Executive Summary

Q2 FY2025 delivered resilient profitability on flat top-line: revenue $104.503M (-3% YoY), gross margin 62.1% (+420 bps YoY), adjusted EPS $0.51, GAAP diluted EPS $0.28; adjusted EBITDA $26.015M (+9% YoY) .
Consensus comparison: revenue modest beat ($104.503M vs $104.084M estimate), adjusted EPS beat ($0.51 vs $0.483 estimate) — estimate benchmarks from S&P Global*.
Guidance raised: full-year 2025 Adjusted EBITDA now +5% YoY (prior ~flat), Q3 revenue guided to $104–$108M, adjusted EPS $0.47–$0.51, adjusted EBITDA $25.0–$26.5M; revenue and ARR outlook maintained (revenue ~flat YoY; ARR +10%) .
Strong cash generation and deleveraging: CFO $26M in Q2; net debt fell to ~$43.7M; management now expects net cash positive by fiscal year-end (pulled forward by one quarter) .

What Went Well and What Went Wrong

What Went Well

Gross margin expansion to 62.1% (+420 bps YoY) on ARR mix and favorable product mix; adjusted EBITDA margin rose to 24.9% (from 22.1% YoY) .
ARR hit a record $123M (+12% YoY), with ARR now 29% of annualized quarterly revenues; P&S ARR +22% YoY to $28M; Solutions ARR +9% YoY to $95M .
Deleveraging and cash generation: $26M CFO in Q2; $25M debt paydown; interest expense reduced to $1.3M from $3.7M YoY .

Quote: “Free cash flow generation of $26 million in the quarter allowed us to reduce our net debt to $45 million… We now expect to be net cash positive by the end of our fiscal year” .

What Went Wrong

Top line softness: revenue down 3% YoY; one-time product sales declined $6.8M YoY in P&S as customers bleed down prior inventory .
APAC weakness weighed on revenue trends; management flagged regional demand softness in Q&A .
Inventory-related adjustments partially offset P&S margin gains; Solutions saw “soft churn” as large customers closed some locations (offset by new growth) .

Financial Results

Sequential Trend (oldest → newest)

Metric	Q4 2024	Q1 2025	Q2 2025
Revenue ($USD Millions)	$105.052	$103.866	$104.503
Gross Margin (%)	61.1%	62.0%	62.1%
GAAP Diluted EPS ($)	$0.32	$0.27	$0.28
Adjusted EPS ($)	$0.52	$0.50	$0.51
Adjusted EBITDA ($USD Millions)	$26.254	$25.609	$26.015
Adjusted EBITDA Margin (%)	25.0%	24.7%	24.9%

YoY Comparison (Q2 2024 vs Q2 2025)

Metric	Q2 2024	Q2 2025
Revenue ($USD Millions)	$107.702	$104.503
GAAP Diluted EPS ($)	$0.11	$0.28
Adjusted EPS ($)	$0.49	$0.51
Adjusted EBITDA ($USD Millions)	$23.825	$26.015
Gross Margin (%)	57.9% (420 bps lower than Q2 2025)	62.1%

Segment Breakdown (oldest → newest)

Segment	Q4 2024 Revenue ($M)	Q4 2024 Gross Margin (%)	Q1 2025 Revenue ($M)	Q1 2025 Gross Margin (%)	Q2 2025 Revenue ($M)	Q2 2025 Gross Margin (%)
IoT Product & Services	$79.0	56.7%	$77.8	58.6%	$77.8	58.9%
IoT Solutions	$26.0	74.7%	$26.0	72.2%	$26.7	71.4%

ARR by Segment (oldest → newest)

Segment	Q4 2024 ARR ($M)	Q1 2025 ARR ($M)	Q2 2025 ARR ($M)
IoT Product & Services	$24	$27	$28
IoT Solutions	$92	$93	$95
Total ARR	$116	$120	$123

KPIs and Balance Sheet (oldest → newest)

KPI	Q4 2024	Q1 2025	Q2 2025
Cash Flow from Operations ($M)	$26	$29.719	$26
Cash & Equivalents ($M)	$27.510	$25.935	$26.296
Total Debt ($M)	$123.185	$94.952	$70.018
Net Debt ($M)	$95.7 (Debt net of cash)	$69.1 (Debt net of cash)	$43.7 (Debt net of cash)
Inventory ($M)	$53.357	$50.184	$38.601
Interest Expense ($M)	$2.8 (Q4)	$2.3 (Q1)	$1.3 (Q2)

Results vs Estimates (oldest → newest)

Metric	Q4 2024 Estimate	Q4 2024 Actual	Q1 2025 Estimate	Q1 2025 Actual	Q2 2025 Estimate	Q2 2025 Actual
Revenue ($USD)	$104,097,750*	$105,052,000	$104,079,000*	$103,866,000	$104,084,330*	$104,503,000
Primary EPS ($)	$0.4975*	$0.52	$0.4960*	$0.50	$0.48333*	$0.51

Values marked with * retrieved from S&P Global.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($M)	Q3 FY2025	N/A	$104–$108	New
Adjusted EBITDA ($M)	Q3 FY2025	N/A	$25.0–$26.5	New
Adjusted EPS ($)	Q3 FY2025	N/A	$0.47–$0.51 (37.9M diluted shares)	New
ARR Growth	FY2025	~+10%	~+10% (unchanged)	Maintained
Revenue	FY2025	~Flat YoY	~Flat YoY (unchanged)	Maintained
Adjusted EBITDA	FY2025	~Flat YoY	+5% YoY	Raised
Cash Flow from Operations	FY2025	Strong FCF; debt retired by end of calendar 2025	Increased CFO outlook; net cash positive by fiscal year-end	Raised / Timeline pulled forward

