# DIGI INTERNATIONAL INC (DGII)

Informational only - not investment advice.

CIK: 0000854775
SIC: 3576 Computer Communications Equipment
SIC breadcrumb: [Manufacturing](/division/D/) > [Industrial And Commercial Machinery And Computer Equipment](/major-group/35/) > [SIC 3576 Computer Communications Equipment](/industry/3576/)
Latest 10-K filed: 2025-11-21
SEC page: https://www.sec.gov/edgar/browse/?CIK=854775
Filing source: https://www.sec.gov/Archives/edgar/data/854775/000085477525000026/dgii-20250930.htm

## Selected Fundamentals
| Metric | Value | Unit | FY | Filed |
| --- | ---: | --- | ---: | --- |
| Revenue | 430221000 | USD | 2025 | 2025-11-21 |
| Net income | 40804000 | USD | 2025 | 2025-11-21 |
| Assets | 922646000 | USD | 2025 | 2025-11-21 |

## Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2025-11-21. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0000854775.json. Derived margins are computed from the extracted annual SEC facts.

| Metric | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | 203,005,000 | 181,340,000 | 226,893,000 | 254,203,000 | 279,271,000 | 308,632,000 | 388,225,000 | 444,849,000 | 424,046,000 | 430,221,000 |
| Net income | 16,708,000 | 9,403,000 | 1,631,000 | 9,958,000 | 8,411,000 | 10,366,000 | 19,383,000 | 24,770,000 | 22,505,000 | 40,804,000 |
| Operating income | 17,105,000 | 8,866,000 | 2,782,000 | 10,072,000 | 11,317,000 | 10,528,000 | 38,220,000 | 50,095,000 | 48,089,000 | 56,290,000 |
| Gross profit | 99,680,000 | 87,233,000 | 109,054,000 | 119,035,000 | 143,972,000 | 166,657,000 | 216,286,000 | 252,203,000 | 249,906,000 | 270,677,000 |
| Diluted EPS | 0.64 | 0.35 | 0.06 | 0.35 | 0.28 | 0.31 | 0.54 | 0.67 | 0.61 | 1.08 |
| Assets | 336,166,000 | 345,189,000 | 372,146,000 | 398,698,000 | 528,682,000 | 619,531,000 | 853,895,000 | 835,531,000 | 815,075,000 | 922,646,000 |
| Liabilities | 36,137,000 | 26,045,000 | 41,653,000 | 49,720,000 | 157,182,000 | 147,014,000 | 352,382,000 | 295,043,000 | 234,040,000 | 286,569,000 |
| Stockholders' equity | 300,029,000 | 319,029,000 | 330,493,000 | 348,978,000 | 371,500,000 | 472,517,000 | 501,513,000 | 540,488,000 | 581,035,000 | 636,077,000 |
| Cash and cash equivalents | 75,727,000 | 78,222,000 | 58,014,000 | 92,792,000 | 54,129,000 | 152,432,000 | 34,900,000 | 31,693,000 | 27,510,000 | 21,902,000 |
| Net margin | 8.23% | 5.19% | 0.72% | 3.92% | 3.01% | 3.36% | 4.99% | 5.57% | 5.31% | 9.48% |
| Operating margin | 8.43% | 4.89% | 1.23% | 3.96% | 4.05% | 3.41% | 9.84% | 11.26% | 11.34% | 13.08% |

## Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-06. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0000854775.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

| Quarter | End date | Revenue | Net income | Diluted EPS | Method |
| --- | --- | ---: | ---: | ---: | --- |
| 2022-Q2 | 2022-03-31 |  |  | 0.08 | reported discrete quarter |
| 2022-Q3 | 2022-06-30 |  |  | 0.12 | reported discrete quarter |
| 2023-Q1 | 2023-03-31 |  |  | 0.16 | reported discrete quarter |
| 2023-Q3 | 2023-06-30 | 112,236,000 | 6,727,000 | 0.18 | reported discrete quarter |
| 2023-Q4 | 2023-09-30 | 112,163,000 | 6,365,000 |  | derived Q4 = FY annual - nine-month YTD |
| 2024-Q1 | 2023-12-31 | 106,089,000 | -3,054,000 | -0.08 | reported discrete quarter |
| 2024-Q2 | 2024-03-31 | 107,702,000 | 3,994,000 | 0.11 | reported discrete quarter |
| 2024-Q3 | 2024-06-30 | 105,203,000 | 9,702,000 | 0.26 | reported discrete quarter |
| 2024-Q4 | 2024-09-30 | 105,052,000 | 11,863,000 |  | derived Q4 = FY annual - nine-month YTD |
| 2025-Q1 | 2024-12-31 | 103,866,000 | 10,083,000 | 0.27 | reported discrete quarter |
| 2025-Q2 | 2025-03-31 | 104,503,000 | 10,497,000 | 0.28 | reported discrete quarter |
| 2025-Q3 | 2025-06-30 | 107,514,000 | 10,243,000 | 0.27 | reported discrete quarter |
| 2025-Q4 | 2025-09-30 | 114,338,000 | 9,981,000 |  | derived Q4 = FY annual - nine-month YTD |
| 2026-Q1 | 2025-12-31 | 122,462,000 | 11,711,000 | 0.31 | reported discrete quarter |
| 2026-Q2 | 2026-03-31 | 130,743,000 | 11,303,000 | 0.29 | reported discrete quarter |

