Digi International(DGII) - 2025 Q2 - Quarterly Results

Financial Highlights and Executive Summary Digi International's Q2 2025 revenue decreased 3% to $105M, but profitability improved with gross margin up 420 bps and Adjusted EBITDA up 9% to $26M, alongside 12% ARR growth Q2 Fiscal 2025 Key Financial Metrics (vs. Q2 Fiscal 2024) | Metric | Q2 FY2025 | Q2 FY2024 | Change | | :--- | :--- | :--- | :--- | | Revenue | $105M | $107.7M (implied) | -3% | | Gross Profit Margin | 62.1% | 57.9% | +420 bps | | Net Income | $10M | $4M | +150% | | Net Income per Diluted Share | $0.28 | $0.11 | +155% | | Adjusted Net Income per Diluted Share | $0.51 | $0.49 | +4% | | Adjusted EBITDA | $26M | $23.8M | +9% | | Annualized Recurring Revenue (ARR) | $123M | $109.8M (implied) | +12% | - CEO Ron Konezny highlighted that the company's focus on a solution-oriented approach drove ARR growth and sustained profitability. Strong cash generation allowed for a $25 million debt paydown, accelerating the forecast for achieving no net debt to the end of the fiscal year[5] Segment Performance and Capital Allocation IoT Product & Services revenue declined due to inventory reduction, while IoT Solutions revenue grew from recurring sources, with the company prioritizing deleveraging and strategic acquisitions IoT Product & Services IoT Product & Services revenue decreased to $77.8M due to product sales decline, offset by recurring revenue growth, with ARR up 22% to $28M and gross margin improving 490 bps IoT Product & Services Q2 FY2025 Performance | Metric | Q2 FY2025 | YoY Change | | :--- | :--- | :--- | | Revenue | $77.8M | -$5.6M | | ARR | $28M | +22% | | Gross Profit Margin | 58.9% | +490 bps | - The decline in product revenue was attributed to lower demand as some customers are reducing inventory that was stockpiled when supply chains were stressed[8] IoT Solutions IoT Solutions revenue increased by $2.4M to $26.7M, driven entirely by recurring revenue from SmartSense and Ventus, with ARR up 9% to $95M and gross margin increasing 40 bps to 71.4% IoT Solutions Q2 FY2025 Performance | Metric | Q2 FY2025 | YoY Change | | :--- | :--- | :--- | | Revenue | $26.7M | +$2.4M | | ARR | $95M | +9% | | Gross Profit Margin | 71.4% | +40 bps | Capital Allocation Strategy Digi's capital allocation strategy prioritizes deleveraging, inventory optimization, and disciplined acquisitions, resulting in reduced debt to $70.0M and strong cash flow from operations of $26M in Q2 - The company's top capital priorities are to continue deleveraging and seek acquisitions that add scale and Annualized Recurring Revenue (ARR)[10] Balance Sheet and Cash Flow Highlights (Q2 FY2025) | Metric | Value | Note | | :--- | :--- | :--- | | Outstanding Debt | $70.0M | Reduced via payments | | Cash Flow from Operations | $26M | vs. $13M in Q2 FY2024 | | Quarter-End Inventory | $39M | vs. $53M at Sept 30, 2024 | | Interest Expense | $1.3M | vs. $3.7M in Q2 FY2024 | Fiscal 2025 Guidance Digi increased its full-year 2025 profit outlook, projecting 5% Adjusted EBITDA growth, while revenue outlook remains flat year-over-year with 10% ARR growth, alongside specific Q3 guidance Updated Full-Year Fiscal 2025 Guidance | Metric | FY2025 Projection | Previous Projection | | :--- | :--- | :--- | | Revenue | Approx. flat YoY | Unchanged | | ARR | +10% YoY | Unchanged | | Adjusted EBITDA | +5% YoY | Approx. flat YoY | Third Fiscal Quarter 2025 Guidance | Metric | Guidance Range | | :--- | :--- | | Revenues | $104M - $108M | | Adjusted EBITDA | $25.0M - $26.5M | | Adjusted Net Income per Share | $0.47 - $0.51 | - The company has a long-term goal to grow ARR and Adjusted EBITDA to $200 million within the next 4 years, a timeline that could be accelerated by strategic acquisitions[12] Financial Statements This section presents unaudited condensed consolidated financial statements for Q2 2025 and prior periods, including Statements