What changed in this filing

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Item 1. Business

2024-11-22 compared with 2023-11-22 · 37 added, 45 removed, 148 unchanged (36% of the section changed)

3 unchanged sentences

We reorganized as a Delaware corporation in 1989 in conjunction with our initial public offering.

Our common stock trades on the Nasdaq Global Select Market tier of the Nasdaq Stock Market LLC under the symbol DGII.

Our common stock trades on the Nasdaq Global Select Market tier of the Nasdaq Stock Market LLC (the "Nasdaq") under the symbol DGII.

Our World Headquarters is located at 9350 Excelsior Blvd., Suite 700, Hopkins, Minnesota 55343.

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These include embedded and wireless modules, console servers, enterprise and industrial routers as well as other infrastructure management equipment to meet our customers' IoT communication requirements.

In addition, this segment provides our customers with a device management platform as well as other professional services to enable customers to capture and manage data from devices connected to networks.

In addition, this segment provides our customers with device management platform services, as well as other professional services to enable customers to capture and manage data from devices connected to networks.

Our IoT Solutions segment consists of our SmartSense by Digi ® business and our Managed Network–as–a-Service (“MNaaS”) business acquired via our November 2021 acquisition of Ventus Wireless, LLC and affiliated entities ("Ventus").

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We believe the IoT industry is in the midst of a multi-year expansion as many industries are undergoing a digital transformation within their business that drives demand for IoT capabilities across a broad spectrum of services.

Among others, IoT use cases include condition-based monitoring of perishable goods, enabling remote work by employees, automating workflows and operations and providing and maintaining secure connectivity and monitoring of operating assets.

Among others, IoT use cases include providing and maintaining secure connectivity and monitoring of operating assets, condition-based monitoring of perishable goods, enabling remote work by employees and automating workflows and operations.

Our IoT Products & Services segment represented the majority of our sales in fiscal 2024.

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These offerings allow our customers to connect a wide range of assets to networks.

This segment grew during fiscal 2023, led by increases in our OEM and Infrastructure Management revenues.

Historically the revenues from this segment have been based on one-time product sales.

More recently we have placed greater emphasis on selling subscription-based solutions across this product portfolio.

For example, during fiscal 2024 we launched the Digi LifeCycle Assurance subscription solution, and we recently announced the launch of the Digi 360 subscription solution.

Our IoT Solutions segment is comprised primarily of our SmartSense by Digi and Ventus offerings.

SmartSense by Digi provides condition-based monitoring services for perishable goods such as food and medicines for the health-care, pharmaceutical and food industries.

Ventus provides MNaaS offerings to manage and maintain network connectivity for assets such as ATMs and lottery kiosks.

The offerings in this segment are primarily offered on a subscription model and provide us with a stable base of recurring higher-margin revenues.

While our business performed well in fiscal 2023 and we expect an ongoing long-term trend of marketplace growth, each of our business segments is susceptible to downturns either because of general macro-economic conditions, the continued

development of technology that can make products less competitive or even obsolete and uncertainty or changes in regulatory environments.

Given the current uncertainty in macro-economic conditions, including, but not limited to, potential recessionary conditions, supply chain disruptions globally and the uncertain status of large project-based customer deployment opportunities, our results during fiscal 2024 may be inconsistent quarter to quarter or with historical results.

The offerings in this segment are primarily offered on a subscription model and provide us with a stable base of higher-margin recurring revenues.

While we expect an ongoing long-term trend of marketplace growth, each of our business segments is susceptible to downturns either because of general macro-economic conditions, the continued development of technology that can make products less competitive or even obsolete and uncertainty or changes in regulatory environments.

Given the current uncertainty in macro-economic conditions, including, but not limited to, potential recessionary conditions, global geopolitical conditions, supply

chain disruptions globally and the uncertain status of large project-based customer deployment opportunities, our results during fiscal 2025 may be inconsistent quarter to quarter or with historical results.

We remain focused on taking steps that we believe will deliver consistent, long-term growth with higher levels of profitability.

This includes continuously reviewing and managing the product, service and solution offerings we provide to align with customer interests and meet market demand.

In addition, acquisitions have helped significantly advance our offerings and driven growth and profitability, in both business segments.

Over time we expect to continue to be active in making further acquisitions.

In addition, acquisitions historically have helped significantly advance our offerings and driven growth and profitability, in both business segments.

While our last acquisition was completed in fiscal 2022, we do expect to continue to be active in making further acquisitions.

While it is possible we will complete smaller transactions, we primarily are focusing our efforts for future potential acquisitions on opportunities of scale with the potential to enhance subscription based recurring revenue.

In addition, we recently have announced our intention to discontinue the production and sale of certain older products in our IoT Products & Services Segment which are not core to our long-term growth objectives.

IoT Products & Services Segment

Our IoT Products & Services segment is managed so our product management and sales personnel are aligned along specific product lines.

Our IoT Products & Services segment is managed so our product management, research and development and sales personnel are aligned along specific product lines.

