DGII 10-K & 10-Q changes, risk factors and insider trading

We procure all parts and certain services involved in the production of our products and subcontract most of our product manufacturing to outside firms that specialize in such services. Although most of the components of our products are available from multiple vendors, we have several single-source supplier relationships, either because alternative sources are not available or because the relationship is advantageous to us. As an example, Ventus relies almost exclusively on a manufacturer in China for the production of the hardware it provides to its customers. Further, in recent years supply chains globally have experienced stress due to a range of factors. This has impacted our own ability to procure certain inventory and services. These disruptions also caused us to order significant amounts of inventory as we were uncertain whether we would otherwise be able to procure necessary parts and components to meet customer needs. As a result, at times we held elevated levels of inventory compared to historical norms. The impacts of these circumstances driven by supply chain stress were material in some instances and it is possible additional material impacts could occur in the future. There can be no assurance that our suppliers will be able to meet our future requirements for products and components in a timely fashion. In addition, the availability of many of the components we need is dependent in part on our ability to provide our suppliers with accurate forecasts of our future requirements. Delays or lost revenue could be caused by other factors beyond our control, including late deliveries by vendors of components, or force majeure events. As an example of force majeure, a fire inmany Novemberyears 2014ago disrupted the operations at one of our contract manufacturers in Thailand. If we are required to identify alternative suppliers for any of our required components, qualification and pre-production periods could be lengthy and may cause an increase in component costs and delays in providing products to customers. Any extended interruption in the supply of any of the key components or the availability of manufacturing services that currently are obtained from limited sources could disrupt our operations and have a material adverse effect on our customer relationships and profitability.

We participate in a services and solutions model that uses both hardware and cloud-based services. Both our SmartSense by Digi and Ventus offerings as well as our Digi 360 and Digi LifeCycle Assurance offerings deploy hardware, software and cloud-based hosting. In other areas of our business, we offer hosted services and cloud-based platform, software applications, and supporting products and services. We also employ significant human and financial resources to develop and deploy these offerings. As we work to grow and scale these offerings, these investments have impacted previously and may impact adversely in the future our grossoperating margins and profitability. While we believe we have a strong foundation to compete, it is uncertain whether our strategies will attract the users or generate the revenue required to be successful. In the past, certain customers and potential customers that use these offerings were adversely impacted by the Covid-19 pandemic and the resulting global economic downturn. Any future economic slowdown could impede our ability to win and retain customers. We have and expect to encounter competition from other solutions providers, some of whom may have more significant resources than us. Whether we are successful in this business model depends on a number of factors, including:

The combined SmartSense by Digi / Jolt product line is operated in an emerging market where technology-based solutions tosuch monitoras the monitoring of the condition of perishable goods as well as the completion of employee tasks have not been used historically. Similarly, our Ventus business is operating in an evolving marketplace where the breadth of companies with collections of assets that require connectivity and general monitoring is evolving. The operation of each of these businesses can therefore be subject to significant additional risks that are not necessarily related to our more established products and services.

•SmartSense by Digi / Jolt offerings are deployed in part to help assure perishable goods are safely preserved.preserved and that necessary operating tasks are completed timely. Ventus's offering is deployed so that dispersed collections of critical, operational assets requiring network connectivity (such as ATMs, lottery terminals, etc.) are fully operational. In each case, there is a potential risk of loss in the event of a malfunction or failure in our offerings.

•The SmartSense by Digi / Jolt product line has a limited history with us in a marketplace that is relatively early in its development and has numerous competitors. Although Ventus has a longer operating history and some of the marketplaces in which it operates are quite mature, new use cases continue to emerge as businesses increasingly rely on self-service devices in their operations with customers. We cannot provide assurances we will be successful in operating and continuing to grow either of these businesses.

In light of these risks and uncertainties, we may not be able to establish or maintain the market share of these businesses or take full advantage of businesses we may acquire in the future related to either of these businesses. There can be no assurance that we will recover our investments in SmartSense by Digi / Jolt or Ventus or that we will realize ongoing and consistent profits from these businesses. Also, there can be no assurance that diverting our management’s attention to these businesses will not have a material adverse effect on our other existing businesses, any of which may have a material adverse effect on our results of operations, financial condition and prospects.

