Name: DIGI INTERNATIONAL INC Q3 2025 Earnings Call
Start: 2025-08-06T21:00:00.000Z

Executive Summary

Q3 2025 delivered modest top-line growth and strong profitability: revenue $107.5M (+2% YoY; press headline “$108M”), gross margin 63.5% (+430 bps YoY), adjusted EBITDA $27.6M (+11% YoY), and adjusted EPS $0.53; ARR reached a record $126M (+12% YoY) .
Results were above Street: revenue beat by ~$1.3M versus consensus and adjusted EPS beat by ~$0.03; management raised FY25 profit outlook (Adj. EBITDA growth now 7–8% YoY) while reiterating flat revenue and ~10% ARR growth targets (consensus values marked with * from S&P Global).
Mix and ARR expansion drove margin strength; operating cash flow was $24M, inventory normalized to $35M, and net debt fell to $20.0M after repaying $30M, reducing interest expense to $0.9M from $3.2M YoY .
Post-quarter, Digi announced the Jolt acquisition to accelerate ARR; Q4 guidance was raised further with revenue $108.5–$112.5M, Adj. EBITDA $26.0–$27.5M, and adjusted EPS $0.48–$0.52; however, management no longer expects to be net cash positive by FY year-end due to acquisition financing .
Near-term stock reaction catalysts: sustained margin outperformance, raised profit outlook, ARR momentum, and incremental Q4 uplift from Jolt integration .

What Went Well and What Went Wrong

What Went Well

Adjusted EBITDA margin reached a record 25.6% on mix and recurring revenue strength; management expects ARR and profit growth to outpace revenue as the model scales: “Adjusted EBITDA margins hit a record 25.6%… Free cash flow generation is a hallmark” .
Debt reduction and inventory normalization enhanced cash generation: $30M debt repaid in Q3; net debt $20.0M; inventory $35M vs. $53M at FY24-end; CFO highlighted interest expense down to $0.9M vs. $3.2M YoY .
Segment execution: IoT Solutions revenue +$2.3M YoY to $27.5M with ARR $96M (+7% YoY); IoT Product & Services ARR rose to $30M (+30% YoY) and segment margin improved 620 bps to 60.6% .

What Went Wrong

APAC softness and tariff volatility: management cited APAC as “softer” and ongoing tariff impacts, albeit mitigated by diversified supply chain and manufacturing shifts .
IoT Product & Services one-time revenues continued to face headwinds from prior customer inventory digestion, offset by recurring attach growth; Q3 segment revenue was flat YoY .
IoT Solutions gross margin fell 240 bps to 72.0% due to timing of deployments and increased inventory-related expenses .

Financial Results

Headline P&L vs prior year and prior quarter

Metric	Q3 2024	Q2 2025	Q3 2025
Revenue ($USD Millions)	$105.203	$104.503	$107.514
Gross Profit ($USD Millions)	$62.258	$64.933	$68.268
Gross Profit Margin %	59.2%	62.1%	63.5%
Operating Income ($USD Millions)	$12.908	$13.727	$14.923
Net Income ($USD Millions)	$9.702	$10.497	$10.243
Diluted EPS (GAAP)	$0.26	$0.28	$0.27
Adjusted EBITDA ($USD Millions)	$24.725	$26.015	$27.559
Adjusted EPS (Non-GAAP)	$0.50	$0.51	$0.53

Note: Press release rounded revenue to $108M; GAAP table reports $107.514M .

Segment Breakdown

Segment	Q2 2025 Revenue ($M)	Q3 2025 Revenue ($M)	YoY Commentary	ARR (Q3 2025)	Segment Gross Margin (Q3 2025)
IoT Product & Services	$77.8	$80.0	Flat revenue; recurring +$1.3M offset by -$1.3M one-time sales	$30 (+30% YoY)	60.6% (+620 bps YoY)
IoT Solutions	$26.7	$27.5	+$2.3M revenue on +$1.7M recurring and +$0.6M one-time sales	$96 (+7% YoY)	72.0% (-240 bps YoY)

KPIs and Balance Sheet

KPI	Q1 2025	Q2 2025	Q3 2025
ARR ($USD Millions, end of quarter)	$120	$123	$126
Cash Flow from Operations ($USD Millions)	$29.7	$26	$24
Inventory ($USD Millions)	$50	$39	$35
Long-term Debt ($USD Millions)	$95.0	$70.0	$40.1
Net Debt ($USD Millions)	$69.1	$43.7	$20.0
Interest Expense ($USD Millions, quarterly)	$2.3	$1.3	$0.9

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY25	Approximately flat YoY	Approximately flat YoY (unchanged)	Maintained
ARR Growth	FY25	~10%	~10% (pre-Jolt) ; ~28% (post-Jolt)	Raised post-Jolt
Adjusted EBITDA Growth	FY25	Flat YoY (Q1), then +5% (Q2)	+7–8% (pre-Jolt) ; +8–9% (post-Jolt)	Raised twice
Net Cash Position by FY-end	FY25	Net cash positive targeted	Net cash positive targeted (pre-Jolt) ; No longer expected post-Jolt	Lowered post-Jolt
Revenue	Q3 2025	$102–$106M (from Q1), $104–$108M (Q2)	Actual $107.5M	In range
Adjusted EBITDA	Q3 2025	$24.0–$25.5M (Q1), $25.0–$26.5M (Q2)	Actual $27.6M	Beat
Adjusted EPS	Q3 2025	$0.46–$0.50 (Q1), $0.47–$0.51 (Q2)	Actual $0.53	Beat
Revenue	Q4 2025	$106–$110M (pre-Jolt)	$108.5–$112.5M (post-Jolt)	Raised
Adjusted EBITDA	Q4 2025	$25.5–$27.0M (pre-Jolt)	$26.0–$27.5M (post-Jolt)	Raised
Adjusted EPS	Q4 2025	$0.47–$0.51 (pre-Jolt)	$0.48–$0.52 (post-Jolt)	Raised

