DIGI INTERNATIONAL INC

Previous wording

This report contains forward-looking statements that are based on management’s current expectations and assumptions. These statements often can be identified by the use of forward-looking terminology such as "assume," "believe," "continue," "estimate," "expect," "intend," "may," "plan," "potential," "project," "should," or "will" or the negative thereof or other variations thereon or similar terminology. Among other items, these statements relate to expectations of the business environment in which Digi operates, projections of future performance, including (but not limited to) expectations regarding the Company's profitability and net cash position, inventory levels, supply chain normalization, perceived marketplace opportunities, debt repayments, attributions of potential acquisitions and statements regarding our mission and vision. Such statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions. Among others, these include risks related to ongoing and varying inflationary and deflationary pressures around the world and the monetary and trade policies of governments globally as well as present and ongoing concerns about a potential recession, the potential for longer than expected sales cycles, the ability of companies like us to operate a global business in such conditions as well as negative effects on product demand and the financial solvency of customers and suppliers in such conditions, risks related to ongoing supply chain challenges that continue to impact businesses globally, regulatory risks that include, but are not limited to, the potential expansion of tariffs and potential changes to regulations impacting the functionality or compliance of our products, risks related to cybersecurity, data breaches and data privacy, risks arising from the present military conflicts in Ukraine and the Middle East, the highly competitive market in which we operate, rapid changes in technologies that may displace products sold by us, declining prices of networking products, our reliance on distributors and other third parties to sell our products, the potential for significant purchase orders to be canceled or changed, delays in product development efforts, uncertainty in user acceptance of our products, the ability to integrate our products and services with those of other parties in a commercially accepted manner, potential liabilities that can arise if any of our products have design or manufacturing defects, our ability to integrate and realize the expected benefits of acquisitions, our ability to defend or settle satisfactorily any litigation, the impact of natural disasters and other events beyond our control that could negatively impact our supply chain and customers, potential unintended consequences associated with restructuring, reorganizations or other similar business initiatives that may impact our ability to retain important employees or otherwise impact our operations in unintended and a…

Excerpt shortened here; the source contains the full paragraph.

Current wording

This report contains forward-looking statements that are based on management’s current expectations and assumptions. These statements often can be identified by the use of forward-looking terminology such as "assume," "believe," "continue," "estimate," "expect," "intend," "may," "plan," "potential," "project," "should," or "will" or the negative thereof or other variations thereon or similar terminology. Among other items, these statements relate to expectations of the business environment in which Digi operates, projections of future performance, including but not limited to expectations regarding the Company’s profitability and net cash position, inventory levels, supply chain normalization, perceived marketplace opportunities, debt repayments, attributions of potential acquisitions and statements regarding our mission and vision. Such statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions. Among others, these include risks related to our ability to realize synergies and operating benefits from acquisitions, like our recent acquisitions of Jolt completed in August 2025, and Particle completed in January 2026, ongoing and varying inflationary and deflationary pressures around the world and the monetary and trade policies of governments globally as well as present and ongoing concerns about a potential recession, the potential for longer than expected sales cycles, the ability of companies like us to operate a global business in such conditions as well as negative effects on product demand and the financial solvency of customers and suppliers in such conditions, risks related to ongoing supply chain challenges that continue to impact businesses globally, regulatory risks that include, but are not limited to, the potential expansion of tariffs and potential changes to regulations impacting the functionality or compliance of our products, risks related to cybersecurity, data breaches and data privacy, risks arising from military conflicts such as those in Ukraine and the Middle East, the highly competitive market in which we operate, rapid changes in technologies that may displace products sold by us, declining prices of networking products, our reliance on distributors and other third parties to sell our products, the potential for significant purchase orders to be canceled or changed, delays in product development efforts, uncertainty in user acceptance of our products, the ability to integrate our products and services with those of other parties in a commercially accepted manner, potential liabilities that can arise if any of our products have design or manufacturing defects, our ability to integrate and realize the expected benefits of acquisitions, our ability to defend or settle satisfactorily any litigation, the impact of natural disasters and other events beyond our control that could negatively impact our supply chain and customers, potential unintended consequences associated with res…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

These and other risks, uncertainties and assumptions identified from time to time in our filings with the United States Securities and Exchange Commission, including without limitation, those set forth in Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended September 30, 2024, subsequent filings, as well as this Quarterly Report on Form 10-Q and other filings, could cause our actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. Many of such factors are beyond our ability to control or predict. These forward-looking statements speak only as of the date for which they are made. Except to the extent required by law, we do not undertake, and expressly disclaim, any intent or obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Current wording

These and other risks, uncertainties and assumptions identified from time to time in our filings with the United States Securities and Exchange Commission, including without limitation, those set forth in Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended September 30, 2025, and any other subsequent filings, could cause our actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. Many of such factors are beyond our ability to control or predict. These forward-looking statements speak only as of the date for which they are made. Except to the extent required by law, we do not undertake, and expressly disclaim, any intent or obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Previous wording

In fiscal 2025, our key operating objectives include:

Current wording

In fiscal 2026, our key operating objectives are to continue driving growth in Annualized Recurring Revenue (ARR), Adjusted Net Income, Adjusted EBITDA and cash flow generation.

