Core Insights - Digi International has launched a new product, the Digi Connect EZ 4 WS, designed specifically for use in medical settings [1] Product Overview - The Digi Connect EZ 4 WS is a serial server that facilitates connectivity for medical devices, enhancing communication and data transfer [1] - This product aims to improve the efficiency and reliability of medical device integration within healthcare environments [1] Market Implications - The introduction of the Digi Connect EZ 4 WS reflects the growing demand for advanced connectivity solutions in the healthcare industry [1] - By targeting medical settings, the company positions itself to capitalize on the increasing trend of digital transformation in healthcare [1]

Summary of Digi International's Acquisition of Jolt Software Conference Call Company and Industry - **Company**: Digi International (DGII) - **Acquisition Target**: Jolt Software - **Industry**: Technology, specifically focusing on operational intelligence and workflow optimization in sectors like food and beverage and healthcare Core Points and Arguments - **Acquisition Announcement**: Digi International announced the acquisition of Jolt for $145.5 million in cash, net of Jolt's cash and subject to customary adjustments, funded through existing credit lines [6][7] - **Strategic Fit**: Jolt's operational intelligence platform is expected to enhance Digi's SmartSense market leadership by optimizing workflows and adding capabilities in printing, labeling, and labor scheduling [5][6] - **Revenue Generation**: Jolt generated over $20 million in annualized recurring revenue (ARR) as of January 31, 2025, and is growing at a faster rate than Digi's IoT Solutions segment [7][36] - **Synergies**: The combined business plans to achieve $11 million in incremental annualized adjusted EBITDA by the end of 2026, driven by expected synergies from the merger [7][26] - **Customer Overlap**: There is minimal overlap between Jolt's and SmartSense's existing customer bases, allowing for cross-selling opportunities [12][13] Additional Important Content - **Market Positioning**: The acquisition is seen as a game changer, potentially changing the competitive landscape by offering a comprehensive suite of solutions in both healthcare and food and beverage sectors [55][56] - **Sales Integration**: The two sales organizations will be combined to leverage best practices, focusing on vertical markets rather than territory-based approaches [27][28] - **Financial Profile**: Jolt's financial profile is expected to mirror Digi's existing solutions business, with gross margins likely exceeding 80% [40][41] - **Retention Metrics**: While specific retention metrics were not disclosed, it was indicated that Jolt's customer success organization could benefit from SmartSense's more mature practices [43] - **Future M&A Activity**: Digi remains active in pursuing additional M&A opportunities despite the recent acquisition, indicating a strong leverage position and capability to rapidly deleverage [62] Conclusion - The acquisition of Jolt Software is positioned as a strategic move to enhance Digi International's offerings in operational intelligence and workflow optimization, with significant expected synergies and growth potential in the combined business model.

Digi International (DGII) came out with quarterly earnings of $0.53 per share, beating the Zacks Consensus Estimate of $0.51 per share. This compares to earnings of $0.5 per share a year ago. These figures are adjusted for non-recurring items. Ahead of this earnings release, the estimate revisions trend for Digi International was mixed. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank # ...