We also rely on cloud-based technologies for our solutions, as well as our internal systems. As we continue to direct a substantial portion of our sales and development efforts toward broader based solutions, such as SmartSense by Digi,Digi / Jolt, the Digi Remote Manager and Ventus offerings, we expect to store, convey and potentially process significant amounts of data produced by devices. We have completed a number of acquisitions in recent years and have inherited a range of different systems that store, convey and potentially process data and, in some cases, we may be delayed or choose not to integrate these systems into similar systems used in other parts of our business. Further, many of our business applications that we rely upon to operate our business now exist within cloud platforms that are managed by third parties. These factors may add to the risk of breach by third parties.

Issues related to the use of artificial intelligence may result in regulatory or legal action, damage our reputation, or harm our business.

We purchase many components from suppliers in other parts of the world. Product delivery times may be extended due to the distances involved or events beyond our control, requiring more lead time in ordering. In addition, ocean freight delays may occur as a result of labor problems, weather delays, expediting orders for third parties, customs issues, geopolitical tensions, or other events beyond our control. Any extended delay in receipt of the component parts could eliminate anticipated cost savings and have a material adverse effect on our customer relationships and profitability. Governments continue to impose tariffs on various products and components which may impact the pricing of certain components and inventories and could have a material adverse effect on our competitive standing in the marketplace and our financial results. Potential power outages, most notably in recent times in Asia and Europe could also have a material adverse effect ability to obtain components for our products from our foreign suppliers. Additional challenges could occur if these suppliers allocate materials and components to other customers. The Chinese government in recent years has implemented policies that adversely have impacted various industries in that nation, and it is possible they may take actions in the future that are adverse to suppliers who we rely upon. Sanctions against and actions of the Russian government resulting from the war in Ukraine may be adverse to suppliers who we rely upon. The conflictTensions in the Middle EastEast, in light of ongoing conflicts in the region since the October 7, 2023 attack on Israel may cause shipping disruptions and increased transport costs that could have a material adverse effect on our ability to obtain components from our foreign suppliers and our financial results. Finally, the introduction of new regulations by governments may also impact the availability, delivery or certain components or our ability to use certain components because of, among other potential reasons, the materials those components may contain or the location of the supplier of the component or certain materials contained in the component.

Our dependence on new product development and thedevelopment, rapid technological change that characterizes our industry make us susceptible to loss of market share resulting fromchange, competitors’ product introductions and enhancements, service capabilities and similar risks as well as from regulatory changes.changes make us susceptible to potential fluctuations in demand or loss of market share for our products.

Our industry is characterized by rapidly changing technologies, evolving industry standards, frequent new product introductions, short product life cycles in certain instances and rapidly changing customer requirements. One example of new technology that could impact the markets in which we sell products and customer requirements could be the introduction of artificial intelligence features into products or solutions offerings. The introduction of products and enhancements embodying new technologiestechnologies, thatwhether via competitors’ products or just changes in markets where we sell products because of other changes in technology more generally, can disrupt one or more markets in which we competecompete. andIn addition, the emergence of new or changed industry standards or regulations impacting our industry can also cause demand for our products to fluctuate or render existingour products obsolete or unmarketable.

Our future success will depend on our ability to enhance our existing products, to introduce new products to meet changing customer requirements and emerging technologies as well as potential regulatory changes, and to demonstrate the performance advantages and cost-effectiveness of our products over competing products. This could be impacted not only by the features we offer in our products, but also by our ability to operate efficiently relative to those with whom we compete. For instance, if competitors with more resources than us are able to deploy efficiency enhancements into their operations more quickly than us (whether via significant investments in artificial intelligence or otherwise) they may be better positioned than us to more quickly enhance existing products or introduce new products that meet customer requirements or market demands. Failure by us to modify our products to support new alternative technologies or failure to achieve widespread customer acceptance of such modified products could cause us to lose market share and cause our revenue to decline. Further, if our competitors offer better service capabilities associated with the implementation and use of their products, our business could be impacted negatively.