Previous wording

We utilize many financial, operational, and other metrics to evaluate our financial condition and financial performance. Below we highlight the metrics for the third quarter of fiscal 2025 that we feel are most important in these evaluations, with comparisons to the third quarter of fiscal 2024:

Current wording

We utilize many financial, operational, and other metrics to evaluate our financial condition and financial performance. Below we highlight the metrics for the first quarter of fiscal 2026 that we feel are most important in these evaluations, with comparisons to the first quarter of fiscal 2025:

Previous wording

•Annualized Recurring Revenue (ARR) was $126 million at quarter end, an increase of 12%.

Current wording

•Annualized Recurring Revenue ("ARR") was $157 million at quarter end, an increase of 31%.

Previous wording

IoT Products & Services revenue was flat for the three months ended June 30, 2025, as compared to the same period in the prior fiscal year. This consisted of a $1.3 million of recurring revenue growth, offset by a $1.3 million decrease in one-time sales, with no material impact from pricing. The decrease was driven by lower demand for some products, as some customers are bleeding down inventory stockpiled from when supply chains were stressed, partially offset by increased demand for some products from new project-based customer initiatives.

Current wording

IoT Products & Services revenue increased $8.5 million for the three months ended December 31, 2025, as compared to the same period in the prior fiscal year. This was driven by increased customer demand and consisted of a $6.3 million increase in one-time sales and $2.2 million of recurring revenue growth, with no material impact from pricing.

Previous wording

IoT Solutions revenue increased $2.3 million for the three months ended June 30, 2025, as compared to the same period in the prior fiscal year. The increase consisted of a $1.7 million increase in recurring revenue, driven by growth in both SmartSense and Ventus and a $0.6 million increase in one-time sales.

Current wording

IoT Solutions revenue increased $10.1 million for the three months ended December 31, 2025, as compared to the same period in the prior fiscal year. The increase consisted of a $7.6 million increase in recurring revenue and a $2.5 million increase in one-time sales, both primarily driven by the Jolt acquisition.

Previous wording

ARR was $126 million as of June 30, 2025, compared to $113 million as of June 30, 2024. IoT Products & Services ARR was $30 million as of June 30, 2025, compared to $23 million as of June 30, 2024. This increase was due to growth in the subscription base across remote management platforms and extended warranty offerings. IoT Solutions ARR was $96 million as of June 30, 2025, compared to $90 million as of June 30, 2024, driven by growth in both SmartSense and Ventus.

Current wording

ARR was $157 million as of December 31, 2025, compared to $120 million as of December 31, 2024. IoT Products & Services ARR was $34 million as of December 31, 2025, compared to $27 million as of December 31, 2024. This increase was due to growth in the subscription base across remote management platforms, extended warranty offerings and technical support. IoT Solutions ARR was $123 million as of December 31, 2025, compared to $93 million as of December 31, 2024, driven by the acquisition of Jolt, as well as growth in both SmartSense and Ventus.

Previous wording

The $4.0 million increase in operating expenses for the three months ended June 30, 2025, as compared to the same period in the prior fiscal year was due to a $2.8 million increase in labor expense and a $1.2 million increase in non-labor expense. The $3.1 million increase in operating expenses for the nine months ended June 30, 2025, as compared to the same period in the prior fiscal year was due to a $5.6 million increase in labor expense, a $1.7 million increase in non-labor expense and a $2.1 million gain on the sale of an intangible asset in the second fiscal quarter of fiscal 2024 that did not reoccur, partially offset by a $6.3 million litigation reserve increase in the second fiscal quarter of fiscal 2024 that did not reoccur.

Current wording

The $9.0 million increase in operating expenses for the three months ended December 31, 2025, as compared to the same period in the prior fiscal year was due to a $4.7 million increase in labor expense and a $4.5 million increase in non-labor expense, partially offset by a $0.2 million in net gains on intangible asset sales.