Financial Data and Key Metrics Changes - Digi International reported a return to year-over-year revenue growth, with annual recurring revenue (ARR) growing double digits for the third consecutive quarter [6][8] - ARR now represents approximately 30% of trailing twelve months revenues, marking a new record for the company [7] - Adjusted EBITDA margins reached a record 25.6%, driven by ARR and a favorable product mix, despite increased freight and duties costs [8] Business Line Data and Key Metrics Changes - Both reporting segments contributed to the growth in ARR, with tailored IoT solutions simplifying deployment for customers [7] - The company experienced broad-based contributions across various product categories, with improved margins in certain products [16] Market Data and Key Metrics Changes - Demand in North America is gaining prominence, while APAC has been softer than expected [40] - The utility segment and mass transit markets are showing strong demand, while the renewable market has weakened [39] Company Strategy and Development Direction - The company aims to prioritize strategic acquisitions that align with ARR growth and scale objectives [9] - Digi International is focused on maintaining a diversified global supply chain to adapt to market changes and customer needs [10] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about improved decision-making from customers due to increased certainty in financial policies and tariffs [23] - The company anticipates that ARR and profitability will continue to outpace top-line revenue growth beyond fiscal year 2025 [55][56] Other Important Information - The company retired $30 million in debt this quarter, reducing net debt to $20 million, and is on track to be net cash positive by the end of fiscal year 2025 [9] - Free cash flow generation is highlighted as a key performance indicator, with a 9% free cash flow yield [8] Q&A Session Summary Question: Update on products and services ARR and attach rates - Management noted an increase in attach rates, with new business primarily in the IT area, contributing to recurring revenue growth [16] Question: Guidance for fourth quarter and sequential sales - Management indicated that while sales may appear flat sequentially, year-over-year growth is expected, driven by gross margin rather than operating expenses [19] Question: Demand outside of APAC and project initiation - Management is optimistic that improved financial policies and tariff certainty will lead to more timely decision-making by customers [23] Question: Size of the opportunity for OpenGear in AI infrastructure - Management highlighted a slight increase in data center business, with a focus on hybrid deployments as a growth area [25] Question: Inventory normalization and customer reordering - Management confirmed that inventory levels have normalized, and there are positive signs of improved channel velocity [26] Question: Geographical and vertical market activity - Management reported strong demand in utilities and mass transit, while the renewable market has weakened [39] Question: Competitive landscape and cost management - Management emphasized the importance of a diversified supply chain and the potential for short-term opportunities due to competitors' challenges [45] Question: Capital allocation priorities - Management stated that M&A remains the top priority for capital deployment over share buybacks [48] Question: Outlook for 2025 and interplay of recurring revenue - Management expects ARR and profitability to outpace top-line growth, with a focus on multi-year service opportunities [55][56]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Unaudited Financial Statements](index=3&type=section&id=ITEM%201.%20Unaudited%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the three and nine months ended June 30, 2025, including operations, balance sheets, cash flows, and explanatory notes [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q3 2025 saw a slight revenue increase to $107.5 million and improved net income, while nine-month net income significantly rose to $30.8 million due to lower other expenses Q3 Fiscal 2025 vs Q3 Fiscal 2024 (Three months ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change | | :--- | :--- | :--- | :--- | | **Total Revenue** | $107,514 | $105,203 | +2.2% | | **Gross Profit** | $68,268 | $62,258 | +9.7% | | **Operating Income** | $14,923 | $12,908 | +15.6% | | **Net Income** | $10,243 | $9,702 | +5.6% | | **Diluted EPS** | $0.27 | $0.26 | +3.8% | Nine Months Fiscal 2025 vs Nine Months Fiscal 2024 (ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change | | :--- | :--- | :--- | :--- | | **Total Revenue** | $315,883 | $318,994 | -1.0% | | **Gross