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]

[First Fiscal Quarter 2025 Highlights](index=1&type=section&id=First%20Fiscal%20Quarter%202025%20Highlights) Digi International reported strong Q1 FY25 financial results with increased net income and ARR, despite a challenging industrial economy, driven by IoT solutions and strong cash generation [Q1 FY25 Financial Summary](index=1&type=section&id=Q1%20FY25%20Financial%20Summary) Digi International reported Q1 FY25 revenue of $104 million, a 2% decrease year-over-year, but achieved a net income of $10 million compared to a net loss of $3 million in Q1 FY24. Gross profit margin significantly increased by 440 basis points to 62.0%, and Adjusted EBITDA grew by 10% to $26 million. Annualized Recurring Revenue (ARR) reached a record $120 million at quarter-end, an increase of 11% | Metric | Q1 FY25 | Q1 FY24 | Change (%) | | :-------------------------------- | :------ | :------ | :--------- | | Revenue | $104M | $106M | -2% | | Gross Profit Margin | 62.0% | 57.6% | +440 bps | | Net Income (Loss) | $10M | ($3M) | N/A | | Net Income (Loss) per Diluted Share | $0.27 | ($0.08) | N/A | | Adjusted Net Income per Diluted Share | $0.50 | $0.48 | +4.2% | | Adjusted EBITDA | $26M | $23.6M | +10% | | Annualized Recurring Revenue (ARR) | $120M | $108.1M | +11% | [CEO Commentary](index=1&type=section&id=CEO%20Commentary) CEO Ron Konezny highlighted a strong start to fiscal 2025 despite a weak industrial economy, attributing success to a focus on IoT solutions that deliver ROI and drove double-digit year-over-year ARR growth. He noted strong cash generation, which enabled a reduction in debt and strengthened the balance sheet, and emphasized the company's adaptability, resilience, innovation, and commitment to service over its 40-year history - Digi is off to a great start in Q1 FY25, despite a weak industrial economy, driven by a focus on IoT solutions that deliver ROI and **double-digit year-over-year ARR growth**[4](index=4&type=chunk) - Strong cash generation in a capital-light business model enabled a reduction in debt balance, strengthening the balance sheet[4](index=4&type=chunk) - The company celebrates its 40th anniversary, with adaptability, resilience, innovation, and commitment to service being critical to its past and future success[4](index=4&type=chunk) [Detailed Financial Performance](index=2&type=section&id=Detailed%20Financial%20Performance) The company's financial performance shows mixed segment results with strong ARR growth, alongside strategic capital allocation focused on debt reduction and inventory optimization [Segment Results](index=2&type=section&id=Segment%20Results) The IoT Product & Services segment experienced a revenue decrease primarily due to lower one-time sales but saw a 17% increase in ARR. Conversely, the IoT Solutions segment achieved revenue growth driven by a significant increase in recurring revenue from SmartSense and Ventus, with its ARR growing 9%. Both segments reported improved gross profit margins [IoT Product & Services](index=2&type=section&id=IoT%20Product%20%26%20Services) The IoT Product & Services segment experienced a revenue decline due to lower one-time sales but achieved significant ARR growth and improved gross profit margins | Metric | Q1 FY25 | Q1 FY24 | Change | | :-------------------- | :------ | :------ | :----- | | Revenue | $77.8M | $82.0M | -$4.2M | | One-time Sales Decline | N/A | N/A | -$4.7M | | Recurring Revenue Growth | N/A | N/A | +$0.5M | | ARR (quarter end) | $27M | $23.1M | +17% | | Gross Profit Margin | 58.6% | 53.5% | +510 bps | - Revenue decrease driven by lower demand for some products as customers reduced inventory stockpiled from stressed supply chains[7](index=7&type=chunk) - ARR growth was due to an increase in the subscription base across extended warranty offerings and remote management platforms[7](index=7&type=chunk) [IoT Solutions](index=2&type=section&id=IoT%20Solutions) The IoT Solutions segment reported revenue and ARR growth, driven by strong platform performance and an increase in higher-margin subscription revenues | Metric | Q1 FY25 | Q1 FY24 | Change | | :-------------------- | :------ | :------ | :----- | | Revenue | $26.0M | $24.0M | +$2.0M | | Recurring Revenue Increase | N/A | N/A | +$2.1M | | One-time Sales Decrease | N/A | N/A | -$0.1M | | ARR (quarter end) | $93M | $85.3M | +9% | | Gross Profit Margin | 72.2% | 71.6% | +60 bps | - Revenue and ARR growth were driven by strong performance in both SmartSense and Ventus platforms[8](index=8&type=chunk) - Gross profit margin increase was a result of growth in higher-margin ARR subscription revenues[8](index=8&type=chunk) [Capital Allocation and Balance Sheet](index=2&type=section&id=Capital%20Allocation%20and%20Balance%20Sheet) Digi International is prioritizing deleveraging the company and optimizing inventory levels