We may experience delays in developing and marketing product enhancements or new products that respond to technological change, evolving industry standards or regulations and changing customer requirements. There can be no assurance that we will not experience difficulties that could delay or prevent the successful development, introduction, and marketing of these products or product enhancements, or that our new products and product enhancements will meet the requirements of the marketplace adequately and achieve any significant or sustainable degree of market acceptance in existing or additional markets. Further, demand for products can fluctuate because of changes in technology generally which could also impact our sales of products. In addition, the future introductions or announcements of products by us or one of our competitors embodying new technologies or changes in industry standards or regulations or customer requirements could render our then-existing products obsolete or unmarketable. This risk may become more pronounced as new competitors emerge in markets where we sell our products, especially if these competitors have more resources than us to develop and market new products and technologies and provide related services. There can be no assurance that the introduction or announcement of new technologies into markets where we sell products or the introduction or announcement of product offerings by us or one or more of our competitors will not cause customers to defer their purchase of our existing products, which could cause our revenue to decline.

No single customer has represented more than 10% of our revenue in any of the last three fiscal years. However, manyMany of our customers make significant one-time hardware purchases for large projects that are not repeated. As a result, our revenue may be subject to significant fluctuations based on whether we are able to close significant project-based sales opportunities. In addition, in our SmartSense by Digi / Jolt and Ventus businessesproduct lines certain customers have outsized deployments relative to other customers. It is possible we will see revenue fluctuations in these businesses based upon the scale of new deployments in different financial periods. Our failure to complete one or a series of significant sales opportunities in a particular fiscal period could have a material adverse effect on our revenue for that period.

Our revenue could decline if we are unable to deliver continued access to digital cellular wireless carriers that we depend on to provide sufficient network capacity, reliability and security to our customers. Our financial condition could be impacted if our wireless carriers increase the prices of their services or suffer operational or technical failures. In addition, certain Digi products operate on radio bands licensed by the Federal Communications Commission ("FCC"), and any changes to these band configurations or licensing rules could affect product functionality, marketability, or regulatory compliance that could materially affect our business and financial results in an adverse manner.

Certain of our components and other materials used in producing our products are from regions susceptible to natural disasters or other events beyond our control, such as the Covid-19 pandemic that was highly disruptive to businesses during the last few years or the ongoing wars in Ukraine and the Middle East. These and other events beyond our control can adversely impact our supply chains and our business. If we are unable to procure necessary materials, we could experience a disruption to our supply chain that would hinder our ability to produce our products in a timely manner. It also could cause us to seek other sources of supply which may be more costly or which we may not be able to procure on a timely basis. We also risk damage to any tooling, equipment or inventory at the supplier’s facilities. For instance, flooding in October 2011 and a fire in November 2014 disrupted the operations at one of our contract manufacturers in Thailand. In addition, our customers may not follow their normal purchasing patterns or temporarily cease purchasing from us due to impacts to their businesses in the region, creating unexpected fluctuations or decreases in our revenue and profitability. Natural disasters, wars and other events beyond our control could have material adverse impacts on our business.

This discussion contains forward-looking statements that are based on management’s current expectations and assumptions. These statements often can be identified by the use of forward-looking terminology such as "assume," "believe," "continue," "estimate," "expect," "intend," "may," "plan," "potential," "project," "should," or "will" or the negative thereof or other variations thereon or similar terminology. Among other items, these statements relate to expectations of the business environment in which Digi operates, projections of future performance, including but not limited to expectations regarding the Company’s profitability and net cash position, inventory levels, supply chain normalization, perceived marketplace opportunities, debt repayments, attributions of potential acquisitions and statements regarding our mission and vision. Such statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions. Among others, these include risks related to our ability to realize synergies and operating benefits from acquisitions, like our recent acquisition of Jolt completed in August 2025, ongoing and varying inflationary and deflationary pressures around the world and the monetary and trade policies of governments globally as well as present and ongoing concerns about a potential recession, the potential for longer than expected sales cycles, the ability of companies like us to operate a global business in such conditions as well as negative effects on product demand and the financial solvency of customers and suppliers in such conditions, risks related to ongoing supply chain challenges that continue to impact businesses globally, regulatory risks that include, but are not limited to, the potential expansion of tariffs and potential changes to regulations impacting the functionality or compliance of our products, risks related to cybersecurity, data breaches and data privacy, risks arising from themilitary presentconflicts warssuch as those in Ukraine and the Middle East, the highly competitive market in which ourwe company operates,operate, rapid changes in technologies that may displace products sold by us, declining prices of networking products, our reliance on distributors and other third parties to sell our products, the potential for significant purchase orders to be canceled or changed, delays in product development efforts, uncertainty in user acceptance of our products, the ability to integrate our products and services with those of other parties in a commercially accepted manner, potential liabilities that can arise if any of our products have design or manufacturing defects, our ability to integrate and realize the expected benefits of acquisitions, our ability to defend or settle satisfactorily any litigation, the impact of natural disasters and other events beyond our control that could negatively impact our supply chain and customers, potential unintended consequences associated with restructuring, reorganizations or other similar business initiatives that may impact our ability to retain important employees or otherwise impact our operations in unintended and adverse ways, and changes in our level of revenue or profitability which can fluctuate for many reasons beyond our control.