Profit** | $197,599 | $185,676 | +6.4% | | **Operating Income** | $42,009 | $33,192 | +26.6% | | **Net Income** | $30,823 | $10,642 | +189.6% | | **Diluted EPS** | $0.82 | $0.29 | +182.8% | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets decreased to $770.3 million, driven by reduced long-term debt and inventories, leading to lower liabilities and increased stockholders' equity Selected Balance Sheet Data (in thousands) | Account | June 30, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $20,104 | $27,510 | | Inventories | $35,439 | $53,357 | | Total assets | $770,341 | $815,075 | | Long-term debt | $40,085 | $123,185 | | Total liabilities | $148,834 | $234,040 | | Total stockholders' equity | $621,507 | $581,035 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended June 30, 2025, operating cash flow significantly increased, while financing activities used substantial cash, resulting in a net decrease in cash and equivalents Cash Flow Summary (Nine months ended June 30, in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $79,958 | $56,657 | | Net cash (used in) provided by investing activities | $(2,148) | $947 | | Net cash used in financing activities | $(85,291) | $(62,616) | | **Net decrease in cash and cash equivalents** | **$(7,406)** | **$(3,356)** | | Cash and cash equivalents, end of period | $20,104 | $28,337 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes detail accounting policies, segment performance, goodwill impairment, a new credit facility, revenue by region, key customer concentration, and remaining performance obligations - The annual goodwill impairment test was completed as of June 30, 2025, for both the IoT Products & Services and IoT Solutions reporting units, with the fair value exceeding the carrying value for each, resulting in **no impairment**[25](index=25&type=chunk)[27](index=27&type=chunk) - On December 7, 2023, Digi entered into a new credit agreement providing a **$250 million** senior secured revolving credit facility, which was used to repay all obligations under the prior credit facility[28](index=28&type=chunk)[29](index=29&type=chunk) - One distributor customer within the IoT Products & Services segment accounted for **16% of consolidated revenue** for both the three and nine months ended June 30, 2025[38](index=38&type=chunk) - As of June 30, 2025, the company had approximately **$158.9 million** of remaining performance obligations, with about **$78.4 million** expected to be recognized as revenue over the next 12 months[44](index=44&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q3 2025 revenue growth, improved gross margins, and increased ARR, noting that macroeconomic conditions are extending sales cycles and impacting future results [Overview and Key Objectives](index=20&type=section&id=OVERVIEW) Digi, an IoT solutions provider, aims to transition to complete solutions and grow ARR, but anticipates adverse impacts from longer sales cycles due to macroeconomic conditions - Key operating objectives for fiscal 2025 include transitioning to complete solutions with software and services to drive Annualized Recurring Revenue (ARR) and improving customer service[72](index=72&type=chunk)[76](index=76&type=chunk) - Annualized Recurring Revenue (ARR) grew **12% year-over-year** to **$126 million** as of the end of Q3 2025[76](index=76&type=chunk) - The company is experiencing **longer sales cycles** due to macroeconomic conditions, which is expected to negatively impact financial results for at least the remainder of fiscal 2025[73](index=73&type=chunk) [Consolidated Results of Operations](index=20&type=section&id=CONSOLIDATED%20RESULTS%20OF%20OPERATIONS) Q3 2025 saw consolidated revenue growth driven by IoT Solutions, significant gross profit margin expansion, increased operating expenses, and a notable decrease in other expenses Revenue by Segment - Q3 2025 vs Q3 2024 (in thousands) | Segment | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | IoT Products & Services | $80,032 | $80,003 | 0.0% | | IoT Solutions | $27,482 | $25,200 | +9.1% | | **Total Revenue** | **$107,514** | **$105,203** | **+2.2%** | Gross Profit Margin by Segment - Q3 2025 vs Q3 2024 | Segment | 2025 | 2024 | Basis Point Change | | :--- | :--- | :--- | :--- | | IoT Products & Services | 60.6% | 54.4% | +620 | | IoT Solutions | 72.0% | 74.4% | -240 | | **Total Gross Profit Margin** | **63.5%** | **59.2%** | **+430** | - The decrease in Other Expense for the nine months ended June 30, 2025 was primarily driven by a **$9.7 million write-off** of debt issuance costs in the prior year and an **$8.0 million reduction** in interest expense[90](index=90&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company maintains