Group 1 - The article compares Digi International (DGII) and Cisco Systems (CSCO) to determine which stock is more attractive to value investors [1] - DGII has a Zacks Rank of 2 (Buy), indicating a positive earnings outlook, while CSCO has a Zacks Rank of 3 (Hold) [3] - Value investors analyze various traditional metrics to assess if a company is undervalued, including P/E ratio, P/S ratio, earnings yield, and cash flow per share [4] Group 2 - DGII has a forward P/E ratio of 14.42, while CSCO has a forward P/E of 16.22, suggesting DGII may be undervalued [5] - DGII's PEG ratio is 0.85, compared to CSCO's PEG ratio of 3.18, indicating better expected earnings growth for DGII [5] - DGII's P/B ratio is 1.80, significantly lower than CSCO's P/B of 5.27, further supporting DGII's valuation as more attractive [6] Group 3 - DGII's improving earnings outlook and favorable valuation metrics position it as the superior value option compared to CSCO [7]

Core Viewpoint - Digi International (DGII) is currently viewed as a superior value opportunity compared to Cisco Systems (CSCO) based on various valuation metrics [7]. Valuation Metrics - Both DGII and CSCO hold a Zacks Rank of 2 (Buy), indicating a positive earnings outlook due to favorable analyst estimate revisions [3]. - DGII has a forward P/E ratio of 14.75, while CSCO has a forward P/E of 17.25, suggesting DGII is more attractively priced [5]. - The PEG ratio for DGII is 0.87, indicating better value relative to its expected earnings growth compared to CSCO's PEG ratio of 3.38 [5]. - DGII's P/B ratio is 1.83, significantly lower than CSCO's P/B of 5.59, further supporting DGII's valuation as more favorable [6]. - These metrics contribute to DGII's Value grade of B, while CSCO has a Value grade of D, highlighting the disparity in perceived value between the two stocks [6].

Group 1: Earnings Performance - Digi International reported quarterly earnings of $0.50 per share, matching the Zacks Consensus Estimate and showing an increase from $0.48 per share a year ago [1] - The company had revenues of $103.87 million for the quarter ended December 2024, which was 0.26% below the Zacks Consensus Estimate and a decrease from $106.09 million year-over-year [2] - Over the last four quarters, Digi International has surpassed consensus EPS estimates two times and topped consensus revenue estimates two times [2] Group 2: Stock Performance and Outlook - Digi International shares have increased by approximately 0.5% since the beginning of the year, while the S&P 500 has gained 2.7% [3] - The company's current consensus EPS estimate for the upcoming quarter is $0.47 on revenues of $104.53 million, and for the current fiscal year, it is $1.95 on revenues of $424.79 million [7] - The Zacks Rank for Digi International is currently 3 (Hold), indicating that the shares are expected to perform in line with the market in the near future [6] Group 3: Industry Context - The Computer - Networking industry, to which Digi International belongs, is currently in the top 30% of over 250 Zacks industries, suggesting a favorable outlook [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact investor decisions [5]

Core Viewpoint - Digi International Inc. reported its earnings results for Q1 2025, with a conference call held to discuss performance and future expectations [1][3]. Group 1: Earnings Results - The earnings release was issued after the market closed, and it is available on the company's Investor Relations website [3]. - Jamie Loch, CFO, and Ron Konezny, President and CEO, participated in the call to provide insights into the company's performance [3]. Group 2: Forward-Looking Statements - The company made forward-looking statements regarding its future operating and financial performance, which are subject to significant risks and uncertainties [4]. - There is no obligation for the company to update or revise these forward-looking statements, and while expectations are deemed reasonable, there is no assurance they will be met [4].

Financial Data and Key Metrics Changes - In Q1 2025, Annual Recurring Revenue (ARR) reached a record $120 million, an increase of 11% year-over-year and $4 million higher than the previous quarter [10] - ARR now represents 28% of quarterly revenues, highlighting its strategic importance for the company [11] - The company generated $30 million in cash from operations during the quarter and reduced total outstanding debt to below $100 million for the first time since Q4 2021 [13] Business Line Data and Key Metrics Changes - The transition from one-time revenue to recurring revenue is evident, with a 17% year-over-year increase in ARR, while one-time revenue saw a decline of $4.7 million [19][20] - Gross margins improved significantly in Q1, attributed to a favorable product mix, although this level may not be sustainable in Q2 [23][25] Market Data and Key Metrics Changes - Over 70% of revenues are generated from North America, with a strong emphasis on maintaining customer relationships despite tariff uncertainties [31] - There is a positive outlook for infrastructure investment, with potential tailwinds from increased IT budgets and data center refreshes [34] Company Strategy and Development Direction - The company aims to double ARR and adjusted EBITDA to $200 million each over a five-year period, maintaining confidence in achieving these targets [10] - The focus remains on enhancing the balance sheet and pursuing solution-oriented acquisitions as the geopolitical landscape evolves [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating supply chain challenges and emphasized a long-term view of customer relationships over short-term tariff implications [32] - There is a sense of increased confidence in the marketplace, with stable ordering patterns and good demand in sectors such as data centers and medical devices [39][41] Other Important Information - The company is celebrating its 40-year history of resilience and innovation in 2025, which it believes will support its future endeavors [15] Q&A Session Summary Question: Context on product and service trends, particularly ARR and one-time revenue - Management noted a transition from one-time revenue to recurring revenue, indicating that ARR growth will continue to be a focus [20] Question: Guidance for Q2 revenue and EBITDA - Management highlighted that gross margins in Q1 were elevated due to a favorable product mix, which may not be repeated in Q2 [24] Question: Tariff impact on supply chain and demand - Management reassured that they prioritize customer interests and have a geographically diverse manufacturing base to mitigate tariff risks [31] Question: Customer ordering patterns and market strength - Management observed stabilized ordering patterns with good demand in data centers and medical devices, while some sectors remain weaker [39][41] Question: ARR growth and attach rates - Management reported over 50% attach rates on key products, with optimism for continued growth in this area [43]