## Macro Cross-References
- [CPIAUCSL](/indicator/CPIAUCSL/): Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
- [UNRATE](/indicator/UNRATE/): Unemployment Rate
- [FEDFUNDS](/indicator/FEDFUNDS/): Federal Funds Effective Rate
- [CES0500000003](/indicator/CES0500000003/): Average Hourly Earnings of All Employees, Total Private
- [DFEDTARU](/indicator/DFEDTARU/): Federal Funds Target Range - Upper Limit
- [DFEDTARL](/indicator/DFEDTARL/): Federal Funds Target Range - Lower Limit
- [DGS3MO](/indicator/DGS3MO/): Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
- [DGS2](/indicator/DGS2/): Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
- [DGS10](/indicator/DGS10/): Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
- [DGS30](/indicator/DGS30/): Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
- [T10Y2Y](/indicator/T10Y2Y/): 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
- [CPILFESL](/indicator/CPILFESL/): Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
- [CPIUFDSL](/indicator/CPIUFDSL/): Consumer Price Index for All Urban Consumers: Food
- [CPIENGSL](/indicator/CPIENGSL/): Consumer Price Index for All Urban Consumers: Energy
- [CUSR0000SAH1](/indicator/CUSR0000SAH1/): Consumer Price Index for All Urban Consumers: Shelter
- [PCEPI](/indicator/PCEPI/): Personal Consumption Expenditures: Chain-type Price Index
- [PCEPILFE](/indicator/PCEPILFE/): Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
- [PPIACO](/indicator/PPIACO/): Producer Price Index by Commodity: All Commodities
- [T10YIE](/indicator/T10YIE/): 10-Year Breakeven Inflation Rate
- [U6RATE](/indicator/U6RATE/): Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
- [PAYEMS](/indicator/PAYEMS/): All Employees, Total Nonfarm
- [CIVPART](/indicator/CIVPART/): Labor Force Participation Rate
- [EMRATIO](/indicator/EMRATIO/): Employment-Population Ratio
- [UNEMPLOY](/indicator/UNEMPLOY/): Unemployed
- [CE16OV](/indicator/CE16OV/): Employment Level
- [ICSA](/indicator/ICSA/): Initial Claims
- [JTSJOL](/indicator/JTSJOL/): Job Openings: Total Nonfarm
- [JTSQUR](/indicator/JTSQUR/): Quits: Total Nonfarm
- [GDPC1](/indicator/GDPC1/): Real Gross Domestic Product
- [A191RL1Q225SBEA](/indicator/A191RL1Q225SBEA/): Real Gross Domestic Product: Percent Change from Preceding Period
- [INDPRO](/indicator/INDPRO/): Industrial Production: Total Index
- [TCU](/indicator/TCU/): Capacity Utilization: Total Index
- [HOUST](/indicator/HOUST/): New Privately-Owned Housing Units Started: Total Units
- [PERMIT](/indicator/PERMIT/): New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
- [RSAFS](/indicator/RSAFS/): Advance Retail Sales: Retail Trade
- [PCE](/indicator/PCE/): Personal Consumption Expenditures
- [DSPIC96](/indicator/DSPIC96/): Real Disposable Personal Income
- [PSAVERT](/indicator/PSAVERT/): Personal Saving Rate
- [M2SL](/indicator/M2SL/): M2
- [BOPGSTB](/indicator/BOPGSTB/): U.S. International Trade in Goods and Services: Balance
- [MSPUS](/indicator/MSPUS/): Median Sales Price of Houses Sold for the United States
- [HSN1F](/indicator/HSN1F/): New One Family Houses Sold: United States
- [RHORUSQ156N](/indicator/RHORUSQ156N/): Homeownership Rate in the United States
- [TTLCONS](/indicator/TTLCONS/): Total Construction Spending: Total Construction in the United States
- [RRVRUSQ156N](/indicator/RRVRUSQ156N/): Rental Vacancy Rate in the United States
- [TOTALSL](/indicator/TOTALSL/): Total Consumer Credit Owned and Securitized
- [REVOLSL](/indicator/REVOLSL/): Revolving Consumer Credit Owned and Securitized
- [DRCCLACBS](/indicator/DRCCLACBS/): Delinquency Rate on Credit Card Loans, All Commercial Banks
- [GDP](/indicator/GDP/): Gross Domestic Product
- [GPDI](/indicator/GPDI/): Gross Private Domestic Investment
- [GCE](/indicator/GCE/): Government Consumption Expenditures and Gross Investment
- [PCEC](/indicator/PCEC/): Personal Consumption Expenditures
- [NETEXP](/indicator/NETEXP/): Net Exports of Goods and Services
- [GFDEBTN](/indicator/GFDEBTN/): Federal Debt: Total Public Debt
- [GFDEGDQ188S](/indicator/GFDEGDQ188S/): Federal Debt: Total Public Debt as Percent of Gross Domestic Product
- [FYFSD](/indicator/FYFSD/): Federal Surplus or Deficit
- [FGRECPT](/indicator/FGRECPT/): Federal Government Current Receipts
- [FGEXPND](/indicator/FGEXPND/): Federal Government: Current Expenditures
- [MANEMP](/indicator/MANEMP/): All Employees, Manufacturing
- [USCONS](/indicator/USCONS/): All Employees, Construction
- [USTRADE](/indicator/USTRADE/): All Employees, Retail Trade
- [USFIRE](/indicator/USFIRE/): All Employees, Financial Activities
- [USGOVT](/indicator/USGOVT/): All Employees, Government
- [AWHAETP](/indicator/AWHAETP/): Average Weekly Hours of All Employees, Total Private
- [DGORDER](/indicator/DGORDER/): Manufacturers' New Orders: Durable Goods
- [NEWORDER](/indicator/NEWORDER/): Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
- [BUSINV](/indicator/BUSINV/): Total Business Inventories
- [EXPGS](/indicator/EXPGS/): Exports of Goods and Services
- [IMPGS](/indicator/IMPGS/): Imports of Goods and Services
- [IR](/indicator/IR/): Import Price Index (End Use): All Commodities
- [PPIFIS](/indicator/PPIFIS/): Producer Price Index by Commodity: Final Demand