These and other risks, uncertainties and assumptions identified from time to time in our filings with the United States Securities and Exchange Commission, including without limitation, those set forth in Item 1A, Risk Factors, of this Annual Report on Form 10-K, subsequent filings on Form 10-Q and other filings, could cause our actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. Many of such factors are beyond our ability to control or predict. These forward-looking statements speak only as of the date for which they are made. WeExcept to the extent required by law, we do not undertake, and expressly disclaim any intent or obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

During fiscal 20242025 we delivered on these objectives by increasing ARR by 9%31% from the end of fiscal 20232024 to the end of fiscal 2024.2025. This included an increase of 9%33% in our Products and Services business segment and 10%30% in our Solutions business segment. Our acquisition of Jolt completed in August 2025 was a significant contributor to this increase.

We utilize many financial, operational, and other metrics to evaluate our financial condition and financial performance. Below we highlight the metrics for fiscal 20242025 that we feelbelieve are most important in these evaluations, with comparisons to fiscal 20232024:

•RevenueConsolidated revenue was $424$430 million, aan decreaseincrease of 5%.1%.

•AdjustedConsolidated EBITDAgross profit was $98$271 million,million an increase of 2%.8%.

•ARRConsolidated operating income was over $116$56 million at the end of the fiscal year, an increase of 9%.17%.

In addition, to the above macro conditions, weWe believe the following trends will continue to impact our business in fiscal 20252026 and beyond:

•As recurring revenue from subscription and cloud monitoring services becomes a greater portion of our overall revenue, delivering at higher grossoperating margins rates than one-time revenue, we expect grossoperating margin rates to expand.

The following table sets forth selected information derived from our consolidated statements of operations, expressed as a percentage of revenue and as a percentage of change from year-to-year for the years indicatedoperations:

IoT Products & Services revenue decreased 6.1%2.0% for fiscal 2024,2025, as compared to fiscal 2023.2024. The decrease consisted of a $24.7$11.5 million decline in productone-time sales volume,sales, with no material impact from pricing. The decreaseThis was driven by lower demand for some products,products,in aspart attributable to some customers bled downreducing inventory stockpiled from when supply chains were stressed,stressed. asThis well as certain prior year project-based sales not reoccurring. The declinedecrease was partially offset by $3.5increased demand for some products from new project-based customer initiatives, including among others, significant demand from data center build outs. The decrease also was partially offset by $4.9 million of servicerecurring revenue growth.growth across our offerings.

IoT Solutions revenue increased 0.4%12.8% for fiscal 2024,2025, as compared to fiscal 2023.2024. The increase consisted of a $5.6$11.2 million increase in recurring revenuerevenue, offsetdriven by growth in both SmartSense® and Ventus and the addition of Jolt. There was also a $3.2$1.5 million decreaseincrease in oneone-time timesales servicesdriven volumeby growth in both SmartSense and aVentus $2.0 million decrease in hardware sales. These results reflect some customers reducingand the scopeaddition of their operations and others electing to make new deployments by obtaining hardware under a subscription contract versus purchasing hardware and obtaining only services under subscription.Jolt.