as its supply chain normalizes. The company reduced its outstanding debt to $95.0 million, resulting in a net debt of $69.1 million. Cash flow from operations significantly increased to $30 million, and interest expense decreased due to lower debt and effective interest rates. Acquisitions remain a top capital priority, with a focus on scale and ARR - Intends to deleverage the company while seeking optimal inventory levels as the supply chain normalizes[9](index=9&type=chunk) - Acquisitions remain a top capital priority, with a disciplined approach focusing on scale and **Annualized Recurring Revenue (ARR)**[9](index=9&type=chunk) | Metric | Q1 FY25 (Dec 31, 2024) | Q1 FY24 (Dec 31, 2023) | Change | | :-------------------------------- | :--------------------- | :--------------------- | :----- | | Outstanding Debt | $95.0M | $123.2M | -$28.2M | | Cash and Cash Equivalents | $25.9M | $31.5M | -$5.6M | | Debt Net of Cash and Cash Equivalents | $69.1M | $91.7M | -$22.6M | | Interest Expense | $2.3M | $5.7M | -$3.4M | | Cash Flow from Operations | $30M | $19M | +$11M | | Inventory (quarter end) | $50M | $53M (Sep 30, 2024) | -$3M | [Outlook and Guidance](index=3&type=section&id=Outlook%20and%20Guidance) Digi maintains its FY25 outlook with projected ARR growth, flat revenue and Adjusted EBITDA, while acknowledging macroeconomic uncertainties and outlining forward-looking statement risks [Q2 FY25 and Full-Year FY25 Guidance](index=3&type=section&id=Q2%20FY25%20and%20Full-Year%20FY25%20Guidance) Digi's outlook for fiscal 2025 remains unchanged, projecting approximately 10% ARR growth, while revenue and Adjusted EBITDA are expected to be flat year-over-year. For the second fiscal quarter, revenues are estimated between $102 million and $106 million, Adjusted EBITDA between $24.0 million and $25.5 million, and Adjusted net income per share between $0.46 and $0.50. The company aims to grow ARR and Adjusted EBITDA to $200 million within the next four years, with strategic acquisitions potentially accelerating this timeline - Annualized Recurring Revenue (ARR) is the top priority, with a goal to grow ARR and Adjusted EBITDA to **$200 million within the next four years**, potentially accelerated by strategic acquisitions[11](index=11&type=chunk) - The current dynamic political landscape and continued macroeconomic headwinds, particularly in industrial markets, introduce uncertainty, but demand for Digi's solutions remains strong due to meaningful ROI for customers[12](index=12&type=chunk) | Metric | Full-Year FY25 Guidance | Q2 FY25 Guidance | | :----------------------------- | :---------------------- | :--------------- | | ARR Growth | ~10% YoY | N/A | | Revenue | Flat YoY | $102M - $106M | | Adjusted EBITDA | Flat YoY | $24.0M - $25.5M | | Adjusted Net Income per Diluted Share | N/A | $0.46 - $0.50 | [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section contains cautionary forward-looking statements based on management's current expectations and assumptions, which are subject to various risks, uncertainties, and assumptions. These include global economic pressures, potential recession, ongoing supply chain challenges, regulatory risks (e.g., tariffs), cybersecurity, intense market competition, rapid technological changes, reliance on distributors, potential order cancellations, delays in product development, and the ability to integrate acquisitions. The company disclaims any obligation to update these statements - Statements are based on management's current expectations and assumptions, involving certain risks, uncertainties, and assumptions[20](index=20&type=chunk) - Key risks include ongoing inflationary/deflationary pressures, potential recession, supply chain challenges, regulatory risks (tariffs), cybersecurity, military conflicts, competitive markets, rapid technological changes, and integration of acquisitions[20](index=20&type=chunk) - The company disclaims any intent or obligation to update any forward-looking statements[20](index=20&type=chunk) [Company Information](index=3&type=section&id=Company%20Information) Digi International, a leading IoT connectivity provider, announced details for its Q1 FY25 conference call and provided investor contact information [About Digi International](index=3&type=section&id=About%20Digi%20International) Digi International (Nasdaq: DGII) is a leading global provider of IoT connectivity products, services, and solutions. The company assists customers in creating next-generation connected products and deploying/managing critical communications infrastructures in demanding environments, emphasizing high levels of security and reliability. Founded in 1985, Digi has connected over 100 million devices - Digi International is a leading global provider of IoT connectivity products, services, and solutions[19](index=19&type=chunk) - Helps customers create next-generation