say, honestly, in my mind, from what we see on the OEM side is probably 75% to 80% monitoring and diagnostics today. Generally, it is kind of predictive maintenance type activity that is going on and monitoring of sensors and other items within the grid in order to determine when maintenance is needed. We do see as one of the scenarios I gave there, that there is some control aspects that are being implemented, and I do believe that many of the customers that are implementing monitoring simply haven't implemented the actual technologies to do the controls at the device level there as well. But this is something that could potentially be added via these communications in the future. So I'd say that we're not prohibiting anybody from entering that space via these technologies. It's more of just the equipment that's needed to do so today.

All right. Thank you. So I've got a couple of questions here to deal with 4G and 5G. And so I'm going to ask -- I'm going to ask 2 questions. I'm going to start with this one. It says, many great applications don't use a whole lot of data. So do customers really need 5G? And, Ben, maybe we'll start with you on that one.

Okay. Sure. So well, the initial rollout of 5G has focused heavily in the press on the high bandwidth below latency kinds of applications such as video and communication for autonomous vehicles and stuff like that. The reality is that really 5G is set up to offer differentiated range of solutions across multiple different frequency bands and with greater ability to segment data based on priorities, I think that will tie into the question that was just asked about monitoring and control versus just -- well controlled versus monitoring. And so while current 5G deployments are still concentrated on serving dense population areas and the higher bandwidth stuff, the future radio chipsets that are going to start coming out, we're starting to see examples of them now. They'll probably be in the market in the next year to 2 years will offer cost-effective connectivity for a lot of these different critical infrastructures and the ability to use the lower frequencies to get better penetration and range and to differentiate things to allow the different kinds of communication to each be segmented from each other is going to give a lot of flexibility to implement these kinds of capabilities. So Digi supports a technology we call our core module, which is a plug-in modem, which allows for flexible deployment of whatever the current available technology is at a given location as the infrastructures that are supported. And so as we've said before, a lot of these implementations are designed to be put out in the field for 10, 20 years. And obviously, cell technology changes quickly. So this allows for updates to sell technology without making profound changes to how the communication works, which, again, is going to tie back to some of the security questions that we asked earlier. So this same technology allows easy switch between pure public communication or CBRS, private cellular networks, the FirstNet or the 5G or the new 5G technologies can all be implemented with a simple change of the radio without having to reconfigure how the device is communicating.

I'd like to add to that. One of the -- so just an observation for most of our customers that started in the world of 2G and then 3G really even didn't need 4G for a lot of their applications. The speeds were and the latencies were more than adequate for grid applications. Typically, we're pulling meter data or state data. And sometimes, as we talked about, there's going [indiscernible] which will command the changes or state. Those don't require very much bandwidth. The exception, I would say, is like assets like substations that you have a lot more equipment and responsibility for downstream transmission, they could benefit from higher speeds and lower latencies. What's interesting to me is, is we have a number of customers that put our equipment out and they run it for 10, 13, 14 years and never upgraded. Utilities don't like to make changes and things that work, but they were forced to upgrade by the mobile operators turning off their 2G or 3G networks and causing them to replace their equipment. We had a discussion earlier about the benefits of public versus private networks. One of the nice things about a private network as you determine things need to change. And if they don't need to change, you can keep them the same and you're not forced by a mobile operator. So I think most of the stuff that we've been involved with, for the most part, 5G hasn't been required. Alec you had something?

Yes. I would say, particularly in the IoT space and in utilities, no, we haven't really seen that need for the 5G speeds. But I think where the need is going to come is exactly where you were talking about there, which is typically these cellular generations last about 10 years depending upon the location, right? And as we're seeing now that 2G and 3G has been basically entirely phased out of the tower technologies, eventually 4G LTE will go that way as well. But the nice aspect of LTE and stands for long-term evolution, is they actually had a plan for this with IoT devices and the 3GPP spec has already been included for 5G to include networks, low-speed IoT networks such as LTE-M and NB-IoT into the future. So I think we'll still see the continuation of these IoT networks and the -- as the generations move forward, and we'll still need these kind of low-power low bandwidth devices that are out there.