ARR was $152 million as of September 30, 2025, compared to $116 million as of September 30, 2024, compared to $106 million as of September 30, 2023.2024. IoT Products & Services ARR was $32 million as of September 30, 2025, compared to $24 million as of September 30, 2024, compared to $22 million as of September 30, 2023.2024. This increase was due to growth in the subscription base across remote management platforms and extended warranty offerings.offerings, as attach rates increased. IoT Solutions ARR was $120 million as of September 30, 2025, compared to $92 million as of September 30, 2024, compareddriven toprimarily $84by millionthe acquisition of Jolt, as ofwell September 30, 2023, driven byas growth in both SmartSense and Ventus.

COST OF GOODS SOLD AND GROSS PROFIT BY SEGMENT

The IoT Solutions grossGross profit margin of 62.9% increased 820400 basis points for fiscal 20242025 as compared to the prior fiscal year. This increase was the result of growth in higherfavorable margin ARR subscription revenues, favorable mix within oneproduct time volumesales and a reductionhigher inproportion inventoryof adjustments.volume from recurring revenue, which has a higher margin.

The $0.3$12.6 million decreaseincrease in operating expenses in fiscal 20242025 from fiscal 20232024 was thedue result ofto a $3.9$11.8 decreasemillion increase in labor expense, a $4.6 million increase in non-labor expense and a $2.1$1.9 million gaindecrease in gains on the sale of an intangible asset,assets, partially offset by a $5.7 million litigation reserve increase toin litigationfiscal reserves.2024 that did not reoccur. These variances include the incremental operating expenses from the Jolt acquisition.

The $0.1$18.9 million increasedecrease in other expense in fiscal 20242025 from fiscal 20232024 was driven by thea $9.7write-off millionof debt issuance costcosts in 2024 and a reduction in interest expense realizeddue upon the extinguishment of our prior credit facility partially offset byto a decrease in our average debt outstanding and our effective interest rate on debt(see Note 6 to the condensed consolidated financial statements for additional information).

Our effective income tax expense (benefit) rates were 1.5%,18.3%, 0.6%1.5% and (4.1)%0.6% for fiscal 2024,2025, 20232024 and 2022,2023, respectively. The increase from fiscal 2024 to 2025 was a result of an increase in pre-tax earnings, on-time tax effects of the Jolt acquisition completed in the fourth fiscal quarter of 2025 and a change in the tax credits estimate. Our effective tax rate will vary based on a variety of factors. These include our overall profitability, the geographical mix of income before taxes and related statutory tax rate in each jurisdiction, and discrete events, such as settlement of audits (see Note 10 to our consolidated financial statements).

Below are reconciliations from GAAP to Non-GAAP information that we feelbelieve is important to our business:

•a $9.7$18.3 million debt issuance cost write-off includedincrease in net income in fiscal 2024,2025,

•a $2.2 million increasedecrease in proceeds from the sale of property, equipment, improvements and certain other intangible assets

•and a $2.1$0.4 million decreaseincrease in purchases of property, equipment, improvements and certain other intangible assets.

Cash flows from financing activities decreasedincreased $54.5$123.7 million as a result of:

•and a $1.0$0.5 million decreaseincrease in proceeds from stock option exercises and employee stock purchase plan transactions.