## Latest quarter (10-Q)

Latest 10-Q source: https://www.sec.gov/Archives/edgar/data/854775/000085477526000018/dgii-20260331.htm

Extracted between Part I Item 2 and the next Item 3/4 or Part II heading after HTML sanitization.
Confidence: high
Filing date: 2026-05-06
Report date: 2026-03-31

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

OTHER EXPENSE, NET

Below are our other expenses, net, and other expenses, net as a percentage of total revenue:

Three months ended March 31,

$

%

($ in thousands)

2026

2025

incr.

(decr.)

incr.

(decr.)

Other expense, net

Interest expense, net

$

(2,220)

(1.7)

%

$

(1,336)

(1.3)

%

$

(884)

66.2 

%

Other expense, net

(44)

— 

(43)

— 

(1)

2.3 

%

Total other expense, net

$

(2,264)

(1.7)

%

$

(1,379)

(1.3)

%

$

(885)

64.2 

%

Six months ended March 31,

$

%

($ in thousands)

2026

2025

incr.

(decr.)

incr.

(decr.)

Other expense, net

Interest expense, net

$

(4,523)

(1.8)

%

$

(3,630)

(1.7)

%

$

(893)

24.6 

%

Other expense, net

(48)

— 

(12)

— 

(36)

300.0 

%

Total other expense, net

$

(4,571)

(1.8)

%

$

(3,642)

(1.7)

%

$

(929)

25.5 

%

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.

INCOME TAXES

See Note 9 to the condensed consolidated financial statements for discussion of income taxes.

KEY BUSINESS METRIC

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.

25

Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

GOODWILL

If our future operating results do not meet current forecasts or if we experience a sustained decline in our market capitalization that is determined to be indicative of a reduction in fair value of one or more of our reporting units within either of our segments, we may be required to record future impairment charges for goodwill.

See Note 5 to the condensed consolidated financial statements for additional discussion of goodwill.

NON-GAAP FINANCIAL INFORMATION

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.

During the first fiscal quarter of 2026, Digi modified its method of calculating adjusted net income and adjusted net income per share to include the impact of interest expense. This change was primarily driven by the continued use of financing by the Company to fund cash flow needs and therefore including the recurring nature of interest presents a better metric that management believes provides a more representative view of operating performance and cash-generating capability. Accordingly, we evaluated the impact of this change on prior-period disclosures and have recast adjusted net income and adjusted net income per share for all periods to conform to this presentation.

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.

26

Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Below are reconciliations from GAAP to non-GAAP information that we feel are important to our business:

Reconciliation of Net Income to Adjusted EBITDA

(In thousands)

Three months ended March 31,

Six months ended March 31,

2026

2025

2026

2025

% of total

revenue

% of total

revenue

% of total

revenue

% of total

revenue

Total revenue

$

130,743 

100.0 

%

$

104,503 

100.0 

%

$

253,205 

100.0 

%

$

208,369 

100.0 

%

Net income

$

11,303 

$

10,497 

$

23,014 

$

20,580 

Interest expense, net

2,220 

1,336 

4,523 

3,630 

Income tax provision

3,506 

1,851 

5,814 

2,864 

Depreciation and amortization

11,071 

8,162 

21,526 

16,662 

Stock-based compensation

4,507 

3,944 

8,494 

7,504 

Gain on asset sale

— 

— 

(200)

— 

Restructuring charge

41 

225 

498 

384 

Acquisition expense, net

1,763 

— 

2,306 

— 

Adjusted EBITDA

$

34,411 

26.3 

%

$

26,015 

24.9 

%

$

65,975 

26.1 

%

$

51,624 

24.8 

%

Reconciliation of Net Income and Net Income per Diluted Share to

Adjusted Net Income and Adjusted Net Income per Diluted Share

(In thousands, except per share amounts)

Three months ended March 31,

Six months ended March 31,

2026

2025

2026

2025

Net income and net income per diluted share

$

11,303 

$

0.29 

$

10,497 

$

0.28 

$

23,014 

$

0.60 

$

20,580 

$

0.55 

Amortization

7,821 

0.20 

5,235 

0.14 

15,077 

0.39 

11,000 

0.29 

Stock-based compensation expense

4,507 

0.12 

3,944 

0.11 

8,494 

0.22 

7,504 

0.20 

Other non-operating income

44 

— 

43 

— 

48 

— 

12 

— 

Acquisition expense, net

1,763 

0.05 

— 

— 

2,306 

0.06 

— 

— 

Gain on asset sale

— 

— 

— 

— 

(200)