All right. Thank you, gentlemen. We have a lot of questions coming in from the audience. I'm going to start with the one that we just got in that long ago. It says, with some of the utility grids being going through remote areas and investments in satellite networks, is satellite considered an option? Or is it more of an LPWAN network back to a gateway that has cellular connectivity?

I think it could be either. We -- I probably have not seen a lot of satellite use within electric utilities. We've seen satellite use in a lot of other verticals that we play in, particularly oil, gas, things like mining, forestry, maritime, but not a lot yet in the electric grid.

Yes. I would say -- I would agree with that. Typically, satellite is going to be constrained given the latency that comes along with that and the potential cost of actually putting the infrastructure up in given the satellites there, although that is being addressed somewhat today via some of the companies that are out there. But I'd say that generally, we do see those low power networks using devices like our XBee to transmit information back to gateway. Particularly, we've seen this be very successful in solar and wind farms, where they're in very remote areas and they can all transfer information back to a single gateway that does have that cellular connectivity available.

All right. Perfect. I have another one here that says, have IoT and time-sensitive network applications and substations been explored in product development by Digi?

Okay, I can jump in there. We've started to look at time-sensitive networking, the integration of time-sensitive networking with cellular is something that's going to become more viable as we move towards the 5G segmentation. The biggest issue is make having a continuous path to prioritize the data. And so yes, we are looking at those technologies. It's for these kinds of applications, that's not the core functionality that we're seeing, but it's stuff that we're pursuing and monitoring.

I think for those types of applications, we do offer a number of products that to Ben's point, 5G offers the very high speed in the low latency. We also know that networks today, a lot of the wired networks are less reliable. So where somebody is in running fiber to a substation or an asset and using our wireline connections, wireless is probably going to be more reliable and a lot more cost-effective. And we do have products today that support 5G and support 5G with dual radios. So we do offer a level of resiliency where you can use 2 connections, say, on one public network and one on a private network or both on 2 different public networks. And we also offer a [ bonding ] of traffic to over both those connections to grease the throughput and lower the latency. So there are some solutions for those types of applications.

All right. I think, Curt, you may have just answered this question. We go ahead and read existing case, but you talked about redundancy in using public and private. But since what is Digi solution for redundancy for 5G network for telemetry transfer.

Yes, if you look at our products on our website, you'll see products like our 54 and our 64 that offer dual cellular. And all of our cellular products, I said we were a pioneer in this, offer dual SIMs per cellular radio. We have a technology we introduced a long time ago called SureLink that was copied by a lot of others that offer that ability to failover between one network to another network or one SIM to another SIM. And in the case where we have dual cellular radios in a device, we have 2 SIMs for radio, so you'd have up to 4 SIMs. So that would give you the ability to failover between 4 different networks, whether they be public or private. So a lot of resiliency and agility. Of course, there's a cost associated with all that you -- it's a more expensive piece of equipment. And if you're using public networks, you're paying for multiple service plans. If you're on a private network, you don't have any recurring cost, you're the operator, the network. And so that would offer some savings. And in fact, that's another benefit that I didn't mention a private network is the elimination of service fees. And in fact, that's one of the justifications in the rate cases that the utilities are doing for investments in private cellulars, the elimination of recurring fees today that they pay to mobile operators.

All right. Thank you. Today, DER asset classes, [ the near ] response storage, renewable energy, et cetera, both complement and compete with each other, what can be done to promote harmonization and interoperability across these asset classes to enhance grid resiliency.

Alec, do you want to start?