Previous wording

Non-GAAP measures are not substitutes for GAAP measures for the purpose of analyzing financial performance. The disclosure of these measures does not reflect all charges and gains that actually were recognized by Digi. These non-GAAP measures are not in accordance with, or, an alternative for measures prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies or presented by us in prior reports. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. We believe that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP. We believe these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. Additionally, Adjusted EBITDA does not reflect our cash expenditures, the cash requirements for the replacement of depreciated and amortized assets, or changes in or cash requirements for our working capital needs. We believe that providing historical and adjusted net income and adjusted net income per diluted share, respectively, exclusive of such items as reversals of tax reserves, discrete tax benefits, restructuring charges and reversals, intangible amortization, stock-based compensation, other non-operating income/expense, adjustments to estimates of contingent consideration, acquisition-related expenses and interest expense related to acquisition permits investors to compare results with prior periods that did not include these items. Management uses the aforementioned non-GAAP measures to monitor and evaluate ongoing operating results and trends and to gain an understanding of our comparative operating performance. In addition, certain of our stockholders have expressed an interest in seeing financial performance measures exclusive of the impact of these matters, which while important, are not central to the core operations of our business. Management believes that Adjusted EBITDA, defined as EBITDA adjusted for stock-based compensation expense, acquisition-related expenses, restructuring charges and reversals and changes in fair value of contingent consideration, is useful to investors to evaluate our core operating results and financial performance because it excludes items that are significant non-cash or non-recurring expenses reflected in the consolidated statements of operations. We believe that the presentation of Adjusted EBITDA as a percentage of revenue is useful to investors because it provides a reliable and consistent approach to measuring our performance from year to year and in assessing our performance against that of other companies. We believe this information helps compare operating results and corporate performance exclusive of the impact of our capital structure and the method by which assets were acquired.

Current wording

Non-GAAP measures are not substitutes for GAAP measures for the purpose of analyzing financial performance. The disclosure of these measures does not reflect all charges and gains that actually were recognized by Digi. These non-GAAP measures are not in accordance with, or, an alternative for measures prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies or presented by us in prior reports. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. We believe that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP. We believe these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. Additionally, Adjusted EBITDA does not reflect our cash expenditures, the cash requirements for the replacement of depreciated and amortized assets, or changes in or cash requirements for our working capital needs. We believe that providing historical and adjusted net income and adjusted net income per diluted share, respectively, exclusive of such items as reversals of tax reserves, discrete tax benefits, restructuring charges and reversals, intangible amortization, stock-based compensation, other non-operating income/expense, adjustments to estimates of contingent consideration and acquisition-related expenses related to acquisition permits investors to compare results with prior periods that did not include these items. Management uses the aforementioned non-GAAP measures to monitor and evaluate ongoing operating results and trends and to gain an understanding of our comparative operating performance. In addition, certain of our stockholders have expressed an interest in seeing financial performance measures exclusive of the impact of these matters, which while important, are not central to the core operations of our business. Management believes that Adjusted EBITDA, defined as EBITDA adjusted for stock-based compensation expense, acquisition-related expenses, restructuring charges and reversals and changes in fair value of contingent consideration, is useful to investors to evaluate our core operating results and financial performance because it excludes items that are significant non-cash or non-recurring expenses reflected in the consolidated statements of operations. We believe that the presentation of Adjusted EBITDA as a percentage of revenue is useful to investors because it provides a reliable and consistent approach to measuring our performance from year to year and in assessing our performance against that of other companies. We believe this information helps compare operating results and corporate performance exclusive of the impact of our capital structure and the method by which assets were acquired.

Previous wording

(2)For the three andnine months ended June 30, 2025 and 2024, discrete tax benefits are a result of changes in excess tax benefits recognized on stock compensation.

Current wording

(2)For the three ended December 31, 2025 and 2024, discrete tax benefits are a result of changes in excess tax benefits recognized on stock compensation.

Previous wording

Historically we have financed our operations and capital expenditures principally with funds generated from operations. In fiscal 2022 we issued debt to fund our acquisition of Ventus. Our liquidity requirements arise from our working capital needs, and to a lesser extent, our need to fund capital expenditures to support our current operations and facilitate growth and expansion.

Current wording

Historically we have financed our operations and capital expenditures principally with funds generated from operations. In fiscal 2022 we issued debt to fund our acquisition of Ventus and in fiscal 2023 we extinguished the debt, replacing it with a revolving credit facility. Our liquidity requirements arise from our working capital needs, and to a lesser extent, our need to fund capital expenditures to support our current operations and facilitate growth and expansion.

Previous wording

On December 7, 2023, we entered into a credit agreement. The Credit Agreement provides Digi with a $250 million senior secured revolving credit facility, with an uncommitted accordion feature that provides for additional borrowing capacity of up to the greater of $95 million or one hundred percent of trailing twelve month adjusted earnings before interest, taxes, depreciation, and amortization. The Credit Facility also contains a $10 million letter of credit sublimit and $10 million swingline sub-facility. Digi used the proceeds to retire the remaining balance of the prior credit agreement and may use the proceeds in the future for general corporate purposes. For additional information regarding the terms of our Credit Facility, including the Revolving Loan and its subfacilities, see Note 5 to our condensed consolidated financial statements.

