DIGI INTERNATIONAL INC

6. INDEBTEDNESS

On December 23, 2025, Digi entered into a First Amendment to Revolving Credit Agreement (the “Amendment”) with BMO Bank N.A. (“BMO”), as administrative and collateral agent, certain subsidiaries of Digi as guarantors (“Guarantors”) and the several banks and other financial institutions or entities party thereto as lenders (the “Lenders”). This amended our Revolving Credit Agreement, dated as of December 7, 2023 (as amended by the Amendment, the “Credit Agreement”) among Digi, BMO, the Guarantors party thereto and the Lenders from time to time party thereto.

The Credit Agreement provides Digi with a senior secured credit facility (the “Credit Facility”). The Credit Facility includes a $250 million senior secured revolving credit facility (the “Revolving Loan”), 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 ("EBITDA"). The Credit Facility also contains a $10 million letter of credit sublimit and $10 million swingline sub-facility. Digi may use the proceeds of the Credit Facility in the future for general corporate purposes.

Borrowings under the Credit Facility bear interest at a rate per annum equal to Term Secured Overnight Financing Rate ("SOFR") with a floor of 0.00% for an interest period of one, three, or six months as selected by Digi, reset at the end of the selected interest period (or a replacement benchmark rate if Term SOFR is no longer available) plus the applicable margin or a base rate plus the applicable margin. The base rate is determined by reference to the highest of BMO’s prime rate, the rate determined by BMO to be the average rate of Federal funds in the secondary market plus 0.50%, or one-month SOFR plus 1.00%. The applicable margin for loans under the Credit Facility is in a range of 1.35% to 3.10% for Term SOFR loans and 0.35% to 2.10% for base rate loans, depending on Digi’s total net leverage ratio. All borrowings in the period were made at Term SOFR for a one-month interest election period. Our weighted average Revolving Loan applicable margin was 1.35% as of March 31, 2026. Our weighted average interest rate for our Credit Facility was 4.95% as of March 31, 2026.

In addition to paying interest on the outstanding principal, Digi is required to pay a commitment fee on the unutilized commitments under the Credit Facility. The commitment fee is between 0.20% and 0.35% depending on Digi’s total net leverage ratio. Our weighted average Revolving Loan commitment fee was 0.20% as of March 31, 2026. The Credit Facility is secured by substantially all of the property of Digi and its domestic subsidiaries.

In the first quarter of fiscal 2024, Digi incurred $1.3 million in debt issuance costs upon entry into the Credit Agreement, with this amount amortized over the term of the Credit Agreement and reported in interest expense. In the first quarter of fiscal 2026, Digi incurred an additional $0.3 million in debt issuance costs upon entry into the Credit Agreement, with this amount amortized over the remaining term of the Credit Agreement and reported in interest expense.

The Revolving Loan is due in a lump sum payment at maturity December 7, 2028, if any amounts are drawn. The fair value of the Revolving Loan approximated carrying value at March 31, 2026.

The following table is a summary of our long-term indebtedness at March 31, 2026 and September 30, 2025 (in thousands):

6. INDEBTEDNESS (CONTINUED)

Covenants and Security Interest

The Credit Agreement requires Digi to maintain a minimum interest coverage ratio of 3.00 to 1.00 and a total net leverage ratio not to exceed 3.00 to 1.00, with certain exceptions for a covenant holiday of up to 3.50 to 1.00 after certain material acquisitions. The total net leverage ratio is defined as the ratio of Digi’s consolidated total funded indebtedness minus unrestricted cash as of such date up to a maximum amount not to exceed $50 million, to consolidated EBITDA for such period. The Credit Agreement also contains other customary affirmative and negative covenants, including covenants that restrict the ability of Digi and its subsidiaries to incur additional indebtedness, dispose of significant assets, make certain investments, (including, among other items) any acquisitions other than permitted acquisitions, make certain restricted payments, enter into sale and leaseback transactions or grant additional liens on its assets, subject to certain limitations. Amounts borrowed under the Credit Facility are secured by substantially all of our assets.

