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 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.

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 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 i…

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, 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.

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, including, but not limited to, this filing, 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

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:

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 second quarter of fiscal 2026 that we feel are most important in these evaluations, with comparisons to the second quarter of fiscal 2025:

Previous wording

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

Current wording

•Annualized Recurring Revenue ("ARR") was $184 million at quarter end, an increase of 50%.

Previous wording

(1) Fiscal 2026 results include the results of Jolt.

Current wording

(1) Fiscal 2026 results include the results of Jolt for the full six-month period and Particle following the January 2026 acquisition date.

Previous wording

Reconciliations of non-GAAP financial measures to their closest GAAP analogs appear at the end of this release, as well as a discussion of recent changes to the method of calculating adjusted net income and adjusted net income per share.

Current wording

Reconciliations of non-GAAP financial measures to their closest GAAP analogs appear in this document, as well as a discussion of recent changes to the method of calculating adjusted net income and adjusted net income per share.

Previous wording

In addition to the above trends, there are a number of macro circumstances globally that we continue to monitor for potential impacts on our business. These include evolving international trade policies, global economic conditions, and political tensions that may have the potential to disrupt our business or those of our vendors or customers.

Current wording

In addition to the above trends, there are a number of macro circumstances globally that we continue to monitor for potential impacts on our business. These include evolving international trade policies, global economic conditions, military conflicts and political tensions that may have the potential to disrupt our business or those of our vendors or customers.

Previous wording

Monetary and fiscal policies continue to fluctuate globally in response to inflationary and deflationary pressures. These situations could all lead to potential adverse impacts on a wide range of businesses and could affect the businesses of our vendors and customers in ways that could harm our business. Due to the war in Ukraine, sanctions remain imposed on trade with Russia and Belarus which has the potential to disrupt the supply of raw materials needed to make components. Political tensions between China and other nations have intensified, which could lead to similar issues. Additionally, geopolitical risk in the Middle East region remains volatile, which could all lead to disruptions in shipping routes and elevated oil prices that could impact our transportation costs.

Current wording

Monetary and fiscal policies continue to fluctuate globally in response to inflationary and deflationary pressures. These situations could all lead to potential adverse impacts on a wide range of businesses and could affect the businesses of our vendors and customers in ways that could harm our business. Due to the war in Ukraine, sanctions remain imposed on trade with Russia and Belarus which has the potential to disrupt the supply of raw materials needed to make components. Political tensions between China and other nations have intensified, which could lead to similar issues. Additionally, the military conflict with Iran that began in late February has created volatility in both the price of oil and other commodities as well as shipping that has impacted our transportation costs.

Previous 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.

Current wording

IoT Products & Services revenue increased $15.8 million for the three months ended March 31, 2026, as compared to the same period in the prior fiscal year. This was driven by increased customer demand and consisted of a $10.3 million increase in one-time sales and $5.5 million of recurring revenue growth, with no material impact from pricing. These increases were driven largely by organic growth, with a contribution from the Particle acquisition.

Previous 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.

Current wording

IoT Solutions revenue increased $10.4 million for the three months ended March 31, 2026, as compared to the same period in the prior fiscal year. The increase consisted of a $7.8 million increase in recurring revenue and a $2.6 million increase in one-time sales, with the majority of both driven by the Jolt acquisition.

Previous 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.

Current wording

ARR was $184 million as of March 31, 2026, compared to $123 million as of March 31, 2025. IoT Products & Services ARR was $57 million as of March 31, 2026, compared to $28 million as of March 31, 2025. This increase was driven primarily by the acquisition of Particle and supported by growth in the subscription base across remote management platforms, extended warranty offerings and technical support. IoT Solutions ARR was $127 million as of March 31, 2026, compared to $95 million as of March 31, 2025, primarily driven by the acquisition of Jolt, as well as growth in our existing Solutions businesses.

Previous wording

COST OF GOODS SOLD AND GROSS PROFIT BY SEGMENT

Current wording

COST OF GOODS SOLD AND GROSS PROFIT

Previous wording

Below are our segments' cost of goods sold and gross profit as a percentage of their respective total revenue:

Current wording

Below are cost of goods sold and gross profit as a percentage of their respective total revenue:

Previous 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.