(0.01)

— 

— 

Restructuring charge

41 

— 

225 

0.01 

498 

0.01 

384 

0.01 

Tax effect from the above adjustments (1)

(1,455)

(0.03)

(1,923)

(0.06)

(3,077)

(0.07)

(4,246)

(0.12)

Discrete tax benefits (2)

(256)

(0.01)

(149)

— 

(1,018)

(0.03)

(511)

(0.01)

Adjusted net income and adjusted net income per diluted share (3)

$

23,768 

$

0.62 

$

17,872 

$

0.48 

$

45,142 

$

1.17 

$

34,723 

$

0.92 

Diluted weighted average common shares

38,482

37,520

38,420

37,553

(1)The tax effect from the above adjustments assumes an estimated effective tax rate of 18.0% for fiscal 2026 and fiscal 2025 based on adjusted net income.

(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.

(3)Adjusted net income per diluted share may not add due to the use of rounded numbers.

27

Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

LIQUIDITY AND CAPITAL RESOURCES

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.

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.

We expect positive cash flows from operations for the foreseeable future. We believe that our current cash and cash equivalents balances, cash generated from operations and our ability to borrow under our credit facility will be sufficient to fund our business operations and capital expenditures for the next 12 months and beyond.

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

Six months ended March 31,

($ in thousands)

2026

2025

Operating activities

$

77,106 

$

56,005 

Investing activities

(49,707)

(1,135)

Financing activities

(17,406)

(56,037)

Effect of exchange rate changes on cash and cash equivalents

(154)

(47)

Net decrease in cash and cash equivalents

$

9,839 

$

(1,214)

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.

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

Cash flows used in financing activities decreased $38.6 million. This was driven by a $34.0 million draw on our revolving credit agreement t

[Excerpt truncated for page length; source filing is linked above.]

## Latest 10-K MD&A

Extracted between Item 7 and the next Item 7A/8 heading after HTML sanitization.
Confidence: high

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our management’s discussion and analysis should be read in conjunction with our consolidated financial statements and other information in this Annual Report on Form 10-K.

We have omitted discussion of the earliest of the three years covered by our consolidated financial statements presented in this report because that disclosure was already included in our Annual Report on Form 10-K for fiscal 2024, filed with the SEC on November 22, 2023. You are encouraged to reference Part II, Item 7, within that report, for a discussion of our financial condition and result of operations for fiscal 2023 compared to fiscal 2024.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Form 10-K contains certain statements that are "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.

Forward-Looking Statements

This discussion 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 acquisition of Jolt completed in August 2025, 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 restructuring, reorganizations or other similar business initiatives that may impact our ability to retain important employees or otherwise impact our operations in unintended and adverse ways, and changes in our level of revenue or profitability which can fluctuate for many reasons beyond our control.

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 this Annual Report on Form 10-K, subsequent filings 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.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

We are a leading global provider of business and mission-critical IoT connectivity products, services and solutions. Our business is comprised of two reporting segments: IoT Products & Services and IoT Solutions.

In fiscal 2025, our key operating objectives included:

•continuing to transition to complete solutions with software and service offerings included with our products, as this drives ARR, which provides more predictable and higher margin revenues; and

•delivering a higher level of services across our businesses.

During fiscal 2025 we delivered on these objectives by increasing ARR by 31% from the end of fiscal 2024 to the end of fiscal 2025. This included an increase of 33% in our Products and Services business segment and 30% in our Solutions business segment. Our acquisition of Jolt completed in August 2025 was a significant contributor to this increase.

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

•Consolidated revenue was $430 million, an increase of 1%.

•Consolidated gross profit was $271 million an increase of 8%.

•Consolidated gross profit margin was 62.9%, an increase of 400 basis points.

•Consolidated operating income was $56 million an increase of 17%.

•Consolidated operating margin was 13.1%, an increase of 180 basis points.

•Net income was $41 million, an increase of 81%.

•Net income per diluted share was $1.08, an increase of 77%.

•Adjusted net income was $79 million, an increase of 8%.

•Adjusted net income per diluted share was $2.10, an increase of 6%.

•Adjusted EBITDA was $108 million, or 25.2% of revenue, compared to $98 million or 23.1% of revenue, an increase of 11%.

•ARR was over $152 million at the end of the fiscal year, an increase of 31%.

Key trends regarding our existing business

We believe the following trends will continue to impact our business in fiscal 2026 and beyond:

•We believe the market for Industrial IoT products and services is in the midst of a long-term expansion across a broad range of industries and solutions.

•As recurring revenue from subscription and cloud monitoring services becomes a greater portion of our overall revenue, delivering at higher operating margins rates than one-time revenue, we expect operating margin rates to expand.

•Technology infrastructure necessary to support the deployment of artificial intelligence and other innovations has seen a significant increase in spending on datacenters and other related infrastructure and we have been and expect to be a beneficiary of this ongoing trend.

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.

Tariffs imposed by various governments globally have the potential to disrupt existing supply chains and impose additional costs on our business. For instance, escalations in the trade conflict with China could lead to export restrictions on critical components and technologies and higher tariffs that , if implemented, could impact our supply chain and product costs.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, while a ceasefire agreement recently eased some geopolitical risk in the Middle East, the region remains volatile, which could all lead to disruptions in shipping routes and elevated oil prices that could impact our transportation costs.