7. SEGMENT INFORMATION

We havetwo reportable segments that also serve as our operating segments: (i) IoT Products & Services and (ii) IoT Solutions. This determination was made by considering both qualitative and quantitative information. The qualitative information included, but was not limited to, the following: each segment is led by a single segment manager that reports to the Chief Operating Decision Maker (CODM), the nature of the products and services and customers differ between thetwo segments, discrete financial information is available including revenue and operating income for both segments and the CODM is reviewing both segments’ financial information separately to make decisions about the allocation of resources. IoT Products & Services derives revenue from the sale of products and services that help original equipment manufacturers ("OEMs"), enterprise and government customers create and deploy, secure IoT connectivity solutions. IoT Solutions derives revenue from the sale of software-based services that are enabled through the use of connected devices that utilize cellular communications. Our CEO is our CODM. In the fourth quarter of fiscal 2025, the metric he uses to measure profitability within each of our reportable segments was changed from segment gross profit to operating income.

Summary operating results for each of our segments were (in thousands):

*Other segment items for both IoT Products & Services and IoT Solutions include cost of sales and operating expenses.

7. SEGMENT INFORMATION (CONTINUED)

The following table provides a reconciliation of segment operating income to consolidated income before taxes:

*Total other expense, net primarily includes interest expense, net in the three and six months ended March 31, 2026 and 2025, respectively.

Total expended for property, plant and equipment was (in thousands):

• Excluded from these amounts are $3,701 and $5,131 of transfers of inventory to property plant and equipment for subscriber assets for the six months ended March 31, 2026 and 2025, respectively.

Total assets for each of our segments were (in thousands):

*Unallocated consists of cash and cash equivalents.

8. REVENUE

Revenue Disaggregation

The following table summarizes our revenue by geographic location of our customers (in thousands):

The following table summarizes our revenue by the timing of revenue recognition (in thousands):

8. REVENUE (CONTINUED)

We had two distributor customers of Digi's IoT Products & Services segment that represented over 10% of consolidated revenue in the three months ended March 31, 2026. Distributor A represented 12% of consolidated revenue for the three months ended March 31, 2026. Distributor B represented 10% of consolidated revenue for the three months ended March 31, 2026.

We had two distributor customers of Digi's IoT Products & Services segment that represented over 10% of consolidated revenue in the six months ended March 31, 2026. Distributor A represented 12% of consolidated revenue for the six months ended March 31, 2026. Distributor C represented 10% of consolidated revenue for the six months ended March 31, 2026, respectively.

Contract Balances

Contract Related Assets

Our contract related assets consist of subscriber assets. Subscriber assets are equipment that we provide to customers pursuant to subscription-based contracts. In these cases, we retain the ownership of the equipment a customer uses and charge the customer subscription fees to receive our end-to-end solutions. The total net book value of subscriber assets of $21.8 million and $22.9 million as of March 31, 2026 and September 30, 2025, respectively, are included in property, equipment and improvements, net. Depreciation expense for these subscriber assets, which is included in cost of sales, was $2.4 million and $2.1 million for the three months ended March 31, 2026 and 2025, respectively. Depreciation expense for these subscriber assets was $4.8 million and $4.0 million for the six months ended March 31, 2026 and 2025, respectively.

Contract Liabilities

Contract liabilities consist of unearned revenue related to annual or multi-year contracts for subscription services and related implementation fees, as well as product sales that have been invoiced, but not yet fulfilled. The timing of revenue recognition may differ from the timing of invoicing to customers. Customers are invoiced for subscription services on a monthly, quarterly or annual basis.

Our contract liabilities were $71.3 million and $42.5 million at March 31, 2026 and 2025, respectively.

There were contract liability balances of $48.2 million and $36.8 million as of September 30, 2025 and 2024, respectively. Of these balances, Digi recognized $32.3 million and $16.4 million as revenue in the six months ended March 31, 2026 and 2025, respectively.

Remaining Performance Obligation

As of March 31, 2026, we had approximately $236.4 million of remaining performance obligations on contracts with an original duration of one year or more. We expect to recognize revenue on approximately $115.4 million of remaining performance obligations over the next 12 months. We expect to recognize revenue from the remaining performance obligations over a range oftwo tofive years.