This report contains "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995, and within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on management’s current expectations and assumptions. These statements often can be identified by the use of forward-looking terminology such as "assume," "believe," "continue," "estimate," "expect," "intend," "may," "remain," "plan," "potential," "project," "should," or "will" or the negative thereof or other variations thereon or similar terminology. Among other items, these statements relate to expectations of the business environment in which Digi operates, projections of future performance, including but not limited to expectations regarding the Company’s profitability and net cash position, inventory levels, supply chain normalization, perceived marketplace opportunities, debt repayments, attributions of actual or potential acquisitions and statements regarding our mission and vision. Such statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions. Among others, these include risks related to our ability to realize synergies and operating benefits from acquisitions,completed acquisitions (like our recent acquisitions of Jolt completed in August 2025, and Particle completed in January 2026,2026), ongoing and varying inflationary and deflationary pressures around the world and the monetarymonetary, fiscal and trade policies of governments globally as well as present and ongoing concerns about a potential recession,economic slowdown, the potential for longer than expected sales cycles, the ability of companies like us to operate a global business in such conditions as well as negative effects on product demand and the financial solvency of customers and suppliers in such conditions, risks related to ongoing supply chain challenges that continue to impact businesses globally,challenges, regulatory risks that include, but are not limited to, the potential expansion of tariffs and potential changes to regulations impacting the functionality or compliance of our products, risks related to cybersecurity, data breaches and data privacy, risks arising from military conflicts such as those in Ukraine andUkraine, the Middle East,East,and geopolitical tensions including those involving China and Taiwan, the highly competitive market in which we operate, rapid changes in technologies that may displace products sold by us, declining prices of networking products, our reliance on distributors and other third parties to sell our products, the potential for significant purchase orders to be canceled or changed, delays in product development efforts, uncertainty in user acceptance of our products, the ability to integrate our products and services with those of other parties in a commercially accepted manner, potential liabilities that can arise if any of our products have design or manufacturing defects, our ability to defend or settle satisfactorily any litigation, the impact of natural disasters and other events beyond our control that could negatively impact our supply chain and customers, potential unintended consequences associated with restructuring, reorganizations or other similar business initiatives that may impact our ability to retain important employees or otherwise impact our operations in unintended and adverse ways, and changes in our level of revenue or profitability which can fluctuate for many reasons beyond our control.

We utilize many financial, operational, and other metrics to evaluate our financial condition and financial performance. Below we highlight the metrics for the secondthird quarter of fiscal 2026 that we feel are most important in these evaluations, with comparisons to the secondthird quarter of fiscal 2025:

•Operating margin was 13.1%16.5%, inan bothincrease periods.of 260 basis points.

(1) Fiscal 2026 results include the results of Jolt Software, Inc. ("Jolt") for the full six-monthquarter and nine-month period and Particle Industries, Inc. ("Particle") following the January 2026 acquisition date. Fiscal 2025 results include Jolt for the period following the August acquisition date and do not include Particle.

ITEMMonetary 2.and MANAGEMENT'Sfiscal DISCUSSIONpolicies ANDcontinue ANALYSISto OFfluctuate FINANCIALglobally CONDITIONin ANDresponse RESULTSto OFinflationary OPERATIONSand (CONTINUED)deflationary pressures. These situations could all lead to potential adverse impacts on a wide range of businesses and could affect the businesses of our vendors and customers in ways that could harm our business. Due to the war in Ukraine, sanctions remain imposed on trade with Russia and Belarus which has the potential to disrupt the supply of raw materials needed to make components. Political tensions between China and other nations have intensified, which could lead to similar issues. Additionally, the military conflict with Iran that began in late February has created volatility in both the price of oil and other commodities as well as shipping that has impacted our transportation costs.

IoT Products & Services revenue increased $15.8$19.8 million for the three months ended MarchJune 31,30, 2026, as compared to the same period in the prior fiscal year. This was driven by increased customer demand and consisted of a $10.3$12.4 million increase in one-time sales and $5.5$7.4 million of recurring revenue growth, with no material impact from pricing. TheseA increasessignificant weremajority of the increase in revenue was driven largely by organic growth, with a contributiongrowth from increased customer demand and supported by the Particle acquisition.

IoT Products & Services revenue increased $24.4$44.1 million for the sixnine months ended MarchJune 31,30, 2026, as compared to the same period in the prior fiscal year. This was driven by increased customer demand and consisted of a $16.6$29.0 million increase in one-time sales and $7.8$15.1 million of recurring revenue growth, with no material impact from pricing. TheseA increasessignificant weremajority of the increase in revenue was driven largely by organic growth, with a contributiongrowth from increased customer demand and supported by the Particle acquisition.

IoT Solutions revenue increased $10.4$11.4 million for the three months ended MarchJune 31,30, 2026, as compared to the same period in the prior fiscal year. The increase consisted of aan $7.8$8.9 million increase in recurring revenue and a $2.6$2.5 million increase in one-time sales, with the significant majority of both driven by the Jolt acquisition.