CONSOLIDATED RESULTS OF OPERATIONS

The following table sets forth selected information derived from our consolidated statements of operations:

Year ended September 30,

% incr.

($ in thousands)

2025

2024

(decr.)

Revenue

$

430,221 

100.0 

%

$

424,046 

100.0 

%

1.5 

%

Cost of sales

159,544 

37.1 

174,140 

41.1 

(8.4)

Gross profit

270,677 

62.9 

249,906 

58.9 

8.3 

Operating expenses

214,387 

49.8 

201,817 

47.6 

6.2 

Operating income

56,290 

13.1 

48,089 

11.3 

17.1 

Other expense, net

(6,373)

(1.5)

(25,231)

(5.9)

(74.7)

Income before income taxes

49,917 

11.6 

22,858

5.4 

118.4 

Income tax expense

9,113 

2.1 

353 

0.1 

NM

Net income

$

40,804 

9.5 

%

$

22,505 

5.3 

%

81.3 

NM means not meaningful

REVENUE BY SEGMENT

Year ended September 30,

($ in thousands)

2025

2024

% Increase (decrease)

Revenue

IoT Products & Services

$

317,883 

73.9 

%

$

324,444 

76.5 

%

(2.0)

IoT Solutions

112,338 

26.1 

99,602 

23.5 

12.8 

Total revenue

$

430,221 

100.0 

%

$

424,046 

100.0 

%

1.5 

IoT Products & Services

IoT Products & Services revenue decreased 2.0% for fiscal 2025, as compared to fiscal 2024. The decrease consisted of a $11.5 million decline in one-time sales, with no material impact from pricing. This was driven by lower demand for some products,in part attributable to some customers reducing inventory stockpiled from when supply chains were stressed. This decrease was partially offset by increased demand for some products from new project-based customer initiatives, including among others, significant demand from data center build outs. The decrease also was partially offset by $4.9 million of recurring revenue growth across our offerings.

IoT Solutions

IoT Solutions revenue increased 12.8% for fiscal 2025, as compared to fiscal 2024. The increase consisted of a $11.2 million increase in recurring revenue, driven by growth in both SmartSense® and Ventus and the addition of Jolt. There was also a $1.5 million increase in one-time sales driven by growth in both SmartSense and Ventus and the addition of Jolt.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ARR

ARR was $152 million as of September 30, 2025, compared to $116 million as of September 30, 2024. IoT Products & Services ARR was $32 million as of September 30, 2025, compared to $24 million as of September 30, 2024. This increase was due to growth in the subscription base across remote management platforms and extended warranty offerings, as attach rates increased. IoT Solutions ARR was $120 million as of September 30, 2025, compared to $92 million as of September 30, 2024, driven primarily by the acquisition of Jolt, as well as growth in both SmartSense and Ventus.

COST OF GOODS SOLD AND GROSS PROFIT

Year ended September 30,

% Increase (decrease)

($ in thousands)

2025

2024

Cost of sales

$

159,544 

37.1 

%

$

174,140 

41.1 

%

(8.4)

Gross profit

270,677 

62.9 

%

249,906 

58.9 

%

8.3 

Gross profit margin of 62.9% increased 400 basis points for fiscal 2025 as compared to the prior fiscal year. This increase was the result of favorable margin mix within product sales and a higher proportion of volume from recurring revenue, which has a higher margin.

OPERATING EXPENSES

Below are our operating expenses and operating expenses as a percentage of total revenue:

Year ended September 30,

($ in thousands)

2025

2024

$ increase (decrease)

% Increase (decrease)

Operating Expenses

Sales and marketing

$

91,834 

21.3 

%

$

83,278 

19.7 

%

$

8,556 

10.3 

%

Research and development

63,659 

14.8 

60,289 

14.2 

3,370 

5.6 

General and administrative

58,894 

13.7 

58,250 

13.7 

644 

1.1 

Total operating expenses

$

214,387 

49.8 

%

$

201,817 

47.6 

%

$

12,570 

6.2 

%

The $12.6 million increase in operating expenses in fiscal 2025 from fiscal 2024 was due to a $11.8 million increase in labor expense, a $4.6 million increase in non-labor expense and a $1.9 million decrease in gains on the sale of intangible assets, partially offset by a $5.7 million litigation reserve increase in fiscal 2024 that did not reoccur. These variances include the incremental operating expenses from the Jolt acquisition.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OPERATING INCOME

Year ended September 30,

Basis point increase (decrease)

($ in thousands)

2025

2024

Operating Income

IoT Products & Services

$

46,918 

14.8 

%

$

46,482 

14.3 

%

50 

IoT Solutions

9,372 

8.3 

%

1,607 

1.6 

%

670 

Total operating income

$

56,290 

13.1 

%

$

48,089 

11.3 

%

180 

IoT Products & Services

IoT Products & Services operating income increased 50 basis points for fiscal 2025, as compared to fiscal 2024. This increase was the result of favorable margin mix partially offset by an increase in operating expenses and increased inventory-related expenses.

IoT Solutions

IoT Solutions operating income increased 670 basis points for fiscal 2025, as compared to fiscal 2024. This increase was the result of favorable margin mix and a $5.7 million decrease in litigation reserves partially offset by increases in other operating expenses.