9. INCOME TAXES

Our income tax expense was $5.8 million for the six months ended March 31, 2026. Included in this was a net tax benefit of $1.0 million discretely related to the six months ended March 31, 2026.

Our effective tax rate will vary based on a variety of factors. These factors include our overall profitability, the geographical mix of income before taxes and related statutory tax rate in each jurisdiction, and tax items discretely related to the period, such as tax impacts of stock compensation. We may record other benefits or expenses in the future that are specific to a particular quarter such as expiration of statutes of limitation, the completion of tax audits, or legislation that is enacted in both U.S. and foreign jurisdictions.

On July 4, 2025, the One Big Beautiful Bill Act was signed into law in the U.S., which contains a broad range of tax reform provisions affecting businesses such as the permanent extension of certain expiring provisions of the Tax Cuts and Job Act, restoration of favorable tax treatment for certain businesses provisions including the expensing of domestic research and development expenditures, and modifications to the international tax framework. The legislation has multiple effective dates, with certain provisions effective in fiscal year 2026 and others implemented through fiscal year 2027. We have incorporated the impact of the new legislation into the year-to-date effective tax rate and continue to assess the impact on the consolidated financial statements.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is (in thousands):

The total amount of unrecognized tax benefits at March 31, 2026 that, if recognized, would affect our effective tax rate was $4.0 million, after considering the impact of interest and deferred benefit items. We expect that the total amount of unrecognized tax benefits will decrease by approximately $0.5 million over the next 12 months.

10. PRODUCT WARRANTY OBLIGATION

The following tables summarize the activity associated with the product warranty accrual (in thousands) and is included on our condensed consolidated balance sheets within other current liabilities and other noncurrent liabilities:

*Warranties accrued in the three and six months ended March 31, 2026 include $2.0 million and $3.0 million of current and noncurrent liabilities, respectively, relating to a purchase price adjustment for our Jolt acquisition (See Note 2).

11. LEASES

All of our leases are operating leases and primarily consist of leases for office space. For any lease with an initial term in excess of 12 months, the related lease assets and lease liabilities are recognized on the condensed consolidated balance sheets as either operating or financing leases at the inception of an agreement where it is determined that a lease exists. We have lease agreements that contain both lease and non-lease components. We have elected to combine lease and non-lease components for all classes of assets. Leases with an expected term of 12 months or less are not recorded on the condensed consolidated balance sheets. Instead we recognize lease expense for these leases on a straight-line basis over the lease term.

Operating lease assets represent the right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments. These assets and liabilities are recognized based on the present value of future payments over the lease term at the commencement date. We generally use a collateralized incremental borrowing rate based on information available at the commencement date, including the lease term, in determining the present value of future payments. When determining our right-of-use assets, we generally do not include options to extend or terminate the lease unless it is reasonably certain that the option will be exercised. Our leases typically require payment of real estate taxes and common area maintenance and insurance. These components comprise the majority of our variable lease cost and are excluded from the present value of our lease obligations. Fixed payments may contain predetermined fixed rent escalations. We recognize the related rent expense on a straight-line basis from the commencement date to the end of the lease term.

The following table shows the supplemental balance sheet information related to our leases (in thousands):

The following were the components of our lease cost which is recorded in both cost of goods sold and selling, general and administrative expense (in thousands):

At March 31, 2026, the weighted average remaining lease term of our operating leases was 5.0 years and the weighted average discount rate for these leases was 4.6%.

11. LEASES (CONTINUED)

The table below reconciles the undiscounted cash flows for each of the first five years as well as all the remaining years to the operating lease liabilities recorded on the condensed consolidated balance sheet as of March 31, 2026 (in thousands):

12. COMMITMENTS AND CONTINGENCIES

We lease certain of our buildings and equipment under non-cancelable lease agreements. Please refer to Note 11 to our condensed consolidated financial statements for additional information.

In the normal course of business, we presently are, and expect in the future to be, subject to various claims and litigation with third parties such as non-practicing intellectual property entities as well as customers, vendors and/or employees. There can be no assurance that any claims by third parties, if proven to have merit, will not materially adversely affect our business, liquidity or financial condition.