Revenue Performance - Consolidated revenue for the three months ended December 31, 2024, was $104 million, a decrease of 2% compared to $106 million in the same period of 2023[74] - Total revenue for the three months ended December 31, 2024, was $103.866 million, a decrease of 2.1% from $106.089 million in the same period of 2023[91] - Revenue from IoT Products & Services decreased by $4.2 million to $77.8 million, while IoT Solutions revenue increased by $2.0 million to $26.0 million[75] Profitability - Gross profit increased by 5% to $64 million, resulting in a gross profit margin of 62.0%, an increase of 440 basis points year-over-year[74] - The gross profit margin for IoT Products & Services improved by 510 basis points to 58.6%, while IoT Solutions margin increased by 60 basis points to 72.2%[79] - Net income for the quarter was $10 million, compared to a net loss of $3 million in the prior year, with net income per diluted share of $0.27[74] - Net income for the three months ended December 31, 2024, was $10.083 million, compared to a net loss of $3.054 million in the same period of 2023[91] - Adjusted EBITDA for the three months ended December 31, 2024, was $25.609 million, representing 24.7% of total revenue, compared to $23.306 million or 22.0% of total revenue in 2023[91] Operating Expenses - Operating expenses rose by 4.2% to $51.0 million, primarily due to a $2.9 million increase in labor expenses[82] - Other expense, net, decreased significantly by $13.1 million to $(2.3) million, driven by a reduction in interest expense and the absence of debt issuance cost write-off[84] Cash Flow and Debt - Cash flows from operating activities increased by $11.0 million to $29.719 million for the three months ended December 31, 2024, compared to $18.672 million in 2023[99] - The company entered into a $250 million senior secured revolving credit facility on December 7, 2023, with an additional borrowing capacity of up to $95 million[97] - As of December 31, 2024, the company had $96.0 million outstanding under its Revolving Loan, with a weighted average interest rate of 6.83%[104] - The company expects positive cash flows from operations for the foreseeable future, supported by current cash balances and the ability to borrow under the credit facility[99] Future Outlook - Longer than expected sales cycles are anticipated to adversely impact results for at least the remainder of fiscal 2025 due to macroeconomic conditions[73] - The company continues to focus on transitioning to complete solutions with software and service offerings to drive higher margin revenue[74] Contractual Obligations - The total contractual obligations as of December 31, 2024, amounted to $110.746 million, including $14.746 million in operating leases[101] Foreign Currency Impact - A 10% change in the average exchange rate for major currencies would have resulted in a 0.9% increase or decrease in stockholders' equity due to foreign currency translation[107] Debt Issuance Costs - The company reported a $9.7 million debt issuance cost write-off included in net income for the first quarter of fiscal 2024[100]

"Digi is off to a great start completing the first quarter of fiscal 2025. This is especially heartening in the context of a weak industrial economy. Our focus on IoT solutions that deliver ROI drove double digit year over year ARR growth," stated Ron Konezny, President and CEO. "Strong cash generation, in a capital light business model, enabled a reduction in our debt balance strengthening our balance sheet. We celebrate our 40th anniversary this year. Our adaptability, resilience, innovation and commitmen ...

