DIGI INTERNATIONAL INC Q1 FY2025 earnings call

• 2025 fiscal first quarter ARR reached a record $120 million, up 11% year over year and $4 million from last quarter; ARR now represents 28% of quarterly revenues.
• Balance sheet improved with total outstanding debt below $100 million for the first time since fiscal fourth quarter of 2021, generated $30 million in cash from operations in the quarter and reduced inventory balances.
• Confident in achieving the five-year goal of doubling ARR and adjusted EBITDA to $200 million each.
• Celebrating 40 years of resilience, innovation, and adaption; remains steadfast in putting customers' best interests first, leveraging geographically diverse manufacturers despite geopolitical and tariff challenges.

No specific breakdown of product segment financial performance in absolute terms and revenue contribution % provided in the transcript.

• Revenue projected to be flattish quarter over quarter in Q2.
• EBITDA midpoint slightly down in Q2; Q1 had favorable product mix in one-time revenue not likely to repeat in Q2, but gross margins at 60% or better continuing to be the theme.
• Mix attributable to ARR growth continues to be seen, but Q1's favorable mix on one-time revenue won't repeat to the same scale in Q2.

• Geopolitical environment with myriad outcomes for global businesses and fluid tariff policies pose risks; however, Digi is confident in leveraging geographically diverse manufacturers.

Q: Could you give context on drivers for ARR and one-time revenue, and ARR outlook going forward?

A: ARR growth is part of the transition from one-time to recurring revenue; ARR growth will be consistent with some periods of higher growth and one-time revenue varying; focus on ARR growth.

Q: On Q2 guidance, revenue flattish QoQ, EBITDA midpoint down; any margin side in Q2?

A: Q1 had significant sequential change in gross margins due to mix between ARR and one-time, and favorable product mix in one-time not repeating in Q2, affecting margin.

Q: Elaborate on tariff impact potential and demand pull-in?

A: Over 70% of revenues from North America; emphasize customer interest first, have geographically diverse manufacturers; uncertain tariff policies but confident in leveraging them; potential for pull-in of demand due to tariff threat not discussed in detail but Digi sees potential.

Q: Customer ordering patterns, verticals strength/weakness?

A: Ordering patterns stabilized, maybe modestly improved; key suppliers cite industrial and automotive weaknesses but Juniper's print favorable; verticals diverse, good demand in data centers, medical devices, remote machine connectivity, utilities.

Q: ARR growth across segments, attach rates?

A: Seeing good ARR growth across segments; over 50% attach rates on key products, trending higher in certain segments, optimistic about continued increase in attach rates with new solution packages in Opengear business.