OTHER EXPENSE, NET

Year ended September 30,

($ in thousands)

2025

2024

$ increase (decrease)

% Increase (decrease)

Other expense, net

Interest expense, net

$

(6,319)

(1.5)

%

$

(15,415)

(3.7)

%

$

9,096 

(59.0)

%

Debt issuance cost write off

— 

— 

(9,722)

(2.3)

9,722 

(100.0)

Other expense, net

(54)

— 

(94)

— 

40 

(42.6)

Total other expense, net

$

(6,373)

(1.5)

%

$

(25,231)

(6.0)

%

$

18,858 

(74.7)

%

The $18.9 million decrease in other expense in fiscal 2025 from fiscal 2024 was driven by a write-off of debt issuance costs in 2024 and a reduction in interest expense due to a decrease in average debt outstanding and our effective interest rate (see Note 6 to the condensed consolidated financial statements for additional information).

INCOME TAXES

Our effective income tax expense (benefit) rates were 18.3%, 1.5% and 0.6% for fiscal 2025, 2024 and 2023, respectively. The increase from fiscal 2024 to 2025 was a result of an increase in pre-tax earnings, on-time tax effects of the Jolt acquisition completed in the fourth fiscal quarter of 2025 and a change in the tax credits estimate. Our effective tax rate will vary based on a variety of factors. These include our overall profitability, the geographical mix of income before taxes and related statutory tax rate in each jurisdiction, and discrete events, such as settlement of audits (see Note 10 to our consolidated financial statements).

KEY BUSINESS METRICS

ARR, represents the annualized monthly value of all billable subscription contracts, measured at the end of any fiscal period. Subscriptions primarily include contracts for term-based equipment usage, the delivery of data insights, extended warranty coverage or customer service coverage. ARR excludes one-time items such as non-bundled hardware sales, professional services and wireless design services. Contracts with known, future expiration dates are included in ARR through their expiration date as long as collection is deemed likely. ARR should be viewed independently of revenue and deferred revenue and is not intended to replace or forecast either item. We use ARR to manage and assess the growth of our subscription revenue business. Because ARR does not have a consistent definition, it is unlikely to be compared to the similarly titled measurements of other companies. We believe ARR is an indicator of the scale of our subscription revenue business and is less subject to seasonality and contract term changes than other metrics.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NON-GAAP FINANCIAL INFORMATION

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.

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 expense, 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 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.

Below are reconciliations from GAAP to Non-GAAP information that we believe is important to our business:

Reconciliation of Net Income to Adjusted EBITDA

(In thousands)

Year ended September 30,

2025

2024

% of total

revenue

% of total

revenue

Total revenue

$

430,221 

100.0 

%

$

424,046 

100.0 

%

Net income

40,804 

9.5 

%

$

22,505 

5.3 

%

Interest expense, net

6,319 

15,415 

Debt issuance cost write off

— 

9,722 

Income tax expense

9,113 

353 

Depreciation and amortization

33,976 

33,064 

Stock-based compensation expense

15,363 

13,159 

Litigation accrual

— 

5,700 

Changes in fair value of contingent consideration

(181)

(2,111)

Restructuring charge

774 

430 

Acquisition expense, net

2,251 

(127)

Adjusted EBITDA

$

108,419 

25.2 

%

$

98,110 

23.1 

%

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Reconciliation of Net Income and Net Income per Diluted Share to

Adjusted Net Income and Adjusted Net Income per Diluted Share

(In thousands, except per share amounts)

Year ended September 30,

2025

2024

Net income and net income per diluted share

$

40,804 

$

1.08 

$

22,505 

$

0.61 

Amortization

22,141 

0.59 

24,552 

0.66 

Stock-based compensation expense

15,363 

0.41 

13,159 

0.36 

Other non-operating expense, net

54 

— 

94 

— 

Acquisition expense, net

2,251 

0.06 

(127)

— 

Litigation accrual

— 

— 

5,700 

0.15 

Changes in fair value of contingent consideration

(181)

— 

(2,111)

(0.06)

Restructuring charge

774 

0.02 

430 

0.01 

Interest expense, net

6,319 

0.17 

15,415 

0.42 

Debt issuance cost write off

— 

— 

9,722 

0.26 

Tax effect from above net income adjustments (1)

(8,160)

(0.23)

(17,005)

(0.45)

Discrete tax expenses (2)

(121)

— 

1,212 

0.03 

Adjusted net income and adjusted net income per diluted share (3)

$

79,244 

$

2.10 

$

73,546 

$

1.99 

Diluted weighted average common shares

37,739

36,984

(1)The tax effect from the above adjustments assumes an estimated effective tax rate of 18.0% for fiscal 2025 and 2024 based on adjusted net income.

(2)For the twelve months ended September 30, 2025 and September 30, 2024, discrete tax benefits include excess tax benefits recognized on stock compensation and expiring statute of limitations.

(3)Adjusted net income per diluted share may not add due to the use of rounded numbers.

LIQUIDITY AND CAPITAL RESOURCES

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.

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 6 to our condensed consolidated financial statements.