We believe this management structure brings greater market focus and potential growth to our product lines.

We also continue to drive efforts to pair our hardware offerings with our Digi Remote Manager ® device management platform as well as other support services.

We also continue to drive efforts to pair our hardware offerings with our Digi Remote Manager ® device management platform as well as other support services, as shown by the launch of the Digi LifeCycle Assurance subscription solution and the recently announced launch of the Digi 360 subscription solution.

These bundled offerings are sold on a subscription basis and allow customers to monitor and manage the performance of our hardware remotely.

This segment generated over $22 million in annualized recurring revenue ("ARR") as of September 30, 2023.

As of September 30, 2024 the (Annualized Recurring Revenue ("ARR") of this segment was $24 million.

Please see "Key Business Metrics" section in Part II, Item 7 for additional details on how ARR is measured.

IoT Solutions Segment

Our IoT Solutions segment is managed with a focus on recurring traditionally high margin subscription-based revenues.

Our IoT Solutions segment is managed with a focus on recurring typically high margin subscription-based revenues.

We believe capturing enterprise-level deals should be a driver of growth, leveraging our direct sales model to achieve this.

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The segment represents nearly 25% of total revenues.

This segment generated $84 million in ARR as of September 30, 2023.

We have long-term high organic growth expectations and we will continue to explore added scale through acquisitions for this segment.

As of September 30, 2024 the ARR of this segment was $92 million.

We have long-term high organic growth expectations.

Acquisitions and Dispositions

In addition to our fiscal 2022 acquisition of Ventus disclosed above, we have made the following acquisitions during our fiscal years 2021 through 2023:

In March 2021, we acquired Haxiot, Inc.

("Haxiot ® "), a provider of low power wide area ("LPWA") wireless technology.

This acquisition enhanced our IoT Products & Services segment by enhancing Digi's embedded systems portfolio and immediately extending the company's market reach with a complete LoRaWAN-based solutions offering.

In July 2021, we acquired Ctek, Inc.

("Ctek"), a provider that specializes in solutions for remote monitoring and industrial controls.

Through the acquisition of Ctek, Digi is uniquely positioned to provide customers with both battery and hardwired options for the control and monitoring of critical infrastructure, furthering Digi’s reach in a rapidly expanding market.

Our acquisition of Ventus in fiscal 2022 described above is the only acquisition we have completed during our fiscal years 2022 through 2024.

Sales Channels

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Among others, relationships include:

AT&T, NXP, Orange, Rogers, Silicon Laboratories, T-Mobile, Telus, Telit, Verizon, Vodafone and several other cellular carriers worldwide.

AT&T, AWS, Google, Kore, Novotech, NXP, Orange, Qualcomm, Silicon Laboratories, T-Mobile, Telus, Verizon, Vodafone, Westbase and several other cellular carriers worldwide.

We have established relationships with equipment vendors in a range of industries such as energy, industrial, retail, transportation, medical, and government that allow these partners to ship our products and services as component parts of their overall solutions.

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No single customer comprised more than 10% of our consolidated revenue for any of the fiscal years 2024, 2023 or 2022.

In general, our sales are not considered to be highly seasonal, although our first fiscal quarter revenue is often less than other quarters due to holidays and other business days.

In general, our sales are not considered to be highly seasonal, although our first fiscal quarter revenue is often less than other quarters due to holidays and fewer business days.

We compete primarily in the communications technology industry.

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While no competitor offers a comparable range of products and services, various companies do compete with us with respect to one or more of our products or solutions.

With respect to many of our product and service offerings, we face competition from companies who dedicate more resources and attention to that particular offering than we are able to given the breadth of our business.

As the marketplace for IoT connectivity products and solutions continues to grow, we expect to encounter increased competition.

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Manufacturing Operations

We outsource our manufacturing operations to certain contract manufacturers, which are located primarily in Thailand, Mexico, Taiwan and China.

We outsource our manufacturing operations to certain contract manufacturers, which are located primarily in Thailand, Mexico, Taiwan, Cambodia and China.

We rely on third party foundries or companies who rely on third party foundries for our semiconductor devices that are Application Specific Integrated Circuits ("ASICs").

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If these suppliers are unable to provide a timely and reliable supply of components, we could experience manufacturing delays that could adversely affect our consolidated results of operations in a material way.

In an effort to mitigate supply chain exposure, we have increased our amount of inventory on hand from historical levels and will monitor whether adjustments to inventory levels are necessary to mitigate any future exposures.

Further, a range of conditions and circumstances beyond our control such as global conflicts, recessionary economic conditions in various regions of the world or a recurrence of the Covid-19 pandemic could disrupt the availability of raw materials and components as well as our capacity to make and distribute our products.

In recent quarters, inventory on hand has returned to historical levels, but we will continue to monitor whether adjustments to inventory levels are necessary.

Further, a range of conditions and circumstances beyond our control such as global conflicts, recessionary economic conditions in various regions of the world or a recurrence of a global pandemic could disrupt the availability of raw materials and components as well as our capacity to make and distribute our products.