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1–Q2 2025)	Current Period (Q3 2025)	Trend
AI/technology initiatives	Opengear momentum; solution-first approach; ARR-driven margins	Data center and edge demand; hybrid deployments (local + cloud) growing to protect data while leveraging AI	Improving
Supply chain & tariffs	Inventory normalization; tariff uncertainty; deleveraging	Tariff impacts navigated via diversified manufacturing (moved out of China) and favorable transit routes (Mexico→NA, Asia→EU)	Stabilizing with mitigation
Product performance/mix	One-time revenue digestion; recurring attach rising	Mix drove margin strength; higher-margin products weighted more; recurring attach elevated across cellular routers, Opengear	Improving margin profile
Regional trends	Macro headwinds in industrial; steady demand	North America strengthening; APAC softer; Europe mixed	Mixed geographically
M&A pipeline	Priority on scale and ARR acquisitions	Healthy pipeline; acquisitions prioritized over buybacks; post-Q3 Jolt deal to accelerate ARR	Active
Inventory & channel	Inventory down vs FY24; channel digestion	Inventory near optimized level; channel velocity improving	Normalizing

Management Commentary

“Adjusted EBITDA margins hit a record 25.6%… Free cash flow generation is a hallmark of our fiscal 2025 performance… After retiring $30,000,000 in debt this quarter, we now stand at $20,000,000 in net debt and remain on track to be net cash positive by the end of our fiscal 2025” (pre-Jolt) .
“We had some product mix with some products with improved margins having a little bit higher weight than others… profit assumption will be driven mainly by gross margin rather than say OpEx” .
“We have really moved all of our manufacturing out of China… we’ve got flexibility… there could be a short-term opportunity for us” (tariff environment) .
“We expect ARR and profitability to outpace our top line growth… we’re going to keep emphasizing [multi-year solutions] because we think it’s in the customers’ best interest… ARR also contains a higher gross margin… lift adjusted EBITDA” .

Q&A Highlights

ARR attach and mix: Rising attach in IT (cellular routers, Opengear console servers, infrastructure management) driving recurring revenue and margin mix; sequential EBITDA guide shaped by gross margin variability .
Demand and macro: APAC softness; North America strength; increased certainty around tariffs and US fiscal policy expected to improve customer decision-making .
AI infrastructure: Opengear serving both data center and edge; hybrid deployments expanding as customers balance cloud with local compute and data protection .
Supply chain & tariffs: Diversified manufacturing footprint (moved out of China), leveraging lower-tariff regions and transit routes; analyzing new tariff developments for Q4 .
Capital allocation: Priority on M&A over buybacks; pipeline focused on ARR scale and profitability; post-quarter Jolt acquisition underscores strategy .

Estimates Context

Metric	Q3 2024 Actual	Q3 2025 Consensus*	Q3 2025 Actual	Outcome
Revenue ($USD Millions)	$105.203	$106.227*	$107.514	Beat
Adjusted EPS ($)	$0.50	$0.502*	$0.53	Beat

Metric	Q2 2025 Consensus*	Q2 2025 Actual	Outcome
Revenue ($USD Millions)	$104.084*	$104.503	Beat
Adjusted EPS ($)	$0.483*	$0.51	Beat

Metric	Q1 2025 Consensus*	Q1 2025 Actual	Outcome
Revenue ($USD Millions)	$104.079*	$103.866	Miss (slight)
Adjusted EPS ($)	$0.496*	$0.50	In line/Beat (slight)

Estimates marked with * are values retrieved from S&P Global.

Key Takeaways for Investors

Margin engine intact: ARR growth and favorable mix lifted gross margin to 63.5% and drove record 25.6% adjusted EBITDA margin; expect profit growth to outpace revenue as ARR scales .
Balance sheet strengthening: $30M debt repaid; net debt down to $20.0M; interest expense fell to $0.9M YoY, supporting EPS leverage .
Segment health: Solutions growth (+$2.3M YoY) and Product & Services ARR (+30% YoY) underpin durability; watch Solutions margin timing effects .
Guidance trajectory positive: FY25 profit outlook raised to +7–8% (then +8–9% post-Jolt); Q4 ranges moved higher with acquisition tailwind .
Macro/tariff risk mitigated: Diversified manufacturing (out of China) and routing flexibility help navigate tariff volatility; NA strength offsets APAC softness .
Trading lens: Near-term beat-and-raise profile plus Q4 uplift from Jolt is supportive; monitor gross margin mix and tariff updates as key variables into Q4 .
Medium-term thesis: ARR mix shift (now record $126M) and disciplined M&A (Jolt) should elevate margins and cash generation; model supports compounding EBITDA and FCF .

Additional Notes

Non-GAAP adjustments: Adjusted EPS reconciliation includes amortization, stock-based comp, interest, acquisition expense, taxes, and minor restructuring; Q3 adjusted EPS was $0.53 vs GAAP $0.27 .
Cross-references: Press headline rounds to $108M vs GAAP $107.514M; both consistent with reported tables .
Relevant Q3 press items: NYC DOT award (transport routers + Remote Manager) speaks to public-sector traction; LifeCycle Assurance On-Prem adds regulated/on-prem management capability; Axess mobile app/VPN expands industrial infrastructure portfolio .

DIGI INTERNATIONAL INC (DGII)·Q3 2025 Earnings Summary