Sure. Yes. I think it's been mentioned here a few times, but I think a lot of this is going to come from regulation, right? And it's going to be states making sure that all of the equipment is interoperable and can intercommunicate between devices, right? There's a lot of -- anyone from the company that's creating the actual solar panels to the company that's actually running that solar panel grid and introducing it back into the smart grid. Today, these are all kind of separate entities. And I believe with standards and interoperability regulations that are making those requirements is likely going to be the thing that's going to harmonize this and make it so everyone has to work together versus everyone struggling to get a certain percentage of the market.

Yes. And I think another thing that we're seeing, and we have some customers in this space, and we're also exploring partnerships in this space are the companies developing the software that didn't exist in the past that does the aggregation of the communications from all of these devices back end of the grid and then provides the communications back to these devices to do the control functions that are needed. So there's an emerging set of companies that are making and software that may sit on like a Digi device or be embedded into that inverter. And then there's aggregation software, a lot of it today cloud-based. Some of it is enterprise-based. A lot of the companies offer both that do that aggregation and then integration through APIs into the control systems of the utility.

All right. Thank you. On the generation side, when you talk about modernizing equipment and systems with IoT, are you mainly talking about renewable energy sources and distributed energy? Or is it also happening at large centralized generating plants?

So most of the stuff that we've been working with the new distributed energy sources, whether they're micro grids, solar farms or things at people's homes, we -- in those large centralized generation facilities, there's a lot of communications infrastructure going to those assets that are primarily on the utilities fiber network. So typically, Digi hasn't been involved in those types of applications.

All right. Ben, I've got a question for you. It's how do electric utilities integrate, protect, to integrate -- how do electric utilities integrate and protect investments in critical infrastructure or their legacy infrastructure?

Yes. I think that play -- in part that also plays into the thing that Curt was just talking about. There's a lot of equipment out there, whether it's baseload or more classic peaking plants or intermediate substation and distribution line monitoring equipment. Some of that stuff has a network stack in it. Some of it -- a lot of it really still has serial parts because they work. And one of the big issues that you have is that those embedded network stacks tend not to be something that's easy to update in the field. If you're in the mission-critical equipment, that's -- there's a lot of testing and validation that has to go in, and then it's critical equipment and taking it offline for maintenance is a risk and a time effort. Whereas, using the gateways and connectivity solutions that we offer allows you to delegate the communication function to something that's easier to maintain and manage, and Digi has taken a very proactive stance to keeping current issues addressed to providing a centralized management functionality that allows it to be very easy to update thousands of units in the field without affecting how the grid is operating. So the ability to make these connections to all these critical assets and to maintain connectivity for the current application solutions that are in place means that you can increase the reliability of access to the information, increase the flexibility of how you get there, bring those connections into a private network, move them to 5G when 5G is the thing rather than having to constantly go and update critical essential equipment. So by because of the nature of what our products do, we're able to make sure that we can afford the decades long deployment that these products are in play, maintain connectivity to all of this critical infrastructure equipment, integrate with the new equipment that's starting to be placed out there, help address NERC CIP requirements, security, best practices, keep communication paths, secure and segregated, put edge intelligence out in the field where it can help monitor, alert, alarm, react, integrate different generations of equipment and makes that all seamless to the operating authority.

All right. Perfect. Thank you. Did Digi help to define the data architecture to prevent unnecessary data to be transmitted or do you provide any best practices to your clients in that area?

So we've added into our products recently. We've added a lot of edge computing capability, particularly in our operating system. We now have something called containers. So we support Linux containers. One of the things you can do with edge computing is, is you can monitor state data, for instance, at the edge and send only when things have changed or when things are out of balance. So what it allows you to do is to continue to operate if a connection goes down, but also limit the amount of traffic that you're sending up over the network by adding intelligence out on the edge.

Yes, I think that's a good answer, and it's really -- it really does get included in all of our products. Even our XBee products have edge intelligence capabilities via MicroPython onboard in order to be able to interrogate that data and only send when necessary. I think the other thing that's important to note here is it's important to define kind of security measures that need to be taken on certain data and potentially other data that's not because there's always trade-offs, right? You can send data via a very short message, UDP protocol over cellular data that doesn't necessarily need these secure levels to keep that data away from others. And then there's also data that you need to keep very secure, you need TCP socket connections and VPN connections, right? So it's important to define where that data falls in those buckets. And the Digi devices can all help you send that data through those different channels.