Research & Development and Intellectual Property Rights

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While we dedicate significant resources to research and development, many of our competitors are focused on a smaller set of products than us and are likely able to dedicate more resources than us toward the portions of the market in which we compete with them.

In recent periods, as a result of supply chain constraints, a significant portion of our research and development spending has been focused on the re-design or reconfiguration of existing products using different components.

This has lowered our ability to focus on new product development.

Our proprietary rights and technology are protected by a combination of copyrights, patents, trade secrets and trademarks.

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Our IoT Products & Services primarily are sold under the Digi, Rabbit ® , Digi XBee ® , and Opengear ® brands.

We believe that the Digi and Rabbit brands have established strong identities with our targeted customer base and our customers associate the Digi brand with "reliability" and the Rabbit brand with "ease of integration." We believe that our customers associate Digi XBee with "ease of use." Many of our customers choose us because they are building a very complex system solution and they want the highest level in product reliability and ease of integration and use.

"ease of use." Many of our customers choose us because they are building a very complex system solution and they want the highest level in product reliability and ease of integration and use.

Our IoT Solutions are offered under the Ventus and SmartSense by Digi brands.

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Digi’s workforce consists of 805 employees globally as of September 30, 2024.

We consider our relationship with our employees to be good.

We believe we have a good working relationship with our employees.

At Digi we promote cultural imperatives that drive our approach to our daily work and our customer care:

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• Embrace Diversity & Inclusion

These core values define the way we do business in our everyday actions and choices.

These core values define the way we do business with integrity in our everyday actions and choices.

We strive to create a respectful work environment characterized by mutual trust and the absence of intimidation, oppression, discrimination and exploitation.

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We are committed to promoting and cultivating an inclusive, diverse culture that welcomes and celebrates everyone without bias.

In addition, we actively engage within our communities to foster and attain social equity.

In addition, we actively engage within our communities to foster social equity.

Compensation Philosophy

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• Fiscal responsibility - Providing affordable programs that are within our budget;

• Legal compliance - Ensure the organization is legally compliant in all states and countries in which we operate.

• Legal compliance - Ensure the organization is legally compliant with all laws applicable to our business.

Health and Wellness

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Cellular Products – We provide a range of products that use cellular technology such as Long Term Evolution (“LTE”), LTE Advance Pro and 5 th Generation wireless protocols to communicate with networks.

These products provide a cost-effective, more flexible alternative to landlines for primary or backup connectivity.

They are trusted by global leaders in agricultural, energy medical, lighting, digital signage, gaming, electric charging and transportation, as well as other industrial and enterprise markets including:

These products are trusted by global leaders in agricultural, energy medical, lighting, digital signage, gaming, electric charging and transportation, as well as other industrial and enterprise markets including:

• Cellular routers that help enterprise, government, industrial, transportation and OEM customers with their mission-critical wireless connectivity needs in challenging, remote and mobile environments.

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These products primarily are used by IT organizations in large enterprises to maximize the availability of services to their customers and employees, and provide business continuity in the event of a network failure.

This technology improves efficiency and reduces the risk of costly outages.

This technology is deployed because it generally improves efficiency and reduces the risk of costly outages.

Radio-Frequency (“RF”) Products – These products which are marketed primarily under the Digi XBee brand include embedded wireless modules as well as off-the-shelf gateways, modems and adapters.

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These products are designed and developed with compact form-factors, low power consumption and long product lifecycles.

The latest ConnectCore products support advanced multi-core processing, security, multimedia, human-machine interface ("HMI") and other emerging technologies like machine learning.

The latest ConnectCore products support advanced multi-core processing, security, multimedia, human-machine interface and other emerging technologies like machine learning.

Infrastructure Management Products – These products include serial and Universal Serial Bus ("USB") solutions.

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Digi Remote Manager – Digi Remote Manager is a recurring revenue cloud-based service that provides a secure environment for customers to manage their connected device for the full deployment lifecycle.

This service enables customers to activate, monitor, diagnose, reset, update and/or upgrade their entire network of mission-critical devices from a single point of command.

This service enables customers to activate, monitor, diagnose, reset, update and/or upgrade their mission-critical devices from a single point of command.

Through a "single pane of glass," network managers can manage configurations, update firmware, add features and schedule and automate tasks from their desktop, tablet or phone.

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Professional services include solution planning and implementation services to customers who purchase our products such as site planning, implementation management, application development and customer training.

Data plan subscriptions are offered to customers wishing to enable cellular connectivity on our products.

subscriptions are offered to customers wishing to enable cellular connectivity on our products.

Enhanced technical support provides priority, in-depth technical support consultations with our experienced support team.

These services ensure customers get to market quickly, minimize risk, and ensure customer success with their Digi solution.

These services help customers get to market quickly, minimize risk, and ensure customer success with their Digi solution.

IoT Solutions Segment

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business