strong liquidity, with significantly increased operating cash flow and a new $250 million revolving credit facility, ensuring sufficient funding for future operations - Cash flows from operating activities increased by **$23.3 million** for the nine months ended June 30, 2025, compared to the same period in 2024[105](index=105&type=chunk) - A new **$250 million** senior secured revolving credit facility was established on December 7, 2023, replacing the prior credit agreement[103](index=103&type=chunk) Contractual Obligations at June 30, 2025 (in thousands) | Obligation | Total | Less than 1 year | 1-3 years | 3-5 years | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating leases | $14,049 | $3,503 | $4,366 | $3,724 | $2,456 | | Revolving loan | $41,000 | $— | $— | $41,000 | $— | | **Total** | **$55,049** | **$3,503** | **$4,366** | **$44,724** | **$2,456** | [Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from interest rate fluctuations on variable-rate debt and foreign currency exchange rate changes, impacting interest expense and stockholders' equity - The company is exposed to interest rate risk on its **$41.0 million** outstanding variable-rate Revolving Loan. A **25 basis point** change in interest rates would increase or decrease annual interest expense by **$0.1 million**[110](index=110&type=chunk)[113](index=113&type=chunk) - Foreign currency translation risk exists from consolidating foreign subsidiaries. A **10% change** in the exchange rates for the Euro, British Pound, Australian Dollar, and Canadian Dollar would impact stockholders' equity by **0.9%**[114](index=114&type=chunk)[115](index=115&type=chunk) [Controls and Procedures](index=30&type=section&id=ITEM%204.%20Controls%20and%20Procedures) As of June 30, 2025, disclosure controls and procedures were deemed effective, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were **effective** as of June 30, 2025[117](index=117&type=chunk) - No changes occurred during the nine months ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[118](index=118&type=chunk) [PART II. OTHER INFORMATION](index=31&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=31&type=section&id=ITEM%201.%20Legal%20Proceedings) The company is subject to various claims and litigation in the normal course of business, with further details referenced in the financial statements - In the normal course of business, the company is subject to various claims and litigation with third parties[56](index=56&type=chunk)[119](index=119&type=chunk) [Risk Factors](index=31&type=section&id=ITEM%201A.%20Risk%20Factors) Key risks include product obsolescence from rapid technological changes like AI, evolving industry standards, and potential adverse impacts from new international tariffs - The company's future success is susceptible to rapid technological changes, such as the introduction of artificial intelligence, which could render existing products **obsolete or unmarketable**[121](index=121&type=chunk)[122](index=122&type=chunk) - Potential new or incremental international tariffs pose a risk to the business, with the potential to disrupt supply chains, increase costs, and make products **less competitive**[124](index=124&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In Q3 2025, the company repurchased 5,448 shares of common stock at $31.18 per share, primarily for tax withholding on restricted stock units Share Repurchases in Q3 Fiscal 2025 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | — | $— | | May 2025 | 5,448 | $31.18 | | June 2025 | — | $— | | **Total** | **5,448** | **$31.18** | [Exhibits](index=33&type=section&id=ITEM%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including CEO/CFO certifications and iXBRL formatted financial statements - The filing includes certifications from the CEO (Exhibit 31a) and CFO (Exhibit 31b), a Section 1350 Certification (Exhibit 32), and financial data formatted in iXBRL (Exhibit 101)[129](index=129&type=chunk)

[Overall Financial Performance](index=1&type=section&id=Digi%20International%20Reports%20Third%20Fiscal%20Quarter%202025%20Results) [Third Quarter Fiscal 2025 Financial Highlights](index=1&type=section&id=Third%20Fiscal%20Quarter%202025%20Results%20Compared%20to%20Third%20Fiscal%20Quarter%202024%20Results) Digi reported Q3 FY2025 revenue of $108 million, with Adjusted EBITDA up 11% to $28 million and ARR growing 12% to $126 million Q3 FY2025 Key Financial Metrics (vs. Q3 FY2024) | Metric | Q3 FY2025 | Change (YoY) | | :--- | :--- | :--- | | Revenue | $108 million | +2% | | Gross Profit Margin | 63.5% | +430 bps | | Net Income | $10 million | +6% | | Net Income per Diluted Share | $0.27 | +4% | | Adjusted Net Income per Diluted Share | $0.53 | +6% ($0.50 in Q3'24) | | Adjusted EBITDA | $28 million | +11% | | Annualized Recurring Revenue (ARR) | $126 million | +12% | - CEO Ron Konezny highlighted strong execution, double-digit ARR growth, and improved profitability despite a dynamic geopolitical environment. The company's strong cash flow enabled a **$30 million debt paydown**[5](index=5&type=chunk) [Segment Performance](index=2&type=section&id=Segment%20Results) Segment performance showed flat IoT Product & Services revenue with strong ARR growth, while IoT Solutions revenue increased with a gross margin decline [IoT Product & Services](index=2&type=section&id=IoT%20Product%20%26%20Services) IoT Product & Services revenue was flat at $80 million, but ARR grew 30% to $30 million with a 620 basis point gross margin improvement IoT Product & Services Q3 FY2025 Performance | Metric | Q3 FY2025 | Change (YoY) | | :--- | :--- | :--- | | Revenue | $80.0 million | Flat | | ARR | $30 million | +30% | | Gross Profit Margin | 60.6% | +620 bps | - The growth in ARR was attributed to an expanding subscription base for remote management platforms and extended warranty offerings[8](index=8&type=chunk) [IoT Solutions](index=2&type=section&id=IoT%20Solutions) IoT Solutions revenue increased to $27.5 million with 7% ARR growth, though gross margin declined by 240 basis points IoT Solutions Q3 FY2025 Performance | Metric | Q3 FY2025 | Change (YoY) | | :--- | :--- | :--- | | Revenue | $27.5 million | +9.1% | | ARR | $96 million | +7% | | Gross Profit Margin | 72.0% | -240 bps | - ARR growth was driven by both SmartSense and Ventus product lines[9](index=9&type=chunk) [Financial Condition and Capital Allocation](index=2&type=section&id=Capital%20Allocation%20Strategy) Digi prioritized deleveraging, reducing debt to $40.1 million and inventory to $35 million, while focusing on strategic acquisitions - The company's capital allocation priorities are deleveraging the balance sheet and pursuing disciplined acquisitions focused on scale and ARR[10](index=10&type=chunk) Key Balance Sheet & Cash Flow Items (Q3 FY2025) | Metric | Q3 FY2025 End | Change from FY2024 YE | | :--- | :--- | :--- | | Outstanding Debt | $40.1 million | Decreased | | Cash and Cash Equivalents | $20.1 million | - | | Debt, Net of Cash | $20.0 million | - | | Inventory | $35 million | Down from $53 million | | Cash Flow from Operations | $24 million | - | [Business Outlook and Guidance](index=3&type=section&id=Fourth%20Fiscal%20Quarter%202025%20Guidance) [Fiscal Year 2025 Guidance](index=3&type=section&id=Fiscal%20Year%202025%20Guidance) Digi raised its FY2025 Adjusted EBITDA growth outlook to 7-8% while maintaining flat revenue and 10% ARR growth projections Updated Full-Year FY2025 Guidance | Metric | FY2025 Projection (YoY) | | :--- | :--- | | ARR Growth | 10% (Unchanged) | | Revenue | Flat (Unchanged) | | Adjusted EBITDA Growth | 7-8% (Raised from ~5%) | - The company is committed to achieving a net cash positive position by the end of the fiscal year[16](index=16&type=chunk) [Fourth Quarter Fiscal 2025 Guidance](index=3&type=section&id=Fourth%20Fiscal%20Quarter%202025%20Guidance) Q4 FY2025 guidance projects revenue between $106 million and $110 million, with Adjusted EBITDA from $25.5 million to $27.0 million Q4 FY2025 Guidance | Metric | Guidance Range | | :--- | :--- | | Revenue | $106M - $110M | | Adjusted EBITDA | $25.5M - $27.0M | | Adjusted Net Income per Diluted Share | $0.47 - $0.51 | [Long-Term Goals](index=3&type=section&id=Long-Term%20Goals) Digi aims to achieve $200 million in both ARR and Adjusted EBITDA by the end of fiscal 2028, with potential acceleration via acquisitions - The company's long-term goal is to achieve **$200 million in ARR** and **$200 million in Adjusted EBITDA** by the end of fiscal 2028[12](index=12&type=chunk) - ARR growth is stated as the company's top strategic priority[13](index=13&type=chunk) [Consolidated Financial Statements](index=7&type=section&id=Consolidated%20Financial%20Statements) [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q3 FY2025 revenue increased to $107.5 million, with gross profit at $68.3 million and net income at $10.2 million, or $0.27 per diluted share Q3 FY2025 Statement of Operations (in thousands) | Line Item | Q3 2025 | Q3 2024 | | :--- | :--- | :--- | | Revenue | $107,514 | $105,203 | | Gross Profit | $68,268 | $62,258 | | Operating Income | $14,923 | $12,908 | | Net Income | $10,243 | $9,702 | | Diluted EPS | $0.27 | $0.26 | [Condensed Consolidated Balance Sheets](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets were $770.3 million, with inventories at $35.4 million and long-term debt significantly reduced to $40.1 million Balance Sheet Highlights (in thousands) | Line