It's Ben. To follow on to that. So we also have professional services and implementation and engineering groups that can help work with the operating authorities and the SCADA systems integrators to help make sure that best practices are being followed, given the business objectives of the system that is being implemented.

All right. Perfect. So we only have a few minutes left. We got a question here that I'm going to ask and I'd like for each of you to comment on it and kind of give us your take on this, that you obviously work with a lot of electric utilities. So to this question is, what is the biggest challenge in implementing IoT technology in electric utilities? Who wants to start?

I can go ahead and start. I'd say the biggest challenge is today that are being faced is that because these standards are just being defined, it's the interoperability challenge, right? There's lots of different standards out there, everything from Wi-SON, Matter, LoRaWAN, Sigfox, WiFi, BLE, cellular, right? These are all different technologies and protocols that can be used to transmit information. I think it's important to note that the large majority of those that I just mentioned that exist today, you could implement Digi products and you don't have to be the subject matter expert. You can just deploy whichever protocol and product fits the scenario that you need to operate with and then you can focus on your own expertise and actually what data is important to you.

So my answer would be people probably is the biggest challenge. And as I look at a number of the customers that we've worked with over the years, a lot of the people that we started with early in the IoT journey, a lot of them are retiring. And we have a -- I think everybody knows we have a shortage of workers kind of in the technology world. It's getting harder and harder to recruit people. As I look at what's going on, on the migration from public to private networks where utilities are putting up their own networks and becoming mobile operators, they're very, very reliant on consultants and outside parties to help them do that both in the -- going through an RFP stage, going through pilots, doing the engineering, doing the deployments and then running them. They're very reliant on outside parties that have people and talent to do that. So I'd say the biggest challenge is people and training people and hiring people and reliance on that human capital.

Yes. I would tend to agree with the assessments that both of my colleagues have made, I tend to phrase it as keeping current on technology. The rate of change in technology keeps increasing. And having -- just keeping track of what the different options are and what makes the most sense. And so in that kind of situation, it really makes the best sense is to have a partner who is familiar with all the technologies from the oldest and most mature ways of doing things to the newest and most potentially interesting, somebody who understands how connectivity needs to work across a wide variety of different options and who can understand how that has to fit into the sort of complex infrastructural systems that represent the grids we have and especially the grids that we're trying to become more able to be. And so in that context, that's who Digi is. We've been doing this kind of communication across a wide variety of networks for all kinds of critical infrastructure for decades. And that's why we are trying to reach out to make sure that we can offer to help people address these solutions as they're trying to modernize their goods to reach the demands of tomorrow.

Perfect. I think that's a great note to end on. Obviously, as we talked about in the very beginning, utilities are facing some big challenges and the technologies and solutions out there that will help them are definitely important. So this was a great discussion. Thank you, Curt, Ben and Alec. And audience, thank you for some great questions where I thought it was a very engaging and insightful discussion and a lot of that always thanks to you all with those great questions. But I'm afraid we're out of time for the day for this webinar. I think any questions we did not get to, we'll send this to our presenters, and they can take a look at them and get back with you. I think Digi is also going to be sharing some additional information with you and a follow-up e-mail. I do also want to remind you to be on the lookout for the e-mail with the link archived webcast. And again, you can go back and look at that. But better yet, share that with your colleagues and let them learn from this discussion today as well. So that concludes today's webinar. Again, thank you, Curt, Ben and Alec. And thanks, Digi, for sponsoring today's event. And of course, all of you in the audience, I want to thank you. We know that you have very busy schedules, and we appreciate you taking time out of your day to attend this webinar. So with that, I will wish you all a great day.

Thank you.

Thank you.