Current wording

On December 23, 2025, we amended our Credit Agreement. The Credit Agreement provides Digi with a $250 million senior secured revolving credit facility, with an uncommitted accordion feature that provides for additional borrowing capacity of up to the greater of $105 million or one hundred percent of trailing twelve month adjusted earnings before interest, taxes, depreciation, and amortization. The Credit Facility also contains a $10 million letter of credit sublimit and $10 million swingline sub-facility. For additional information regarding the terms of our Credit Facility, including the Revolving Loan and its sub-facilities, see Note 6 to our condensed consolidated financial statements.

Previous wording

Our condensed consolidated statements of cash flows for the nine months ended June 30, 2025 and 2024 are summarized as follows:

Current wording

Our condensed consolidated statements of cash flows for the three months ended December 31, 2025 and 2024 are summarized as follows:

Previous wording

Cash flows from operating activities increased $23.3 million as a result of:

Current wording

Cash flows from operating activities increased $5.9 million as a result of:

Previous wording

•and a $2.5 million increase in deferred income tax benefit for the first nine months of fiscal 2025 compared to a $3.0 million increase in the first nine months of fiscal 2024.

Current wording

•a $5.1 million decrease in deferred income tax benefit in the first quarter of fiscal 2026 compared to a $0.5 million increase in the first quarter of fiscal 2025.

Previous wording

•a $20.2 million increase in net income in the first nine months of fiscal 2025,

Current wording

•a $1.6 million increase in net income in the first quarter of fiscal 2026,

Previous wording

•a $15.1 million decrease in net operating assets for the first nine months of fiscal 2025 compared to a $0.2 million increase in the first nine months of fiscal 2024,

Current wording

•a $4.6 million decrease in net operating assets for the first quarter of fiscal 2026 compared to a $7.0 million increase in the first quarter of fiscal 2025.

Previous wording

•a $2.2 million decrease in proceeds from the sale of intangible assets,

Current wording

•a $0.3 million in proceeds from the sale of an intangible asset,

Previous wording

•and a $0.9 million increase in purchases of property, equipment, improvements and certain other intangible assets.

Current wording

•and a $0.1 million decrease in purchases of property, equipment, improvements and certain other intangible assets.

Previous wording

Cash flows used in investing activities decreased $3.1 million as a result of:

Current wording

Cash flows used in financing activities decreased $3.6 million as a result of:

Previous wording

•debt payments of $83.3 million in the first nine months of fiscal 2025, compared to debt payments of $276.2 million in the first nine months of fiscal 2024

Current wording

•debt payments of $24.0 million in the first quarter of fiscal 2026, compared to debt payments of $28.3 million in the first quarter of fiscal 2025,

Previous wording

•and a $1.7 million increase in proceeds from stock option exercises and employee stock purchase plan transactions.

Current wording

•a $1.6 million increase in proceeds from stock option exercises and employee stock purchase plan transactions,

Previous wording

•and a $3.3 million increase in taxes paid to satisfy tax withholding obligations of holders of options to purchase common shares and restricted stock unit awards in connections with net share settlements.

Current wording

•a $2.0 million increase in taxes paid to satisfy tax withholding obligations of holders of options to purchase common shares and restricted stock unit awards in connections with net share settlements.

Previous wording

The operating leases included above primarily relate to office space. The table above does not include possible payments for uncertain tax positions. Our reserve for uncertain tax positions, including accrued interest and penalties, was $0.1 million as of June 30, 2025. Due to the nature of the underlying liabilities and the extended time often needed to resolve income tax uncertainties, we cannot make reliable estimates of the amount or timing of future cash payments that may be required to settle these liabilities. The table above also does not include those obligations for royalties under license agreements as these royalties are calculated based on future sales of licensed products and we cannot make reliable estimates of the amount of cash payments.

Current wording

The operating leases included above primarily relate to office space. The table above does not include possible payments for uncertain tax positions. Our reserve for uncertain tax positions, including accrued interest and penalties, was $0.2 million as of December 31, 2025. Due to the nature of the underlying liabilities and the extended time often needed to resolve income tax uncertainties, we cannot make reliable estimates of the amount or timing of future cash payments that may be required to settle these liabilities. The table above also does not include those obligations for royalties under license agreements as these royalties are calculated based on future sales of licensed products and we cannot make reliable estimates of the amount of cash payments.