Item | June 30, 2025 | Sept 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $20,104 | $27,510 | | Inventories | $35,439 | $53,357 | | Total Assets | $770,341 | $815,075 | | Long-term debt | $40,085 | $123,185 | | Total Liabilities | $148,834 | $234,040 | | Total Stockholders' Equity | $621,507 | $581,035 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Nine-month operating cash flow was $80.0 million, with $85.3 million used in financing activities, ending with $20.1 million in cash Nine-Month Cash Flow Summary (in thousands) | Line Item | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $79,958 | $56,657 | | Net cash used in financing activities | $(85,291) | $(62,616) | | Cash and cash equivalents, end of period | $20,104 | $28,337 | [Non-GAAP Financial Measures](index=9&type=section&id=Non-GAAP%20Financial%20Measures) [Reconciliation of Net Income to Adjusted EBITDA](index=9&type=section&id=Reconciliation%20of%20Net%20Income%20to%20Adjusted%20EBITDA) Q3 FY2025 Adjusted EBITDA increased to $27.6 million (25.6% of revenue), reflecting adjustments for depreciation and stock-based compensation Adjusted EBITDA Reconciliation (in thousands) | Line Item | Q3 2025 | Q3 2024 | | :--- | :--- | :--- | | Net Income | $10,243 | $9,702 | | Adjustments (Depreciation, Stock Comp, etc.) | $13,594 | $15,023 | | **Adjusted EBITDA** | **$27,559** | **$24,725** | | Adjusted EBITDA Margin | 25.6% | 23.5% | [Reconciliation of Net Income to Adjusted Net Income](index=9&type=section&id=Reconciliation%20of%20Net%20Income%20and%20Net%20Income%20per%20Diluted%20Share%20to%20Adjusted%20Net%20Income%20and%20Adjusted%20Net%20Income%20per%20Diluted%20Share) Q3 FY2025 Adjusted Net Income was $20.1 million, or $0.53 per diluted share, after adjustments for intangibles and stock-based compensation Adjusted Net Income Reconciliation (in thousands, except per share) | Line Item | Q3 2025 | Q3 2024 | | :--- | :--- | :--- | | Net Income | $10,243 | $9,702 | | **Adjusted Net Income** | **$20,115** | **$18,486** | | Net Income per Diluted Share | $0.27 | $0.26 | | **Adjusted Net Income per Diluted Share** | **$0.53** | **$0.50** | [Other Information](index=3&type=section&id=Other%20Information) [Conference Call Information](index=3&type=section&id=Third%20Fiscal%20Quarter%202025%20Conference%20Call%20Details) Digi will host a conference call on August 6, 2025, at 5:00 p.m. ET to discuss Q3 FY2025 results, with webcast access available - The earnings conference call is scheduled for August 6, 2025, at 5:00 p.m. ET[17](index=17&type=chunk) - A live webcast and a replay will be available through the investor relations section of Digi's website[18](index=18&type=chunk)[19](index=19&type=chunk) [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section cautions that forward-looking statements are subject to risks including inflation, supply chain issues, and geopolitical factors - The press release includes forward-looking statements concerning business performance, profitability, and market conditions[22](index=22&type=chunk) - Key risks cited include inflationary pressures, supply chain challenges, regulatory changes, cybersecurity, and military conflicts[22](index=22&type=chunk)

Group 1 - Digi International Inc. (NASDAQ: DGII) is positioned for high growth potential due to its sector and strong track record, being one of the largest in its industry [1] - The company offers unified services for corporations, which differentiates it from competitors [1] Group 2 - The analysis approach includes triangulation between valuation by multiples, discounted cash flow (DCF), and dividend yield [1] - Focus is on Consumer Discretionary and Consumer Staples sectors, prioritizing smaller capitalization companies with low institutional coverage for greater potential [1] - The investment philosophy combines income and value investing strategies, emphasizing a margin of safety in multiples and projected cash flow [1]

Company Performance - Digi International reported quarterly earnings of $0.51 per share, exceeding the Zacks Consensus Estimate of $0.49 per share, and showing an increase from $0.49 per share a year ago, representing an earnings surprise of 4.08% [1] - The company posted revenues of $104.5 million for the quarter ended March 2025, which was below the Zacks Consensus Estimate by 0.13% and a decrease from $107.7 million in the same quarter last year [2] - Over the last four quarters, Digi International has surpassed consensus EPS estimates two times and topped consensus revenue estimates only once [2] Stock Outlook - The stock has underperformed the market, losing about 7.4% since the beginning of the year compared to the S&P 500's decline of 4.7% [3] - The current consensus EPS