Current wording

The $24.4 million increase in operating expenses for the six months ended March 31, 2026, as compared to the same period in the prior fiscal year, was due to a $16.2 million increase in labor expense and a $8.5 million increase in non-labor expense, partially offset by a $0.2 million in net gains on intangible asset sales. These increases were driven by incremental costs from Jolt and Particle, including an increase in amortization expense due to acquisition-related intangibles, and higher labor costs among existing employees.

Previous wording

Other expense, net, was flat for the three months ended December 31, 2025, as compared to the same period in the prior fiscal year.

Current wording

IoT Products & Services operating income was flat for the six months ended March 31, 2026, as compared to the same period in the prior fiscal year. This was the result of a higher proportion of volume from recurring revenue, which has a higher margin, offset by an increase in amortization expense, due to the addition of acquisition-related intangibles.

Previous wording

IoT Products & Services operating income decreased 60 basis points for the first quarter of fiscal 2026, as compared to the first quarter of fiscal 2025. This decrease was due to higher inventory related expenses offset by favorable product margin mix and operating expense leverage.

Current wording

IoT Solutions operating income decreased 80 basis points for the second quarter of fiscal 2026, as compared to the second quarter of fiscal 2025. This decrease was the result of an increase in amortization expense, due to the addition of acquisition-related intangibles.

Previous wording

IoT Solutions operating income increased 370 basis points for the first quarter of fiscal 2026, as compared to the first quarter of fiscal 2025. This increase was the result of favorable operating expense leverage and a higher proportion of volume from recurring revenue, which has a higher margin.

Current wording

IoT Solutions operating income increased 140 basis points for the six months ended March 31, 2026, as compared to the same period in the prior fiscal year. This increase was the result of a higher proportion of volume from recurring revenue, which has a higher margin, partially offset by an increase in amortization expense, due to the addition of acquisition-related intangibles.

Previous wording

Annualized Recurring Revenue (ARR) represents the annualized monthly value of all billable subscription contracts, measured at the end of any fiscal period. ARR should be viewed independently of revenue and deferred revenue and is not intended to replace or forecast either of these items. Digi management uses ARR to manage and assess the growth of our subscription revenue business. We believe ARR is an indicator of the scale of our subscription business.

Current wording

ARR represents the annualized monthly value of all billable subscription contracts, measured at the end of any fiscal period. ARR should be viewed independently of revenue and deferred revenue and is not intended to replace or forecast either of these items. Digi management uses ARR to manage and assess the growth of our subscription revenue business. We believe ARR is an indicator of the scale of our subscription business.

Previous wording

This report includes adjusted net income, adjusted net income per diluted share and adjusted earnings before interest, taxes and amortization ("Adjusted EBITDA"), each of which is a non-GAAP financial measure.

Current wording

This report includes adjusted net income, adjusted net income per diluted share and adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"), each of which is a non-GAAP financial measure.

Previous 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.

Current wording

(2)For the three and six months ended March 31, 2026 and 2025, 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 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.

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, from our need to fund capital expenditures to support our current operations and facilitate growth and expansion.

Previous 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.

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 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 three months ended December 31, 2025 and 2024 are summarized as follows:

Current wording

Below our condensed consolidated statements of cash flows for the six months ended March 31, 2026 and 2025 are summarized:

Previous wording

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

Current wording

Cash flows from operating activities increased $21.1 million. This was largely driven by a $19.3 million decrease in net operating assets for the first half of fiscal 2026 compared to a $11.5 million increase in the first half of fiscal 2025, as well as a $4.9 million decrease in deferred income tax benefit in the first half of fiscal 2026 compared to a small increase in the first half of fiscal 2025, a $4.9 million increase in depreciation, a $2.4 million increase in net income in the first half of fiscal 2026 and smaller increases in stock based compensation expense and gains on sales of intangible assets.

Previous wording

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

Current wording

Cash flows used in financing activities decreased $38.6 million. This was driven by a $34.0 million draw on our revolving credit agreement to fund the acquisition of Particle, a small decrease in debt payments in the first half of fiscal 2026 compared to the first half of fiscal 2025, and higher proceeds from stock option exercises and employee stock purchase plan transactions.