Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
We may be exposed to interest rate risk should we decide to invest in marketable securities. When we held marketable securities, we classified them as available-for-sale and they were carried at fair value. Our investments historically consisted of money market funds, certificates of deposit, commercial paper, corporate bonds and government municipal bonds. Our investment policy specifies the types of eligible investments and minimum credit quality of our investments, as well as diversification and concentration limits which mitigate our risk. We do not use derivative financial instruments to hedge against interest rate risk because the majority of our investments mature in less than one year.
We are exposed to market risks related to fluctuations in interest rates on amounts borrowed under the Credit Facility. As of September 30, 2025, we had $160.0 million outstanding under our Credit Facility. Borrowings under the Credit Facility bear interest at a rate per annum equal to Term SOFR with a floor of 0.00% for an interest period of one, three, or six months as selected by Digi, reset at the end of the selected interest period (or a replacement benchmark rate if Term SOFR is no longer available) plus the applicable margin or a base rate plus the applicable margin. The base rate is determined by reference to the highest of BMO’s prime rate, the rate determined by BMO to be the average rate of Federal funds in the secondary market plus 0.50%, or one-month SOFR plus 1.00%. The applicable margin for loans under the Credit Facility is in a range of 1.75% to 2.75% for Term SOFR loans and 0.75% to 1.75% for base rate loans, depending on Digi’s total net leverage ratio. Based on the balance sheet position for both the Revolving Loan at September 30, 2025, the annualized effect of a 25-basis point change in interest rates would increase or decrease our interest expense by $0.4 million. For additional information, see Note 6 to our consolidated financial statements. For our Credit Facility, interest rate changes generally do not affect the fair value of the debt instruments, but do impact future earnings and cash flows, assuming other factors are held constant. If interest rates remain elevated, we will continue to see interest expenses that are higher than historical amounts.
FOREIGN CURRENCY RISK
We are exposed to foreign currency transaction risk associated with certain sales being denominated in Canadian Dollars and in certain cases, transactions in U.S. Dollars in our foreign entities. We are also 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. In addition, as foreign currency rates fluctuate, we may from time to time, adjust the prices of our products, services and subscriptions. We have not implemented a formal hedging strategy.
The table below compares the average monthly exchange rates of the Euro, British Pound Canadian Dollar and Australian Dollar:
Fiscal year ended
September 30, % increase
2025 2024 (decrease)
Euro 1.0580 1.1111 (4.8) %
British Pound 1.3061 1.3221 (1.2) %
Canadian Dollar 0.7149 0.7381 (3.1) %
Australian Dollar 0.6437 0.6773 (5.0) %
A 10.0% change from the 2025 average exchange rate for the Euro, British Pound, Canadian Dollar and Australian Dollar to the U.S. Dollar would have resulted in an immaterial increase or decrease in fiscal 2025 annual revenue and a 0.9% increase or decrease in stockholders' equity at September 30, 2025. The above analysis does not take into consideration any pricing adjustments we may make in response to changes in the exchange rates.
CREDIT RISK
We have some exposure to credit risk related to our accounts receivable portfolio. Exposure to credit risk is controlled through regular monitoring of customer financial status, credit limits and collaboration with sales management on customer contacts to facilitate payment.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID 34 )
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Consolidated Statements of Operations
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Consolidated Statements of Comprehensive Income
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Consolidated Balance Sheets
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Consolidated Statements of Cash Flows
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Consolidated Statements of Stockholders' Equity
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Notes to the Consolidated Financial Statements
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Digi International Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Digi International Inc. and subsidiaries (the "Company") as of September 30, 2025 and 2024, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended September 30, 2025, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2025, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 21, 2025, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Goodwill — IoT Solutions — Refer to Notes 1 and 3 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company used a combination of the income approach and market approach to estimate fair value, which requires management to make significant estimates and assumptions, specifically related to discount rate and forecasts of future revenue growth rates, gross margins and earnings before income taxes, depreciation, and amortization (“EBITDA”) margins used in the income approach. Changes in these assumptions could have a significant impact on the fair value. The goodwill balance was $343.1 million as of June 30, 2025, of which $167.6 million was allocated to the IoT Solutions reporting unit.
We identified goodwill for the IoT Solutions reporting unit as a critical audit matter because of the significant judgments made by management to estimate the fair value of this reporting unit. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to selection of the discount rate and forecasts of future revenue growth rates, gross margins, EBITDA margins within the IoT Solutions reporting unit.
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How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the discount rate and forecasts of revenue growth rates, future gross margins, and EBITDA margins within the IoT Solutions reporting unit used by management to estimate the fair value of the reporting unit included the following, among others:
• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the IoT Solutions reporting unit, such as controls related to management’s selection of the discount rate and forecasts of revenue growth rates, gross margins, and EBITDA margins within the IoT Solutions reporting unit.