We expect positive cash flows from operations. We believe that our current cash and cash equivalents balances, cash generated from operations and our ability to borrow under our credit facility will be sufficient to fund our business operations and capital expenditures for the next twelve months and beyond.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As follows, our consolidated statements of cash flows for the years ended September 30, 2025 and 2024 is summarized:

Year ended September 30,

($ in thousands)

2025

2024

Operating activities

$

107,959 

$

83,092 

Investing activities

(148,332)

3 

Financing activities

34,624 

(89,048)

Effect of exchange rate changes on cash and cash equivalents

141 

1,770 

Net decrease in cash and cash equivalents

$

(5,608)

$

(4,183)

Cash flows from operating activities increased $24.9 million as a result of:

•a $18.3 million increase in net income in fiscal 2025,

•a $24.2 million increase in net operating assets for fiscal 2025 compared to a $11.7 million increase in fiscal 2024,

•a $5.1 million increase in deferred income tax benefits,

•a $2.2 million increase in stock-based compensation,

•and a $2.2 million increase in gains from the sale of assets in fiscal 2024.

These increases were partially offset by:

•a $9.7 million debt issuance cost write-off included in net income in fiscal 2024 and

•a $5.7 million litigation accrual included in net income in fiscal 2024.

Cash flows used in investing activities decreased $148.3 million as a result of:

•$145.7 million used in the acquisition of Jolt, net of the $2.8 million cash assumed,

•a $2.2 million decrease in proceeds from the sale of property, equipment, improvements and certain other intangible assets

•and a $0.4 million increase in purchases of property, equipment, improvements and certain other intangible assets.

Cash flows from financing activities increased $123.7 million as a result of:

•debt payments of $114.3 million in the fiscal 2025, compared to debt payments of $304.7 million in fiscal 2024

•and a $0.5 million increase in proceeds from stock option exercises and employee stock purchase plan transactions.

These were partially offset by:

•net proceeds of $214.1 million from the issuance of a new credit facility in the first quarter of fiscal 2024 compared to $150.0 million from a draw on the credit facility in the fourth quarter of 2025,

•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.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CONTRACTUAL OBLIGATIONS

The following summarizes our contractual obligations at September 30, 2025:

Payments due by fiscal period

($ in thousands)

Total

Less than 1 year

1-3 years

3-5 years

Thereafter

Operating leases

$

13,459 

$

3,741 

$

4,013 

$

3,720 

$

1,985 

Revolving loan

160,000 

— 

— 

160,000 

— 

Total

$

173,459 

$

3,741 

$

4,013 

$

163,720 

$

1,985 

The operating lease agreements included above primarily relate to office space. The table above does not include our possible payments for uncertain tax positions. Our reserve for uncertain tax positions, including accrued interest and penalties, was $4.3 million as of September 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 above table 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.

FOREIGN CURRENCY

We are not exposed to a significant amount of foreign currency transaction risk associated with sales transactions as the majority of our sales are denominated in U.S. Dollars. We are exposed to foreign currency translation risk as the financial position and operating results of our foreign subsidiaries are translated into U.S. Dollars for consolidation. We manage our net asset or net liability position for non-functional currency accounts, primarily the U.S. Dollar accounts in our foreign locations to reduce our foreign currency risk. We have not implemented a formal hedging strategy.

During 2025, 2024 and 2023, we had approximately $88.3 million, $121.6 million and $121.1 million, respectively, of revenue related to foreign customers including export sales, of which $0.2 million, $0.4 million and $0.8 million, respectively, were denominated in foreign currencies, predominantly the Canadian Dollar. In future periods, we continue to expect that the majority of our sales will be in U.S. Dollar.

CRITICAL ACCOUNTING ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, the disclosure of contingent assets and liabilities and the values of purchased assets and assumed liabilities in acquisitions. We base our estimates on historical experience and various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

We believe the following critical accounting policies impact our more significant judgments and estimates used in the preparation of our consolidated financial statements.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

REVENUE RECOGNITION

We recognize hardware product revenue upon transfer of control of goods or services to customers in an amount that reflects the consideration we expect to receive in exchange for those goods or services. We determine the amount of revenue to be recognized through application of the following steps:

•identification of the contract, or contracts with a customer;

•identification of the performance obligations in the contract;

•determination of the transaction price;

•allocation of the transaction price to the performance obligations in the contract; and

•recognition of revenue when or as we satisfy the performance obligations.

Hardware Product Revenue and SmartSense by Digi Equipment Revenue and Associated Installation Fees

Our hardware product revenue is derived primarily from the sale of wired and wireless hardware products to our distributors and direct/original equipment manufacturer (“Direct/OEM”) customers. Product revenue generally is recognized upon shipment of the product to a customer. Sales to authorized domestic distributors and Direct/OEM customers typically are made with certain rights of return and price adjustment provisions. Estimated reserves for future credit returns and pricing adjustments are established based on an analysis of historical patterns of credit returns and price adjustments compared to received credit returns and distribution sales for the current period. Estimated reserves for future credit returns and price adjustments are charged against revenue in the same period as the corresponding sales are recorded. Material differences between the historical trends used to determine estimated reserves and actual credit returns and pricing adjustments could result in a material change to our consolidated results of operations or financial position.

Equipment revenue from SmartSense by Digi within our IoT Solutions segment is recognized upon shipment of the equipment to a customer. Installation service charges from these sales are recorded when the product is installed.

Subscription and Support Services Revenue

Our SmartSense by Digi®, including Jolt, and Ventus subscription revenue is based on contracts with at least an annual term and is recorded on a monthly basis. These subscriptions are generally in a range from one to five years, and may contain an evergreen renewal provision. Generally, our subscription renewal charges per month are the same as the original contract term.

