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 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…

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Current wording

This report contains "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995, and within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, 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," "remain," "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, perceived marketplace opportunities, debt repayments, attributions of actual or 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 completed 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, fiscal and trade policies of governments globally as well as present and ongoing concerns about a potential economic slowdown, 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, 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, the Middle East,and geopolitical tensions including those involving China and Taiwan, 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 satisfactoril…

Excerpt shortened here; the source contains the full paragraph.

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

Previous wording

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

Current wording

•Annualized Recurring Revenue ("ARR") was $191 million at quarter end, an increase of 52%.

Previous wording

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

Current wording

(1) Fiscal 2026 results include the results of Jolt Software, Inc. ("Jolt") for the full quarter and nine-month period and Particle Industries, Inc. ("Particle") following the January 2026 acquisition date. Fiscal 2025 results include Jolt for the period following the August acquisition date and do not include Particle.

Previous 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.

Current wording

IoT Products & Services revenue increased $19.8 million for the three months ended June 30, 2026, as compared to the same period in the prior fiscal year. This consisted of a $12.4 million increase in one-time sales and $7.4 million of recurring revenue growth, with no material impact from pricing. A significant majority of the increase in revenue was driven by organic growth from increased customer demand and supported by the Particle acquisition.

Previous wording

IoT Products & Services revenue increased $24.4 million for the six 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 $16.6 million increase in one-time sales and $7.8 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.

Current wording

IoT Products & Services revenue increased $44.1 million for the nine months ended June 30, 2026, as compared to the same period in the prior fiscal year. This consisted of a $29.0 million increase in one-time sales and $15.1 million of recurring revenue growth, with no material impact from pricing. A significant majority of the increase in revenue was driven by organic growth from increased customer demand and supported by the Particle acquisition.

Previous 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.

Current wording

IoT Solutions revenue increased $11.4 million for the three months ended June 30, 2026, as compared to the same period in the prior fiscal year. The increase consisted of an $8.9 million increase in recurring revenue and a $2.5 million increase in one-time sales, with the significant majority of both driven by the Jolt acquisition.

Previous wording

IoT Solutions revenue increased $20.5 million for the six months ended March 31, 2026, as compared to the same period in the prior fiscal year. The increase consisted of a $15.5 million increase in recurring revenue and a $5.0 million increase in one-time sales, with the majority of both driven by the Jolt acquisition.

Current wording

IoT Solutions revenue increased $31.9 million for the nine months ended June 30, 2026, as compared to the same period in the prior fiscal year. The increase consisted of a $24.4 million increase in recurring revenue and a $7.5 million increase in one-time sales, with the significant majority of both driven by the Jolt acquisition.

Previous 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.

Current wording

ARR was $191 million as of June 30, 2026, compared to $126 million as of June 30, 2025. IoT Products & Services ARR was $60 million as of June 30, 2026, compared to $30 million as of June 30, 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 $131 million as of June 30, 2026, compared to $96 million as of June 30, 2025, driven by the acquisition of Jolt, as well as growth in our existing Solutions businesses.

Previous wording

Gross profit margin of 64.0% increased 190 basis points the second quarter of fiscal 2026 as compared to second quarter of the prior fiscal year. This increase was the result of lower manufacturing related costs.

Current wording

Gross profit margin of 64.8% increased 130 basis points in the third quarter of fiscal 2026 as compared to the third quarter of the prior fiscal year. This increase was the result of heightened inventory-related costs in the prior year that did not repeat.

Previous wording

Gross profit margin of 63.2% increased 110 basis points in 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.

Current wording

Gross profit margin of 63.8% increased 120 basis points in the nine months ended June 30, 2026, as compared to the same period in the prior fiscal year. The majority of this increase was the result of heightened inventory-related costs in the prior year that did not repeat, with a lesser impact from favorable product margin mix.

Previous wording

The $15.4 million increase in operating expenses for the three months ended March 31, 2026, as compared to the same period in the prior fiscal year, was due to a $11.5 million increase in labor expense and a $4.0 million increase in non-labor expense. 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.

Current wording

The $13.7 million increase in operating expenses for the three months ended June 30, 2026, as compared to the same period in the prior fiscal year, was due to a $9.2 million increase in labor expense and a $4.5 million increase in non-labor expense. 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

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.

Current wording

The $38.1 million increase in operating expenses for the nine months ended June 30, 2026, as compared to the same period in the prior fiscal year, was due to a $25.4 million increase in labor expense and a $12.7 million increase in non-labor expense. 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

IoT Products & Services operating income increased 40 basis points for the second quarter of fiscal 2026, as compared to the second quarter of fiscal 2025. This increase was due to lower manufacturing related costs, partially offset by an increase in amortization expense, due to the addition of acquisition-related intangibles.

Current wording

IoT Products & Services operating margin increased 60 basis points for the nine months ended June 30, 2026, as compared to the same period in the prior fiscal year. This increase was due to heightened inventory-related costs in the prior year that did not repeat and favorable product margin mix, partially offset by an increase in amortization expense, due to the addition of acquisition-related intangibles.

Previous wording

Other expense, net, increased for the three and six months ended March 31, 2026, as compared to the same periods in the prior fiscal year due to increased interest expense, as the amount of outstanding debt increased due to the acquisition of Particle in the second quarter of fiscal 2026.

Current wording

Other expense, net, increased for the three and nine months ended June 30, 2026, as compared to the same periods in the prior fiscal year due to increased interest expense, as the amount of outstanding debt increased due to the acquisition of Particle in the second quarter of fiscal 2026.

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 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.

Current wording

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 and acquisition-related expenses related to acquisitions 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 and restructuring charges and reversals, 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 items reflected in the Condensed Consolidated Statements of Operations. We believe that presenting Adjusted EBITDA as a percentage of revenue (i.e., Adjusted EBITDA Margin) is useful because it provides a reliable and consistent approach to measuring our performance year over 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 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.

Current wording

(2)For the three and nine months ended June 30, 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, from 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. We made draws on this credit facility to fund our acquisitions of Jolt in August 2025 and Particle in January 2026. 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

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

Current wording

Below our condensed consolidated statements of cash flows for the nine months ended June 30, 2026 and 2025 are summarized:

Previous 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.

Current wording

Cash flows from operating activities increased $30.5 million. This was largely driven by a $11.4 million decrease in deferred income tax benefit in the first nine months of fiscal 2026, primarily relating to accelerated utilization of tax assets caused by the One Big Beautiful Bill Act, compared to a $2.5 million increase in the first nine months of fiscal 2025, a $7.9 million increase in net income, a $7.1 million increase in amortization expense and a smaller increase in stock based compensation expense.

Previous wording

Cash flows used for investing activities increased $48.6 million almost entirely caused by the net cash paid for the acquisition of Particle.

Current wording

Cash flows used for investing activities increased $48.4 million almost entirely caused by the net cash paid for the acquisition of Particle.

Previous 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.

Current wording

Cash flows used in financing activities decreased $31.7 million. This was driven by a $34.0 million draw on our revolving credit agreement to fund the acquisition of Particle, partially offset by an increase in debt payments in the first nine months of fiscal 2026 compared to the first nine months of fiscal 2025.