connected products and deploy/manage critical communications infrastructures with high security and reliability[19](index=19&type=chunk) - Founded in 1985, the company has connected over **100 million things**[19](index=19&type=chunk) [Q1 FY25 Conference Call Details](index=3&type=section&id=Q1%20FY25%20Conference%20Call%20Details) Digi International will host a conference call on Wednesday, February 5, 2025, at 5:00 p.m. ET (4:00 p.m. CT) to discuss its first fiscal quarter and full fiscal 2024 results. The call will be hosted by President and CEO Ron Konezny and CFO Jamie Loch. Participants can register online or access a live webcast, with a replay available for approximately one year - Conference call to discuss Q1 FY25 results on **February 5, 2025, at 5:00 p.m. ET (4:00 p.m. CT)**[15](index=15&type=chunk) - Hosted by Ron Konezny (President and CEO) and Jamie Loch (Chief Financial Officer)[15](index=15&type=chunk) - Registration and live webcast details are provided, with a replay available for approximately one year[16](index=16&type=chunk)[17](index=17&type=chunk) [Investor Relations Contact](index=6&type=section&id=Investor%20Relations%20Contact) For investor inquiries, please contact Rob Bennett, Investor Relations at Digi International, via phone at 952-912-3524 or email at rob.bennett@digi.com - Investor contact: Rob Bennett, Investor Relations, Digi International[26](index=26&type=chunk) - Contact details: Phone: **952-912-3524**, Email: **rob.bennett@digi.com**[26](index=26&type=chunk) [Non-GAAP Financial Measures](index=5&type=section&id=Non-GAAP%20Financial%20Measures) This section explains the use and limitations of non-GAAP financial measures and provides detailed reconciliations to their GAAP equivalents [Explanation of Non-GAAP Measures](index=5&type=section&id=Explanation%20of%20Non-GAAP%20Measures) This section clarifies that adjusted net income, adjusted net income per diluted share, and Adjusted EBITDA are non-GAAP measures, which are not substitutes for GAAP measures and have material limitations. However, management uses these measures to monitor and evaluate ongoing operating results and trends, and to provide investors with a view of core operating performance by excluding significant non-cash or non-recurring items such as amortization, stock-based compensation, and acquisition-related expenses - Adjusted net income, adjusted net income per diluted share, and Adjusted EBITDA are non-GAAP measures, not substitutes for GAAP measures, and have material limitations[22](index=22&type=chunk)[23](index=23&type=chunk) - Management uses these non-GAAP measures to monitor and evaluate ongoing operating results and trends, and to understand comparative operating performance[24](index=24&type=chunk) - These measures exclude items like reversals of tax reserves, restructuring charges, intangible amortization, stock-based compensation, and acquisition-related expenses to provide insight into core operations[24](index=24&type=chunk) [Non-GAAP Reconciliations](index=9&type=section&id=Non-GAAP%20Reconciliations) Detailed tables are provided to reconcile net income (loss) to Adjusted EBITDA and to reconcile net income (loss) and net income (loss) per diluted share to adjusted net income and adjusted net income per diluted share for the three months ended December 31, 2024, and 2023, outlining the specific adjustments made Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands) | | Three months ended December 31, | | :-------------------------------- | :------------------------------ | :------------------------------ | | | **2024** | **2023** | | Total revenue | $103,866 | $106,089 | | Net income (loss) | $10,083 | $(3,054) | | Interest expense, net | 2,294 | 5,661 | | Debt issuance cost write-off | — | 9,722 | | Income tax provision (benefit) | 1,013 | (222) | | Depreciation and amortization | 8,500 | 8,051 | | Stock-based compensation expense | 3,560 | 3,106 | | Restructuring charge | 159 | 103 | | Acquisition expense, net | — | (61) | | **Adjusted EBITDA** | **$25,609** | **$23,306** | Reconciliation of Net Income (Loss) and Net Income (Loss) per Diluted Share to Adjusted Net Income and Adjusted Net Income per Diluted Share (in thousands, except per share amounts) | | | 2024 | | | 2023 | | | :------------------------------------------------------ | :------ | :----- | :------ | :------ | :----- | :------ | | Net income (loss) and net income (loss) per diluted share | $10,083 | $0.27 | $(3,054) | $(0.08) | | Amortization | 5,765 | 0.15 | 6,238 | 0.17 | | Stock-based compensation expense | 3,560 | 0.09 | 3,106 | 0.08 | | Other non-operating (income) expense | (31) | — | 26 | — | | Acquisition expense, net | — | — | (61) | — | | Restructuring charge | 159 | — | 103 | — | | Interest expense, net | 2,294 | 0.06 | 5,661 | 0.15 | | Debt issuance cost write-off | — | — | 9,722 | 0.26 | | (1) Tax