of Operations, Balance Sheets, and Cash Flows Condensed Consolidated Statements of Operations Q2 2025 revenue decreased slightly to $104.5M from $107.7M, but improved gross profit and lower operating expenses led to net income more than doubling to $10.5M, or $0.28 per diluted share Q2 FY2025 Income Statement Highlights (in thousands) | Line Item | Three Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Revenue | $104,503 | $107,702 | | Gross Profit | $64,933 | $62,318 | | Operating Income | $13,727 | $8,151 | | Net Income | $10,497 | $3,994 | | Diluted EPS | $0.28 | $0.11 | Condensed Consolidated Balance Sheets As of March 31, 2025, Digi's balance sheet showed total assets of $781.0M, with significant reductions in long-term debt to $70.0M and inventories to $38.6M, while total stockholders' equity increased to $605.2M Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $26,296 | $27,510 | | Inventories | $38,601 | $53,357 | | Total Assets | $781,024 | $815,075 | | Long-term debt | $70,018 | $123,185 | | Total liabilities | $175,806 | $234,040 | | Total stockholders' equity | $605,218 | $581,035 | Condensed Consolidated Statements of Cash Flows For the six months ended March 31, 2025, cash from operating activities significantly increased to $56.0M from $31.7M, while net cash used in financing activities was $56.0M, primarily for debt repayment Cash Flow Summary (in thousands) | Activity | Six Months Ended Mar 31, 2025 | Six Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $56,005 | $31,727 | | Net cash (used in) provided by investing activities | $(1,135) | $1,425 | | Net cash used in financing activities | $(56,037) | $(42,692) | Non-GAAP Financial Measures This section reconciles GAAP to non-GAAP measures like Adjusted EBITDA and Adjusted Net Income, excluding non-cash or non-recurring items to present core operating performance - The company provides non-GAAP measures like Adjusted EBITDA and Adjusted Net Income because management believes they are useful for investors to evaluate core operating results and compare performance across periods by excluding significant non-cash or non-recurring items[22][23] Reconciliation of Net Income to Adjusted EBITDA Q2 2025 GAAP Net Income of $10.5M was reconciled to Adjusted EBITDA of $26.0M, representing a 24.9% margin, an improvement from 22.1% in Q2 2024, with major adjustments for D&A and stock-based compensation Adjusted EBITDA Reconciliation - Q2 (in thousands) | Line Item | Q2 FY2025 | Q2 FY2024 | | :--- | :--- | :--- | | Net income | $10,497 | $3,994 | | Adjustments (Interest, Taxes, D&A, etc.) | $15,518 | $19,831 | | Adjusted EBITDA | $26,015 | $23,825 | | As % of total revenue | 24.9% | 22.1% | Reconciliation of Net Income to Adjusted Net Income Q2 2025 GAAP Net Income of $10.5M ($0.28 per share) was adjusted to non-GAAP Adjusted Net Income of $19.0M ($0.51 per share), compared to $17.9M ($0.49 per share) in Q2 2024, with key adjustments for amortization, stock-based compensation, and interest expense Adjusted Net Income Reconciliation - Q2 (in thousands, except per share) | Metric | Q2 FY2025 | Q2 FY2024 | | :--- | :--- | :--- | | Net income | $10,497 | $3,994 | | Net income per diluted share | $0.28 | $0.11 | | Adjusted net income | $18,967 | $17,948 | | Adjusted net income per diluted share | $0.51 | $0.49 | Forward-Looking Statements This section provides a standard safe harbor statement, cautioning that forward-looking statements are subject to numerous risks and uncertainties, including economic pressures, supply chain challenges, market competition, geopolitical conflicts, and regulatory changes - The company warns that projections regarding future performance, inventory levels, and acquisitions are subject to significant risks. Key risks cited include global inflation, potential recession, supply chain disruptions, tariffs, cybersecurity threats, and geopolitical conflicts[20]