Financial Performance - Revenue for fiscal 2024 was $424 million, a decrease of 5% compared to fiscal 2023[182] - Net income for fiscal 2024 was $23 million, down from $25 million in fiscal 2023[182] - Total revenue for fiscal 2024 was $424.046 million, a decrease of 4.7% from $444.849 million in fiscal 2023[204] - Net income for fiscal 2024 was $22.505 million, representing 5.3% of total revenue, compared to $24.770 million or 5.6% in fiscal 2023[204] - Adjusted EBITDA for fiscal 2024 was $98.110 million, which is 23.1% of total revenue, up from $96.500 million or 21.7% in fiscal 2023[204] Revenue Breakdown - Annual Recurring Revenue (ARR) grew by 9% to over $116 million at the end of fiscal 2024[183] - IoT Products & Services revenue decreased by 6.1% to $324.4 million, driven by lower demand and inventory adjustments[188] - IoT Solutions revenue increased by 0.4% to $99.6 million, with a $5.6 million increase in recurring revenue[189] Profitability Metrics - Gross profit margin increased by 220 basis points to 58.9% in fiscal 2024[182] - The gross profit for IoT Solutions increased by 820 basis points to 73.0% due to higher margin subscription revenues[193] Operating Expenses and Cash Flow - Total operating expenses were $201.8 million, a slight decrease of 0.1% from fiscal 2023[194] - Cash flows from operating activities increased by $46.3 million to $83.092 million in fiscal 2024, driven by various factors including a $9.7 million debt issuance cost write-off[214] Debt and Financing - The company entered into a new credit agreement providing a $250 million senior secured revolving credit facility, replacing a prior $350 million term loan[210] - Debt payments in fiscal 2024 totaled $304.7 million, including $213.6 million to retire the prior credit facility[217] Tax and Reserves - The company reported an effective income tax rate of 1.5% for fiscal 2024, compared to 0.6% in fiscal 2023[197] - The company’s reserve for uncertain tax positions was $3.6 million as of September 30, 2024[221] Foreign Revenue and Currency Exposure - Revenue from foreign customers for fiscal years 2024, 2023, and 2022 was approximately $121.6 million, $121.1 million, and $85.8 million, respectively, with only $0.4 million, $0.8 million, and $0.8 million denominated in foreign currencies[223] - The average exchange rate for the Euro increased by 4.0% from 2023 to 2024, while the British Pound increased by 8.5%[245] - The company has not implemented a formal hedging strategy to manage foreign currency transaction risk, despite exposure to foreign currency translation risk[244] - A 10.0% change in the average exchange rate for major currencies would have resulted in an immaterial impact on fiscal 2024 annual revenue and a 1.0% change in stockholders' equity[245] Goodwill and Impairment - The company reported a total of $32.7 million of goodwill for the Cellular Routers unit, $57.1 million for Console Servers, $64.2 million for OEM Solutions, $20.4 million for Infrastructure Management, $48.9 million for SmartSense by Digi, and $118.6 million for Ventus, with no impairment recorded as of June 30, 2024[240] - The goodwill balance was $341.9 million as of June 30, 2024, allocated as follows: $32.7 million for Cellular Routers, $48.9 million for Smart Sense, and $118.6 million for Ventus[255] - The evaluation of goodwill for impairment involves significant estimates related to discount rates and forecasts of future revenue growth rates, gross margins, and EBITDA margins[255] - The audit identified goodwill for the Cellular Routers, Smart Sense, and Ventus reporting units as a critical audit matter due to the significant judgments made by management[256] Audit and Internal Controls - The financial statements for the year ended September 30, 2024, were presented fairly in all material respects in conformity with U.S. GAAP[250] - The Company received an unqualified opinion on its internal control over financial reporting as of September 30, 2024[251] - The audit was conducted in accordance with PCAOB standards to ensure reasonable assurance that the financial statements are free of material misstatement[253]

Group 1 - Digi International reported quarterly earnings of $0.52 per share, exceeding the Zacks Consensus Estimate of $0.50 per share, with an earnings surprise of 4% [1] - The company posted revenues of $105.05 million for the quarter ended September 2024, surpassing the Zacks Consensus Estimate by 0.89%, although this represents a decline from year-ago revenues of $112.16 million [2] - Over the last four quarters, Digi International has surpassed consensus EPS estimates three times and topped consensus revenue estimates three times [2] Group 2 - The stock has gained approximately 25.5% since the beginning of the year, matching the S&P 500's gain of 25.5% [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus EPS estimate for the coming quarter is $0.48 on revenues of $104 million, and for the current fiscal year, it is $2.07 on revenues of $433.55 million [7] Group 3 - The Zacks Industry Rank indicates that the Computer - Networking industry is currently in the top 21% of over 250 Zacks industries, suggesting a favorable outlook for stocks in this sector [8] - The estimate revisions trend for Digi International is mixed, resulting in a Zacks Rank 3 (Hold), indicating expected performance in line with the market in the near future [6]

Digi International Inc. (NASDAQ:DGII) Q4 2024 Earnings Conference Call November 13, 2024 5:00 PM ET Company Participants Ron Konezny - President and Chief Executive Officer Jamie Loch - Chief Financial Officer Conference Call Participants Tommy Moll - Stephens Inc. Quinton Gabrielli - Piper Sandler Josh Nichols - B. Riley Securities Operator Good day and thank you for standing by. Welcome to Quarter Four 2024 Digi International Inc. Earnings Conference Call. At this time all participants are in a listen-onl ...