Workflow
Digi International(DGII) - 2025 Q1 - Quarterly Results

First Fiscal Quarter 2025 Highlights 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 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 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 growth4 - Strong cash generation in a capital-light business model enabled a reduction in debt balance, strengthening the balance sheet4 - The company celebrates its 40th anniversary, with adaptability, resilience, innovation, and commitment to service being critical to its past and future success4 Detailed Financial Performance 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 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 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 chains7 - ARR growth was due to an increase in the subscription base across extended warranty offerings and remote management platforms7 IoT Solutions 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 platforms8 - Gross profit margin increase was a result of growth in higher-margin ARR subscription revenues8 Capital Allocation and Balance Sheet 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 normalizes9 - Acquisitions remain a top capital priority, with a disciplined approach focusing on scale and Annualized Recurring Revenue (ARR)9 | 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 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 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 acquisitions11 - 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 customers12 | 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 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 assumptions20 - 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 acquisitions20 - The company disclaims any intent or obligation to update any forward-looking statements20 Company Information Digi International, a leading IoT connectivity provider, announced details for its Q1 FY25 conference call and provided investor contact information About Digi International 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 solutions19 - Helps customers create next-generation connected products and deploy/manage critical communications infrastructures with high security and reliability19 - Founded in 1985, the company has connected over 100 million things19 Q1 FY25 Conference Call Details 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 - Hosted by Ron Konezny (President and CEO) and Jamie Loch (Chief Financial Officer)15 - Registration and live webcast details are provided, with a replay available for approximately one year1617 Investor Relations Contact 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 International26 - Contact details: Phone: 952-912-3524, Email: rob.bennett@digi.com26 Non-GAAP Financial Measures 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 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 limitations2223 - Management uses these non-GAAP measures to monitor and evaluate ongoing operating results and trends, and to understand comparative operating performance24 - 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 operations24 Non-GAAP Reconciliations 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 This section presents the unaudited condensed consolidated statements of operations, balance sheets, and cash flows for the specified periods Statements of Operations 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 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 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 |