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DIGI INTERNATIONAL INC (DGII)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 FY25 delivered solid profitability and cash generation: revenue $103.9M (-2% YoY), gross margin 62.0% (+440 bps YoY), GAAP EPS $0.27 vs $(0.08) YoY, Adjusted EPS $0.50 (+$0.02 YoY), Adjusted EBITDA $25.6M (+10% YoY) .
  • Recurring profile strengthened: ARR reached a record $120M (+11% YoY; +$4M sequential), now ~28% of quarterly revenues, supporting margin resilience and visibility .
  • Guidance: FY25 outlook unchanged (ARR ~+10% YoY; revenue and Adjusted EBITDA roughly flat); Q2 FY25 guide: revenue $102–$106M, Adjusted EBITDA $24.0–$25.5M, Adjusted EPS $0.46–$0.50, implying modest margin normalization after a favorable Q1 mix .
  • Balance sheet improvement accelerated: operating cash flow $29.7M; debt reduced to $95.0M; net debt $69.1M; management targets retiring all debt by end of calendar 2025, a potential stock catalyst if execution continues .

What Went Well and What Went Wrong

  • What Went Well

    • Record ARR and recurring mix: ARR hit $120M (+11% YoY), up $4M sequentially; management reiterated the 5-year plan to double ARR and Adjusted EBITDA to $200M each. “ARR is the top strategic priority” and reached ~28% of quarterly revenues .
    • Margin strength: gross margin rose to 62.0% (+440 bps YoY), aided by mix and ARR growth; Adjusted EBITDA increased 10% YoY to $25.6M (24.7% margin) .
    • Cash generation and deleveraging: CFO highlighted $30M operating cash flow and debt falling below $100M outstanding; inventory reduced to $50M, supporting working capital efficiency .

  • What Went Wrong

    • Top-line softness: revenue declined 2% YoY to $103.9M as one-time sales fell $4.7M in IoT Products & Services amid customer inventory digestion; Solutions hardware/one-time also modestly lower .
    • Near-term margin normalization: management flagged Q1’s “very favorable product mix” in onetime revenue unlikely to repeat in Q2, implying EBITDA down slightly QoQ at midpoint despite flat revenue .
    • Macro/industrial headwinds persist: management cited a weak industrial economy and fluid tariff/policy backdrop; while demand is stabilizing, some suppliers still indicate industrial/auto weakness and extended sales cycles .

Financial Results

MetricQ1 2024Q3 2024Q4 2024Q1 2025
Revenue ($MM)$106.1 $105.2 $105.1 $103.9
GAAP Diluted EPS ($)$(0.08) $0.26 $0.32 $0.27
Adjusted EPS ($)$0.48 $0.50 $0.52 $0.50
Gross Margin (%)57.6% (calc from )59.2% 61.1% 62.0%
Adjusted EBITDA ($MM)$23.3 $24.7 $26.3 $25.6
ARR ($MM, end of qtr)N/A$113 $116 $120

Notes: Q1 2024 gross margin % approximated from revenue/gross profit disclosed in the filing . Q1 FY25 Adjusted EBITDA reconciliation shows $25.609M (24.7% margin) .

Segment breakdown (Q1 FY25)

  • IoT Products & Services: revenue $77.8M (-$4.2M YoY), GM 58.6%, ARR $27M (+17% YoY). Decline driven by $4.7M lower one-time sales as customers drew down previously stockpiled inventory; recurring grew $0.5M .
  • IoT Solutions: revenue $26.0M (+$2.0M YoY), GM 72.2%, ARR $93M (+9% YoY), with recurring up $2.1M (SmartSense and Ventus) .
Segment (Q1 FY25)Revenue ($MM)YoY ΔGross Margin (%)ARR ($MM)
IoT Products & Services77.8 -4.2 58.6% 27
IoT Solutions26.0 +2.0 72.2% 93

KPIs and balance sheet/cash flow (Q1 FY25)

KPIQ1 2025
Cash from Operations ($MM)$29.7
Inventory ($MM)$50.2
Debt Outstanding ($MM)$95.0
Cash & Equivalents ($MM)$25.9
Net Debt ($MM)$69.1
Interest Expense ($MM)$2.3
Operating Income ($MM)$13.4
Diluted Shares (MM)37.483

Non-GAAP context (Q1 FY25)

  • Adjusted EPS $0.50 vs GAAP $0.27; add-backs include amortization $5.77M, SBC $3.56M, net interest $2.29M, restructuring $0.16M, with an 18% tax effect on adjustments; Q1 FY24 had an $0.26 EPS impact from a term loan B debt issuance cost write-off not recurring in Q1 FY25 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($MM)Q2 FY25N/A$102–$106 New
Adjusted EBITDA ($MM)Q2 FY25N/A$24.0–$25.5 New
Adjusted EPS ($)Q2 FY25N/A$0.46–$0.50 (37.8M shares) New
ARR GrowthFY25~+10% YoY ~+10% YoY (unchanged) Maintained
RevenueFY25Flat YoY Flat YoY (unchanged) Maintained
Adjusted EBITDAFY25Flat YoY Flat YoY (unchanged) Maintained