We also derive service revenue from our Digi Remote Manager, a platform-as-a-service (“PaaS”) offering, whereby customers pay for services consumed based on the number of devices being managed or monitored. This revenue is recognized over the life of the service term and is included in our IoT Products & Services segment. 

Digi Support Services revenues are recognized over the life of the support contract and included in our IoT Products & Services segment. Some of Digi Support Services revenue is one-time in nature for training and this revenue is recognized as the services are performed.

Professional Services Revenue

Professional services revenue is derived from our Digi Wireless Design Services contracts on either on a time-and-materials or a fixed-fee basis. These revenues are one-time in nature, are included in our IoT Products & Services segment and are recognized as the services are performed for time-and-materials contracts or as invoiced for fixed-fee contracts.

Contracts with Multiple Performance Obligations

From time to time we have contracts from customers with multiple performance obligations. Our hardware products may be combined with our Digi Remote Manager PaaS offering as well as other support services in an individual contract. Our SmartSense by Digi and Jolt revenues typically are derived from contracts with multiple performance obligations. These obligations may include: delivery of monitoring equipment that the customer purchases out-right, monitoring services, providing condition alerts of assets being monitored, and recertification of sensor equipment. When we retain ownership of the equipment, we charge an implementation fee to the customer so they can begin using the equipment. In these instances, all revenue derived from the above obligations is recognized over the subscription term of the contract. If the customer purchases the equipment out-right, that portion of the revenue is recognized at the stand-alone selling price at the time the equipment is

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shipped and all other revenue is recognized over the subscription term of the contract. We have made an accounting policy election to exclude from the measurement of our revenues any sales or similar taxes we collect from customers.

INVENTORIES

Inventories are stated at the lower of cost or net realizable value, with cost determined using the first-in, first-out method. We reduce the carrying value of our inventories for estimated excess and obsolete inventories equal to the difference between the cost of inventory and its estimated realizable value based upon assumptions about future product demand and market conditions. These estimates are subject to uncertainty and involve the use of historical data and future market expectations. Once the new cost basis is established, the value is not increased with any changes in circumstances that would indicate an increase in value after the re-measurement. If actual product demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required that could result in a material change to our consolidated results of operations or financial position.

GOODWILL

Goodwill represents the excess of cost over the fair value of identifiable assets acquired. Goodwill is tested for impairment on an annual basis as of June 30, or more frequently if events or circumstances occur which could indicate impairment. For our quantitative goodwill impairment tests, we determine the estimated fair value of each reporting unit and compare it to the carrying value of the reporting unit, including goodwill. If the carrying amount of a reporting unit is higher than its estimated fair value, an impairment loss must be recognized for the excess. We have two reportable segments, our IoT Products & Services segment and our IoT Solutions segment (see Note 4 to the consolidated financial statements). Each of our two reporting units have been tested individually for impairment.

The fair value of each reporting unit is determined using a weighted combination of an income and market approach. A discounted cash flow (“DCF”) method is utilized for the income approach. In developing the DCF analysis, our assumptions about future revenues, expenses, capital expenditures, and changes in working capital are based on management’s projections, and assume a terminal growth rate thereafter. A separate discount rate is determined for each reporting unit and these cash flows are then discounted to determine the fair value of the reporting unit. The market approach determines a value derived from the guideline company method. This market approach method estimates the price reasonably expected to be realized from the sale of the reporting unit based on comparable companies.

Assumptions and estimates to determine fair values under the income and market approaches are complex and often subjective. They can be affected by a variety of factors. These include external factors such as industry and economic trends. They also include internal factors such as changes in our business strategy and our internal forecasts. We believe we made a reasonable estimate with the assumptions used to calculate the fair values of our two reporting segments. Changes in circumstances or a potential event could negatively affect the estimated fair values. We will continue to monitor potential impacts to our assumptions, as any changes could potentially affect our cash flows and market capitalization. If our future operating results do not meet current forecasts or if we experience a sustained decline in our market capitalization that is determined to be indicative of a reduction in fair value of one or more of our reporting units, we may be required to record future impairment charges for goodwill.

Results of our Fiscal 2025 Annual Impairment Test

As of June 30, 2025, we had a total of $175.5 million of goodwill for the IoT Products & Services reporting unit and $167.6 million of goodwill for the IoT Solutions reporting unit. At June 30, 2025, the fair value of goodwill exceeded the carrying value for each reporting units and no impairment was recorded.

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BUSINESS COMBINATIONS

Our acquisitions are accounted for under ASC ("Accounting Standards Codification") 805, Business Combinations. Accordingly, the assets and liabilities of acquired companies are included in the Consolidated Balance Sheets from the acquisition date, adjusted to reflect their fair value. Intangible assets are measured and recognized at fair value and amortized over their estimated useful lives.

Customer relationships are valued using the multi-period excess earnings method. The multi-period excess earnings method estimates the discounted net earnings attributable to the customer relationships that were acquired after considering items such as possible customer attrition. Estimated useful lives were determined based on the length and trend of projected cash flows. The length of the projected cash flow period was determined based on the expected attrition of the customer relationships, which is based on our historical experience and future expectations for renewing and extending similar customer relationships.

Technology and trade names are valued using the relief from royalty method to estimate the cost savings that will accrue to the Company, which would otherwise have to pay royalties or license fees on revenue earned by using the asset. The useful lives of the assets were determined based on management’s estimate of the period of time the technology or name will be in use.

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