IoT Solutions revenue increased $20.5$31.9 million for the sixnine months ended MarchJune 31,30, 2026, as compared to the same period in the prior fiscal year. The increase consisted of a $15.5$24.4 million increase in recurring revenue and a $5.0$7.5 million increase in one-time sales, with the significant majority of both driven by the Jolt acquisition.

ARR was $184$191 million as of MarchJune 31,30, 2026, compared to $123$126 million as of MarchJune 31,30, 2025. IoT Products & Services ARR was $57$60 million as of MarchJune 31,30, 2026, compared to $28$30 million as of MarchJune 31,30, 2025. This increase was driven primarily by the acquisition of Particle and supported by growth in the subscription base across remote management platforms, extended warranty offerings and technical support. IoT Solutions ARR was $127$131 million as of MarchJune 31,30, 2026, compared to $95$96 million as of MarchJune 31,30, 2025, primarily driven by the acquisition of Jolt, as well as growth in our existing Solutions businesses.

Gross profit margin of 64.0%64.8% increased 190130 basis points in the secondthird quarter of fiscal 2026 as compared to secondthe third quarter of the prior fiscal year. This increase was the result of lowerheightened manufacturinginventory-related relatedcosts costs.in the prior year that did not repeat.

Gross profit margin of 63.2%63.8% increased 110120 basis points in the sixnine months ended MarchJune 31,30, 2026, as compared to the same period in the prior fiscal year. ThisThe majority of this increase was the result of heightened inventory-related costs in the prior year that did not repeat, with a higherlesser proportion of volumeimpact from recurringfavorable revenue,product whichmargin has a higher margin.mix.

The $15.4$13.7 million increase in operating expenses for the three months ended MarchJune 31,30, 2026, as compared to the same period in the prior fiscal year, was due to a $11.5$9.2 million increase in labor expense and a $4.0$4.5 million increase in non-labor expense. These increases were driven by incremental costs from Jolt and Particle, including an increase in amortization expense due to acquisition-related intangibles, and higher labor costs among existing employees.

The $24.4$38.1 million increase in operating expenses for the sixnine months ended MarchJune 31,30, 2026, as compared to the same period in the prior fiscal year, was due to a $16.2$25.4 million increase in labor expense and a $8.5$12.7 million increase in non-labor expense, partially offset by a $0.2 million in net gains on intangible asset sales.expense. These increases were driven by incremental costs from Jolt and Particle, including an increase in amortization expense due to acquisition-related intangibles, and higher labor costs among existing employees.

IoT Products & Services operating incomemargin increased 40160 basis points for the secondthird quarter of fiscal 2026, as compared to the secondthird quarter of fiscal 2025. This increase was due to lower manufacturing related costs, partially offset by an increase in amortization expense,primarily due to heightened inventory-related costs in the additionprior ofyear acquisition-relatedthat intangibles.did not repeat and improved operating expense efficiencies as volume expanded at a greater rate than operating expenses.

IoT Products & Services operating incomemargin wasincreased flat60 basis points for the sixnine months ended MarchJune 31,30, 2026, as compared to the same period in the prior fiscal year. This increase was due to heightened inventory-related costs in the resultprior ofyear athat higherdid proportionnot ofrepeat volumeand fromfavorable recurringproduct revenue,margin whichmix, has a higher margin,partially offset by an increase in amortization expense, due to the addition of acquisition-related intangibles.

IoT Solutions operating incomemargin decreasedincreased 80570 basis points for the secondthird quarter of fiscal 2026, as compared to the secondthird quarter of fiscal 2025. This decreaseincrease was the result of animproved increaseoperating inexpense amortizationefficiencies expense,as duevolume toexpanded theat additiona ofgreater acquisition-relatedrate intangibles.than operating expenses.

IoT Solutions operating incomemargin increased 140300 basis points for the sixnine months ended MarchJune 31,30, 2026, as compared to the same period in the prior fiscal year. This increase was the result of aimproved higheroperating proportionmargin ofefficiencies as volume fromexpanded recurring revenue, which hasat a highergreater margin,rate partiallythan offsetoperating by an increase in amortization expense, due to the addition of acquisition-related intangibles.expenses.