• We evaluated management’s ability to accurately forecast the revenue growth rates, gross margins and EBITDA margins by comparing actual results to management’s historical forecasts.
• We evaluated the reasonableness of management’s revenue growth rates, gross margin and EBITDA margin forecasts by comparing the forecasts to:
◦ Historical revenue growth rates, gross margins and EBITDA margins.
◦ Forecasted information included in Company press releases as well as in industry reports for the Company and certain of its peer companies.
• With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) discount rate by:
◦ Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculations.
◦ Developing a range of independent estimates and comparing those to the discount rate selected by management.
Acquisitions – Jolt Software, Inc. – Customer Relationship Intangible Asset – Refer to Note 1 and Note 2 to the financial statements
Critical Audit Matter Description
The Company completed the acquisition of Jolt Software, Inc. (“Jolt”) for $148.5 million on August 18, 2025. The Company accounted for the acquisition under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including a customer relationship intangible asset of $99 million. Management estimated the fair value of the customer relationship intangible asset using the multi-period excess earnings method, which is a specific discounted cash flow method. The fair value determination of the intangible asset required management to make significant estimates and assumptions related to the selection of the discount rate and attrition rate, and the determination of future cash flows including revenue growth rates and EBITDA margins.
We identified the fair value determination of the customer relationship intangible asset of Jolt as a critical audit matter because of the significant estimates and assumptions management made to determine the fair value of this asset. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of this asset. Specific assumptions that required a high degree of judgment included the selection of the discount rate and attrition rate, and the determination of future cash flows including revenue growth rates and EBITDA margins.
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How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the selection of the discount rate and attrition rate, and the determination of future cash flows including revenue growth rates and EBITDA margins included the following, among others:
• We tested the effectiveness of controls over the valuation of the customer relationship, including management’s controls over the selection of the discount rate and attrition rate, and the determination of future cash flows including revenue growth rates and EBITDA margins.
• With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodologies, attrition rate and discount rate by:
◦ Testing the source information underlying the determination of the attrition rate and discount rate and testing the mathematical accuracy of the calculations.
◦ Obtaining an understanding of the methodology used in determining the fair value of customer relationship and determining whether the methodology is acceptable in accordance with applicable accounting and valuation standards.
◦ Developing a range of independent estimates and comparing those to the discount rate selected by management.
• We tested management’s determination of future cash flows including revenue growth rates and EBITDA margins by comparing the forecasts to:
◦ Historical revenue growth rates and EBITDA margins of Jolt.
◦ Forecasted information included in industry reports for the Company and certain of its peer companies.
• We evaluated whether the estimated future cash flows were consistent with evidence obtained in other areas of the audit.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
November 21, 2025
We have served as the Company’s auditor since 2022.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
DIGI INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended September 30,
2025 2024 2023
(in thousands, except per common share data)
Revenue:
Product $ 296,584 $ 304,540 $ 331,162
Service 133,637 119,506 113,687
Total revenue 430,221 424,046 444,849
Cost of sales:
Cost of product 128,028 144,790 161,451
Cost of service 27,583 25,537 27,233
Amortization 3,933 3,813 3,962
Total cost of sales 159,544 174,140 192,646
Gross profit 270,677 249,906 252,203
Operating expenses:
Sales and marketing 91,834 83,278 81,681
Research and development 63,659 60,289 58,648
General and administrative 58,894 58,250 61,779
Total operating expenses 214,387 201,817 202,108
Operating income 56,290 48,089 50,095
Other expense, net:
Interest expense, net ( 6,319 ) ( 15,415 ) ( 25,236 )
Debt issuance cost write off — ( 9,722 ) —
Other (expense) income, net ( 54 ) ( 94 ) 59
Total other expense, net ( 6,373 ) ( 25,231 ) ( 25,177 )
Income before income taxes 49,917 22,858 24,918
Income tax expense 9,113 353 148
Net income $ 40,804 $ 22,505 $ 24,770
Net income per common share:
Basic $ 1.10 $ 0.62 $ 0.69
Diluted net income per common share:
Diluted $ 1.08 $ 0.61 $ 0.67
Weighted average common shares:
Basic 36,959 36,316 35,820
Diluted 37,739 36,984 36,869
The accompanying notes are an integral part of the consolidated financial statements.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
DIGI INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year ended September 30,
2025 2024 2023
(in thousands)
Net income $ 40,804 $ 22,505 $ 24,770
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment ( 50 ) 3,267 ( 957 )
Other comprehensive (loss) income, net of tax ( 50 ) 3,267 ( 957 )
Comprehensive income $ 40,754 $ 25,772 $ 23,813
The accompanying notes are an integral part of the consolidated financial statements.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
DIGI INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
As of September 30,
2025 2024
(in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents $ 21,902 $ 27,510
Accounts receivable, net 63,453 69,640
Inventories 38,911 53,357
Income taxes receivable 1,875 173
Prepaid expenses and other current assets 4,558 3,767
Total current assets 130,699 154,447
Property, equipment and improvements, net 34,022 34,915
Identifiable intangible assets, net 350,688 252,909
Goodwill 392,872 342,774
Deferred tax assets 5,131 16,141
Operating lease right-of-use assets 8,430 10,207
Other non-current assets 804 3,682
Total assets $ 922,646 $ 815,075
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable 35,871 23,759
Income taxes payable 522 2,549
Accrued compensation 16,261 13,995
Unearned revenue 40,671 30,556
Current portion of operating lease liabilities 3,361 2,973
Other current liabilities 11,124 15,505
Total current liabilities 107,810 89,337
Income taxes payable 3,261 2,749
Deferred tax liabilities 164 1,308
Long-term debt 159,152 123,185
Operating lease liabilities 8,671 11,228
Other non-current liabilities 7,511 6,233
Total liabilities 286,569 234,040
Commitments and Contingencies (see Note 13 )
Stockholders’ equity:
Preferred stock, $ .01 par value; 2,000,000 shares authorized; none issued and outstanding
— —
Common stock, $ .01 par value; 60,000,000 shares authorized; 43,641,997 and 42,996,725 shares issued
436 430
Additional paid-in capital 437,391 420,413
Retained earnings 288,154 247,350
Accumulated other comprehensive loss ( 23,794 ) ( 23,744 )
Treasury stock, at cost, 6,471,074 and 6,449,364 shares
( 66,110 ) ( 63,414 )
Total stockholders’ equity 636,077 581,035
Total liabilities and stockholders’ equity $ 922,646 $ 815,075
The accompanying notes are an integral part of the consolidated financial statements.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
DIGI INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended September 30,
2025 2024 2023
Operating activities: (in thousands)
Net income $ 40,804 $ 22,505 $ 24,770
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, equipment and improvements 11,836 8,511 6,753
Amortization 22,409 25,106 27,203
Write-off of debt issuance costs — 9,722 —
Stock-based compensation expense 15,363 13,159 13,286
Deferred income tax provision ( 6,662 ) ( 11,761 ) ( 12,739 )
Litigation accrual — 5,700 —
Other, net 42 ( 1,540 ) ( 806 )
Changes in operating assets and liabilities (net of acquisitions):
Accounts receivable 7,542 ( 13,641 ) ( 5,558 )
Inventories 8,228 8,786 ( 5,062 )
Other assets 2,592 ( 107 ) ( 1,214 )
Income taxes ( 3,294 ) 2,281 4,088
Accounts payable 9,615 6,448 ( 15,503 )
Accrued expenses ( 516 ) 7,923 1,533
Net cash provided by operating activities 107,959 83,092 36,751
Investing activities:
Acquisition of businesses, net of cash acquired ( 145,702 ) — —
Purchase of property, equipment, improvements and certain other intangible assets ( 2,630 ) ( 2,226 ) ( 4,345 )
Proceeds from sales of intangibles — 2,229 —
Net cash (used in) provided by investing activities ( 148,332 ) 3 ( 4,345 )
Financing activities:
Proceeds from long-term debt 150,000 214,062 —
Payments on long-term debt ( 114,300 ) ( 304,725 ) ( 36,375 )
Proceeds from stock option plan transactions 3,525 2,978 3,926
Proceeds from employee stock purchase plan transactions 2,285 2,206 2,263
Taxes paid for net share settlement of share-based payment awards ( 6,886 ) ( 3,569 ) ( 4,314 )
Net cash provided by (used in) financing activities 34,624 ( 89,048 ) ( 34,500 )
Effect of exchange rate changes on cash and cash equivalents 141 1,770 ( 1,113 )
Net decrease in cash and cash equivalents ( 5,608 ) ( 4,183 ) ( 3,207 )
Cash and cash equivalents, beginning of period 27,510 31,693 34,900
Cash and cash equivalents, end of period $ 21,902 $ 27,510 $ 31,693
Supplemental disclosures of cash flow information:
Interest paid $ 6,404 $ 14,763 $ 26,351
Income taxes paid, net $ 18,421 $ 7,306 $ 8,693
Supplemental schedule of non-cash investing and financing activities:
Accrual for property, equipment, improvements and certain other intangibles assets $ ( 793 ) $ ( 164 ) $ ( 277 )
Transfer of inventory to property, equipment and improvements $ ( 7,793 ) $ ( 12,252 ) $ ( 3,889 )
The accompanying notes are an integral part of the consolidated financial statements.
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