13. STOCK-BASED COMPENSATION

Stock-based awards granted in the six months ended March 31, 2026 and 2025 were granted under the Digi International Inc. 2021 Omnibus Incentive Plan (as amended and restated, the "2021 Plan"). Shares subject to awards under the 2021 Plan or any prior plans that are forfeited, canceled, returned to us for failure to satisfy vesting requirements, settled in cash or otherwise terminated without payment also will be available for grant under the 2021 Plan. The authority to grant options under the 2021 Plan and set other terms and conditions rests with the Compensation Committee of the Board of Directors.

As of March 31, 2026, there were approximately 2,669,646 shares available for future grants under the 2021 Plan.

Cash received from the exercise of stock options was $4.2 million and $2.7 million for the six months ended March 31, 2026 and 2025, respectively.

Our equity plans and corresponding forms of award agreements generally have provisions allowing employees to elect to satisfy tax withholding obligations through the delivery of shares. When employees make this election, we retain a portion of shares issuable under the award. Tax withholding obligations are otherwise fulfilled by the employee paying cash to us for the withholding. During the six months ended March 31, 2026 and 2025, our employees forfeited 167,685 shares and 104,086 shares, respectively, in order to satisfy withholding tax obligations of $6.8 million and $3.4 million, respectively. We sponsor an Employee Stock Purchase Plan as amended and restated as of December 10, 2019, October 29, 2013, December 4, 2009 and November 27, 2006 (the "ESPP"), covering all domestic employees with at least 90 days of continuous service and who are customarily employed at least 20 hours per week. The ESPP allows eligible participants the right to purchase common stock on a quarterly basis at the lower of 85% of the market price at the beginning or end of each three-month offering period. The most recent amendments to the ESPP, ratified by our stockholders on January 29, 2020, increased the total number of shares that may be purchased under the ESPP to 3,425,000. ESPP contributions by employees were $1.5 million and $1.1 million for the six months ended March 31, 2026 and 2025. Pursuant to the ESPP,42,598 and 47,820 common shares were issued to employees during the six months ended March 31, 2026 and 2025, respectively. Shares are issued under the ESPP from treasury stock. As of March 31, 2026,234,105 common shares were available for future issuances under the ESPP.

13. STOCK-BASED COMPENSATION (CONTINUED)

The following table shows stock-based compensation expense that is included in the consolidated results of operations (in thousands):

Stock Options

The following table summarizes our stock option activity (in thousands, except per common share amounts):

(1)The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our closing stock price of $48.20 as of March 31, 2026, which would have been received by the option holders had all option holders exercised their options as of that date.

The intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price. The total intrinsic value of all options exercised during the six months ended March 31, 2026 and 2025 was $4.5 million and $17.4 million, respectively.

The following table shows the weighted average fair value, which was determined based upon the fair value of each option on the grant date utilizing the Black-Scholes option-pricing model and the related assumptions:

13. STOCK-BASED COMPENSATION (CONTINUED)

The fair value of each option award granted during the periods presented was estimated using the Black-Scholes option valuation model that uses the assumptions noted in the above table. Expected volatilities are based on the historical volatility of our stock. We use historical data to estimate option exercise and employee termination information within the valuation model. The expected term of options granted is derived from the vesting period and historical information and represents the period of time that options granted are expected to be outstanding. The risk-free rate used is the zero-coupon U.S. Treasury bond rate in effect at the time of the grant whose maturity equals the expected term of the option.

As of March 31, 2026, the total unrecognized compensation cost related to non-vested stock options was $2.2 million and the related weighted average period over which it is expected to be recognized is approximately 2.3 years.

Non-vested Stock Units

The following table presents a summary of our non-vested restricted stock units and performance stock units as of March 31, 2026 and changes during the six months then ended (in thousands, except per common share amounts):

As of March 31, 2026, the total unrecognized compensation cost related to non-vested restricted stock units and performance stock units was $31.6 million and $2.6 million, respectively. The related weighted average period over which these costs are expected to be recognized was approximately 2.2 years and 0.6 years, respectively.