effect from the above adjustments | (2,736) | (0.07) | (3,913) | (0.11) | | (2) Discrete tax benefits | (362) | (0.01) | (182) | — | | **Adjusted net income and adjusted net income per diluted share** | **$18,732** | **$0.50** | **$17,646** | **$0.48** | | Diluted weighted average common shares | | 37,483 | | 36,715 | [Condensed Consolidated Financial Statements](index=7&type=section&id=Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated statements of operations, balance sheets, and cash flows for the specified periods [Statements of Operations](index=7&type=section&id=Statements%20of%20Operations) The unaudited condensed consolidated statements of operations for the three months ended December 31, 2024, and 2023, show a shift from a net loss to a net income. Revenue decreased slightly, but gross profit increased due to lower cost of sales. Operating expenses rose, but a significant reduction in other expenses (including a prior year debt issuance cost write-off) contributed to the positive income before taxes Condensed Consolidated Statements of Operations (In thousands, except per share amounts) | | Three months ended December 31, | | :-------------------------------- | :------------------------------ | :------------------------------ | | | **2024** | **2023** | | Revenue | $103,866 | $106,089 | | Cost of sales | 39,468 | 44,989 | | Gross profit | 64,398 | 61,100 | | Operating expenses: | | | | Sales and marketing | 21,757 | 19,647 | | Research and development | 15,027 | 14,633 | | General and administrative | 14,255 | 14,687 | | Total Operating expenses | 51,039 | 48,967 | | Operating income | 13,359 | 12,133 | | Other expense, net | (2,263) | (15,409) | | Income (loss) before income taxes | 11,096 | (3,276) | | Income tax provision (benefit) | 1,013 | (222) | | Net income (loss) | $10,083 | $(3,054) | | Net income (loss) per common share: | | | | Basic | $0.27 | $(0.08) | | Diluted | $0.27 | $(0.08) | | Weighted average common shares: | | | | Basic | 36,680 | 36,129 | | Diluted | 37,483 | 36,129 | [Balance Sheets](index=8&type=section&id=Balance%20Sheets) The unaudited condensed consolidated balance sheets show a decrease in total assets from $815.075 million at September 30, 2024, to $796.113 million at December 31, 2024. This was primarily driven by reductions in accounts receivable, inventories, and long-term debt. Total liabilities decreased significantly from $234.040 million to $205.438 million, while total stockholders' equity increased Condensed Consolidated Balance Sheets (In thousands) | | December 31, 2024 | September 30, 2024 | | :-------------------------------- | :------------------ | :------------------- | | **ASSETS** | | | | Current assets: | | | | Cash and cash equivalents | $25,935 | $27,510 | | Accounts receivable, net | 64,928 | 69,640 | | Inventories | 50,184 | 53,357 | | Prepaid expenses and other current assets | 4,827 | 3,940 | | Total current assets | 145,874 | 154,447 | | Non-current assets | 650,239 | 660,628 | | **Total assets** | **$796,113** | **$815,075** | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Current liabilities: | | | | Accounts payable | 27,049 | 23,759 | | Other current liabilities | 63,290 | 65,578 | | Total current liabilities | 90,339 | 89,337 | | Long-term debt | 94,952 | 123,185 | | Other non-current liabilities | 20,147 | 21,518 | | Total Non-current liabilities | 115,099 | 144,703 | | **Total liabilities** | **205,438** | **234,040** | | **Total stockholders' equity** | **590,675** | **581,035** | | **Total liabilities and stockholders' equity** | **$796,113** | **$815,075** | [Statements of Cash Flows](index=8&type=section&id=Statements%20of%20Cash%20Flows) The unaudited condensed consolidated statements of cash flows show a significant increase in net cash provided by operating activities, rising from $18.672 million in Q1 FY24 to $29.719 million in Q1 FY25, primarily driven by changes in accounts receivable and inventory. Net cash used in financing activities also increased, mainly due to debt repayments, resulting in a net decrease in cash and cash equivalents for the quarter Condensed Consolidated Statements of Cash Flows (In thousands) | | Three months ended December 31, | | :------------------------------------------ | :------------------------------ | :------------------------------ | | | **2024** | **2023** | | Net cash provided by operating activities | $29,719 | $18,672 | | Net cash used in investing activities | (577) | (292) | | Net cash used in financing activities | (30,540) | (20,376) | | Effect of exchange rate changes on cash and cash equivalents | (177) | 1,851 | | Net decrease in cash and cash equivalents | (1,575) | (145) | | Cash and cash equivalents, beginning of period | 27,510 | 31,693 | | Cash and cash equivalents, end of period | $25,935 | $31,548 |

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 ...