estimate for the upcoming quarter is $0.50 on revenues of $105.76 million, and for the current fiscal year, it is $1.99 on revenues of $422.12 million [7] - The estimate revisions trend for Digi International is currently unfavorable, resulting in a Zacks Rank 4 (Sell) for the stock, indicating expected underperformance in the near future [6] Industry Context - The Computer - Networking industry, to which Digi International belongs, is currently ranked in the bottom 37% of over 250 Zacks industries, suggesting that the outlook for the industry can significantly impact stock performance [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Core Viewpoint - Digi International, Inc. held its Second Quarter Fiscal 2025 Earnings Conference Call to discuss its financial performance and outlook for the future [1][3]. Group 1: Company Performance - The earnings release was issued after the market closed, and it is available on the company's investor relations website [3]. - The call featured comments from Jamie Loch, the Chief Financial Officer, and Ron Konezny, the President and CEO, regarding the company's performance [3][4]. Group 2: Forward-Looking Statements - The conference included forward-looking statements that are subject to significant risks and uncertainties, reflecting the company's expectations about future operating and financial performance [4][5]. - The company does not undertake any obligation to update or revise these forward-looking statements, although it believes the expectations are reasonable [5].

Financial Data and Key Metrics Changes - Annual Recurring Revenue (ARR) grew 12% year over year to a record $123 million in the quarter, representing 29% of annualized quarterly revenues [6][7] - Free cash flow generation was $26 million in the quarter, reducing net debt to $45 million after paying down $25 million of debt [7][9] - Current free cash flow yield is at 9%, with expectations to be net cash positive by the end of the fiscal year [8][9] Business Line Data and Key Metrics Changes - The recurring revenue trends in Products and Services (P&S) increased over 20% in the quarter, driven by improved attach rates of software and services [15][16] - The inventory position has improved significantly, approaching historical norms, indicating a positive trend in inventory management [7][20] Market Data and Key Metrics Changes - Demand remains steady across most regions, with the exception of a weaker performance in the APAC region [24][30] - Sales cycle lengths and order sizes have stabilized post-COVID, with no significant deterioration observed [30] Company Strategy and Development Direction - The company is focused on a solution-oriented approach in the industrial IoT market, emphasizing software and services to enhance product offerings [6][16] - Plans to pursue solution-oriented acquisitions of scale as the balance sheet improves [9] Management's Comments on Operating Environment and Future Outlook - The macro environment is acknowledged as fluid, but the company has a robust history of adaptability and resiliency [10] - Current outlook assumes steady demand and existing tariff rates, with no anticipated drop-off in demand [9] Other Important Information - The company has diversified and optimized its supply chain across geographies and suppliers, enhancing flexibility in operations [10][32] Q&A Session Summary Question: What operational levers are being used to unlock recurring revenue growth? - The company is focusing on providing complete solutions by attaching software and services to products, which has improved attach rates [16] Question: How is the inventory situation evolving? - The inventory situation is resolving itself, with a significant reduction in inventory levels, returning to normalized levels [20] Question: How has macro volatility affected customer spending? - Demand remains steady, with some fluidity acknowledged, particularly in the APAC region [24] Question: What is the status of software attach rates? - Software attach rates are improving, with ongoing efforts to increase these rates across the portfolio [25] Question: What is the current state of deal timelines and supply chain? - Sales cycles have stabilized, and the company is monitoring opportunities closely, with no significant deterioration noted [30] Question: How is the company managing tariff exposures? - The outlook incorporates current tariff states, with a focus on maintaining flexibility in operations to mitigate potential impacts [33] Question: How are the Ventus and SmartSense solutions performing? - Both solutions are performing well, with growth offsetting some soft churn, and the company is extending the Ventus model into its cellular router business [36]