Financial Data and Key Metrics Changes - Digi International reported record quarterly revenue of $114 million, a 9% year-over-year increase, marking a return to top-line growth [4] - The company generated $430 million in revenue for the full fiscal year, up 1% year-over-year, and reported $108 million in adjusted EBITDA, an 11% increase year-over-year [4] - Annual Recurring Revenue (ARR) reached a record $152 million, representing a 31% year-over-year increase, with ARR now accounting for approximately 35% of total revenue [4][5] Business Line Data and Key Metrics Changes - The integration of SmartSense and Jolt Software is being embraced by the market, with cross-selling opportunities beginning to unfold [5] - The company is focused on transitioning from transactional sales to multi-year solution subscriptions, with a goal of achieving 100% attached sales [12][14] Market Data and Key Metrics Changes - The company sees broad-based opportunities in connecting hundreds of billions of devices to the internet, particularly in the industrial IoT space [6] - The data center segment is contributing significantly to revenue, with strong demand observed in various verticals including utilities and medical devices [15][39] Company Strategy and Development Direction - Digi International aims for double-digit growth in ARR, revenue, and adjusted EBITDA for fiscal 2026, with a long-term goal of reaching $200 million in ARR and adjusted EBITDA by the end of fiscal 2028 [7][8] - The company is leveraging AI for product enhancements and exploring opportunities in edge computing and industrial automation [6][29] Management's Comments on Operating Environment and Future Outlook - Management noted that while certain verticals are accelerating decision-making, others are still experiencing delays due to macroeconomic uncertainties, including government shutdowns [23][24] - The company remains optimistic about its growth trajectory, citing a combination of increased customer confidence and ongoing investments in key verticals [54] Other Important Information - The company generated $105 million in free cash flow for a yield of 8% and has paid off all debt from the Ventus acquisition [5] - The management emphasized the importance of strategic acquisitions in the industrial IoT space as a top capital deployment priority [6][30] Q&A Session Summary Question: Insights on recurring revenue trends and go-to-market execution - Management highlighted progress in achieving higher attached rates and emphasized the importance of contract extensions and renewals in driving recurring revenue growth [12][14] Question: Revenue guidance and organic growth considerations - Management provided clarity on the integration of Jolt and its impact on revenue guidance, noting strong contributions from various verticals including data centers [14][15] Question: Customer demand and sales cycles - Management observed that while some verticals are accelerating decision-making, others are still cautious due to ongoing uncertainties in the market [23][24] Question: AI infrastructure and data center contributions - The data center segment is a key beneficiary of AI investments, particularly through the Open Gear Console Server business [39] Question: European market dynamics - Management indicated that while North America remains the primary revenue source, Europe presents meaningful opportunities on a country-by-country basis [42] Question: Margin improvement and attach rates - Management confirmed expectations for continued improvement in gross margins as ARR expands, with a goal of achieving 100% attach rates across most product lines by fiscal 2028 [44][45]

Revenue and Growth - Revenue for the fourth fiscal quarter was $114 million, an increase of 9% year-over-year[8] - Annualized Recurring Revenue (ARR) at the end of the quarter was $152 million, reflecting a 31% increase[8] - The IoT Products & Services segment reported fourth quarter revenue of $82 million, a 4% increase year-over-year[10] - The IoT Solutions segment's fourth quarter revenue was $32 million, a 23% increase year-over-year[12] - Revenue for the three months ended September 30, 2025, was $114,338 thousand, representing a 8.3% increase from $105,052 thousand in the same period of 2024[30] - For fiscal 2026, the company projects ARR growth of approximately 10% and revenue growth of 10-15%[16] Profitability - Gross profit margin improved to 63.9%, up 280 basis points compared to the previous year[8] - Net income for the fourth quarter was $10 million, a decrease of 16% year-over-year[8] - Adjusted EBITDA for the full year was $108 million, an increase of 11%[8] - Gross profit for the year ended September 30, 2025, increased to $270,677 thousand, up from $249,906 thousand in 2024, reflecting a growth of 8.3%[30] - Adjusted EBITDA for the three months ended September 30, 2025, was $29,236 thousand, accounting for 25.6% of total revenue, compared to $26,254 thousand or 25.0% in 2024[36] - Net income for the year ended September 30, 2025, was $40,804 thousand, significantly higher than $22,505 thousand in 2024, marking an 81.3% increase[30] Cash Flow and Assets - Cash flow from operations for the fourth quarter was $28 million, compared to $26 million in the same quarter last year[14] - The company reported a net cash provided by operating activities of $107,959 thousand for the year ended September 30, 2025, compared to $83,092 thousand in 2024, indicating a 30.0% increase[34] - Cash and cash equivalents decreased to $21,902 thousand as of September 30, 2025, down from $27,510 thousand in 2024[32] - Total assets increased to $922,646 thousand as of September 30, 2025, compared to $815,075 thousand in 2024, reflecting a growth of 13.2%[32] Equity and Debt - Total stockholders' equity increased to $636,077 thousand as of September 30, 2025, up from $581,035 thousand in 2024, representing a growth of 9.5%[32] - The company’s long-term debt rose to $159,152 thousand as of September 30, 2025, compared to $123,185 thousand in 2024, indicating a 29.2% increase[32] Acquisitions - The acquisition of Jolt Software was completed for $145.7 million, enhancing the IoT Solutions Segment[14] Operating Income - Operating income for the three months ended September 30, 2025, was $14,281 thousand, slightly down from $14,897 thousand in the same period of 2024[30]

Group 1 - The article does not provide any relevant content regarding company or industry insights [1]

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.

Core Insights - Digi International reported quarterly earnings of $0.53 per share, exceeding the Zacks Consensus Estimate of $0.51 per share, and showing an increase from $0.5 per share a year ago, resulting in an earnings surprise of +3.92% [1] - The company achieved revenues of $107.51 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 1.24% and up from $105.2 million year-over-year [2] - Digi International has outperformed consensus EPS estimates three times over the last four quarters and has topped revenue estimates two times in the same period [2] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.53 on revenues of $108.9 million, while for the current fiscal year, the estimate is $2.04 on revenues of $423.43 million [7] - The stock currently holds a Zacks Rank 3 (Hold), indicating expected performance in line with the market in the near future [6] Industry Context - The Computer - Networking industry, to which Digi International belongs, is currently ranked in the top 32% of over 250 Zacks industries, suggesting a favorable outlook compared to lower-ranked industries [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]

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]