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 FY2024)	Previous Mentions (Q1 FY2025)	Current Period (Q2 FY2025)	Trend
ARR growth & mix shift	ARR 116M; ARR ~27% of revenue; solutions emphasis	ARR 120M; ARR 28% of revenue; attach rates >50% in key products	ARR 123M; ARR 29% of revenue; continued attach and Ventus model expansion	Improving mix, rising ARR penetration
Tariffs & supply chain	Macro headwinds; diversified manufacturing	Geographically diverse suppliers; customer-first stance	Outlook assumes current tariffs; mitigate via USMCA, agility if reciprocity	Prepared; agile positioning
Regional trends (APAC)	Not highlighted	APAC exception to steady demand	APAC weakness impacting revenue; inventory normalization ongoing	APAC soft; stabilizing
Inventory & working capital	Inventory reduced to $53M	Continued inventory reductions	Inventory down to $38.6M; approaching normalized levels	Normalizing
Acquisitions & capital allocation	Deleveraging; acquisitions focused on ARR/scale	Positioned for solution-oriented acquisitions	Better positioned for scale acquisitions amid deleveraging	Optionality improving
Profitability & FCF	Adjusted EBITDA up; CFO strong	CFO $30M; debt < $100M	CFO $26M; interest cut; FCF yield ~9% cited	Sustained profitability, lower interest

Management Commentary

Strategic focus: “Digi's solution-oriented approach… ARR growing 12% YoY to a record $123 million… ARR now represents a record 29% of our annualized quarterly revenues.” .
Balance sheet and FCF: “Free cash flow generation of $26 million… reduce our net debt to $45 million… expect to be net cash positive by the end of our fiscal year… free cash flow yield sits at 9%.” .
Tariffs/macro: “Our outlook… assumes the current tariff rates… About 70% of our business is in North America… we have quite a bit of product and facility that complies with USMCA.” .
Product/attach: “Providing a solution and attaching software and services… providing a Ventus-type model… helping ARR improve.” .

Q&A Highlights

ARR and attach rates: Channel is adapting to recurring models; attach rates improving, though still under 50% across portfolio (excluding OEM); multi-quarter evolution for Ventus model in routers .
One-time sales and APAC: Customer inventory bleed-down narrowing; APAC revenue weaker; inventory normalization progressing .
Tariffs impact: Baseline assumes ~10% tariffs; USMCA compliance and diversified supply chain provide mitigation; agility planned if reciprocal tariffs expand .
Cycle times and supply chain: Sales cycles stabilized; flexibility to move products and minimize tariff impact; not stockpiling ahead of tariff changes .
Margin mix (context from prior quarter): Q1 gross margin benefited from favorable product mix; expected moderation in Q2 as mix normalizes .

Estimates Context

Q2 FY2025 came in above consensus on adjusted EPS and slightly above on revenue: adjusted EPS $0.51 vs $0.483*; revenue $104.503M vs $104.084M* — a modest top-line beat and meaningful EPS beat (reflecting ARR mix and opex discipline). Values retrieved from S&P Global.
Recent trend: Q1 FY2025 adjusted EPS beat ($0.50 vs $0.496*), slight revenue miss ($103.866M vs $104.079M*); Q4 FY2024 revenue and adjusted EPS both beat versus consensus ($105.052M vs $104.098M*; $0.52 vs $0.498*). Values retrieved from S&P Global.

Where estimates may adjust:

Street likely to lift FY2025 profitability assumptions given raised Adjusted EBITDA outlook and lower interest expense run-rate .
Revenue trajectory remains ~flat per guide (maintained), but ARR growth momentum and recurring mix may push margin expectations higher .

Key Takeaways for Investors

Mix-led margin expansion and recurring ARR growth are driving EPS beats despite flattish revenue — supportive for multiple resilience .
Raised FY2025 Adjusted EBITDA guide (+5% YoY) and net cash-positive by fiscal year-end signal improving cash/interest dynamics; deleveraging continues to de-risk equity .
Q3 outlook ($104–$108M revenue; adjusted EPS $0.47–$0.51) sets a bar consistent with recent performance; watch ARR attach rate progress and Solutions growth to sustain margins .
APAC softness and potential tariff reciprocity remain watch items; mitigants include USMCA compliance and diversified supply chain .
Near-term trading: Expect positive reaction bias to EPS beat and guide raise; sensitivity to macro/tariff headlines persists .
Medium-term thesis: Transition to higher ARR mix (P&S ARR +22% YoY) and Solutions scale should structurally lift gross margins and reduce volatility in cash generation .
Execution priorities: Continue channel enablement for Ventus model, disciplined opex, and tuck-in acquisitions focused on ARR/scale to accelerate toward $200M ARR/Adjusted EBITDA long-term target .

Notes on citations and data sources:
- Document-based figures and quotes are cited directly from DGII press releases, 8-K, and earnings call transcripts.
- Consensus estimates marked with * are values retrieved from S&P Global.

DIGI INTERNATIONAL INC (DGII)·Q2 2025 Earnings Summary