Context vs prior quarter’s guidance (delivered): Q1 FY25 actuals were within/above earlier Q1 guidance from Nov-2024 (revenue $102–$106M; Adj. EBITDA $24.0–$25.5M; Adj. EPS $0.46–$0.50) with revenue $103.9M, Adj. EBITDA $25.6M (slightly above the range), and Adj. EPS $0.50 (top of range) .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY24; Q4 FY24)Current Period (Q1 FY25)Trend
ARR focus/long-term targetsRecord ARR $113M; record gross margins; focus on ARR growth and A-EBITDA; cautious demand Record ARR $120M; ARR ~28% of revenue; reaffirm plan to double ARR & A-EBITDA to $200M each within 5 years Improving mix/visibility
Gross margin trajectoryQ3: 59.2% (+230 bps); Q4: 61.1% (+400 bps) with favorable mix 62.0% (+440 bps YoY); management flags Q1 onetime mix was unusually favorable and unlikely to repeat in Q2 Elevated but normalizing
Deleveraging/cash flowOCF $25M; inventory down; net debt $123M (Q3) ; OCF $26M; inventory $53M; net debt $95.7M (Q4) OCF $29.7M; debt <$100M; plan to retire all debt by end CY25 Strengthening balance sheet
Supply chain/inventoryInventory management progress (Q3/Q4) Customers bleeding down inventories impacted onetime sales; Digi inventory down to $50M Normalizing
Macro/tariffsMacro caution; extended sales cycles (Q3/Q4) 70%+ revenue North America; flexible manufacturing footprint; not pushing pull-ins amid tariff uncertainty Stable watch
End-market colorNot detailed in prior PRsStrength in data centers (Opengear), medical devices, utilities; improving ordering patterns Stabilizing demand
Product/Tech initiativesRecord GM; ARR momentum ; FY25 outlook maintained Launches: Digi X-ON platform; SmartSense VOYAGE; Opengear CM8100-10G-5G (5G OOB mgmt) Expanding portfolio

Management Commentary

  • CEO: “ARR reached another record at $120 million… ARR is the top strategic priority… As our balance sheet improves, we are even better positioned to pursue solution-oriented acquisitions of scale” .
  • CEO: “This is especially heartening in the context of a weak industrial economy… Strong cash generation… enabled a reduction in our debt balance” .
  • CFO on margins: Q1 “had some very favorable product mix… likely not going to repeat to that scale in Q2,” though company-level gross margins “at 60% or better will continue to be the theme” .
  • CEO on tariffs/supply chain: “We have a geographically diverse set of manufacturing partners, including presence in the U.S…. We have not been communicating… ‘get it now or [face] price increase’” .

Q&A Highlights

  • Recurring mix transition: ARR growth partly offsets variability in onetime revenue; management expects this theme to continue as attach rates rise and offerings evolve .
  • Margin normalization: Q1’s onetime mix boosted GM; Q2 guidance assumes normalization while maintaining 60%+ GM structurally .
  • Tariffs/macro: Diverse manufacturing footprint; prioritizing long-term customer relationships over short-term pull-ins amid policy uncertainty; >70% revenue in North America .
  • Demand/verticals: Ordering patterns stabilizing; strength in data centers (Opengear), medical devices, utilities; potential uplift as industrial activity improves .
  • Capital allocation: Strong FCF; deleveraging on track; target to retire all debt by end of calendar 2025 .

Estimates Context

  • Wall Street consensus from S&P Global could not be retrieved at this time due to an API request limit; therefore, we cannot provide vs-consensus comparisons for Q1 FY25 or Q2 FY25 guidance at this time. Values retrieved from S&P Global.
  • Context vs internal guidance: Q1 revenue ($103.9M) landed within prior guide ($102–$106M), Adjusted EPS ($0.50) at the top of the range ($0.46–$0.50), and Adjusted EBITDA ($25.6M) slightly above the guide top ($24.0–$25.5M) .

Key Takeaways for Investors

  • Recurring-led durability: ARR reached $120M and accounts for ~28% of revenue, supporting structurally higher gross margins (60%+), reduced cyclicality, and higher visibility .
  • Near-term margin cadence: Expect Q2 EBITDA to modestly ease QoQ on mix normalization; the structural margin narrative remains intact given ARR expansion .
  • Cash and deleveraging: ~$30M OCF in Q1, net debt $69.1M; credible path to debt-free by end of 2025 enhances optionality for M&A and shareholder value creation .
  • Product momentum: New launches (Digi X-ON, SmartSense VOYAGE, Opengear CM8100-10G-5G) broaden solution scope across edge-to-cloud IoT and resilient network management, potentially reinforcing ARR growth and pricing power .
  • Demand stabilization: Ordering patterns improving; exposure to resilient verticals (data centers, medical, utilities) could offset industrial softness as PMI improves .
  • Execution watch items: Monitor onetime revenue digestion in Products & Services and how fast recurring attach rates (>50% on key products) scale to sustain ARR growth .
  • FY25 setup: With outlook unchanged (ARR ~+10%; revenue/Adj. EBITDA flat), estimate revisions likely hinge on ARR attach and mix trajectory; potential beat/raise depends on sustaining GM >60% and continued deleveraging .

Sources: Q1 FY25 8-K/press release, Q1 FY25 earnings call transcript, Q3/Q4 FY24 8-Ks and press releases -.