Other expense, net, increased for the three and sixnine months ended MarchJune 31,30, 2026, as compared to the same periods in the prior fiscal year due to increased interest expense, as the amount of outstanding debt increased due to the acquisition of Particle in the second quarter of fiscal 2026.

We understand that there are material limitations on the use of non-GAAP measures. Non-GAAP measures are not substitutes for GAAP measuresmeasures, such as net income, for the purpose of analyzing financial performance. The disclosure of these measures does not reflect all charges and gains that actually were recognized by Digi. These non-GAAP measures are not in accordance with, or,or an alternative for measures prepared in accordance withwith, GAAPgenerally accepted accounting principles and may be different from non-GAAP measures used by other companies or presented by us in prior reports. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. We believe that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP. We believe these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. Additionally, Adjusted EBITDA doesand Adjusted EBITDA Margin do not reflect our cash expenditures, the cash requirements for the replacement of depreciated and amortized assets, or changes in or cash requirements for our working capital needs. We believe that providing historical and adjusted net income and adjusted net income per diluted share, respectively, exclusive of such items as reversals of tax reserves, discrete tax benefits, restructuring charges and reversals, intangible amortization, stock-based compensation, other non-operating income/expense, adjustments to estimates of contingent consideration and acquisition-related expenses related to acquisition permits investors to compare results with prior periods that did not include these items. Management uses the aforementioned non-GAAP measures to monitor and evaluate ongoing operating results and trends and to gain an understanding of our comparative operating performance. In addition, certain of our stockholders have expressed an interest in seeing financial performance measures exclusive of the impact of these matters, which while important, are not central to the core operations of our business. Management believes that Adjusted EBITDA, defined as EBITDA adjusted for stock-based compensation expense, acquisition-related expenses, restructuring charges and reversals and changes in fair value of contingent consideration, is useful to investors to evaluate our core operating results and financial performance because it excludes items that are significant non-cash or non-recurring expenses reflected in the consolidated statements of operations. We believe that the presentation of Adjusted EBITDA as a percentage of revenue is useful to investors because it provides a reliable and consistent approach to measuring our performance from year to year and in assessing our performance against that of other companies. We believe this information helps compare operating results and corporate performance exclusive of the impact of our capital structure and the method by which assets were acquired.

(2)For the three and sixnine months ended MarchJune 31,30, 2026 and 2025, discrete tax benefits are a result of changes in excess tax benefits recognized on stock compensation.

Historically we have financed our operations and capital expenditures principally with funds generated from operations. In fiscal 2022 we issued debt to fund our acquisition of Ventus and in fiscal 2023 we extinguished the debt, replacing it with a revolving credit facility. We made draws on this credit facility to fund our acquisitions of Jolt in August 2025 and Particle in January 2026. Our liquidity requirements arise from our working capital needs, and, to a lesser extent, from our need to fund capital expenditures to support our current operations and facilitate growth and expansion.

Below our condensed consolidated statements of cash flows for the sixnine months ended MarchJune 31,30, 2026 and 2025 are summarized:

Cash flows from operating activities increased $21.1$30.5 million. This was largely driven by a $19.3 million decrease in net operating assets for the first half of fiscal 2026 compared to a $11.5 million increase in the first half of fiscal 2025, as well as a $4.9$11.4 million decrease in deferred income tax benefit in the first halfnine months of fiscal 20262026, primarily relating to accelerated utilization of tax assets caused by the One Big Beautiful Bill Act, compared to a small$2.5 million increase in the first halfnine months of fiscal 2025, a $4.9 million increase in depreciation, a $2.4$7.9 million increase in net incomeincome, a $7.1 million increase in theamortization first half of fiscal 2026expense and a smaller increasesincrease in stock based compensation expense and gains on sales of intangible assets.expense.

Cash flows used in financing activities decreased $38.6$31.7 million. This was driven by a $34.0 million draw on our revolving credit agreement to fund the acquisition of Particle, apartially smalloffset decreaseby an increase in debt payments in the first halfnine months of fiscal 2026 compared to the first halfnine months of fiscal 2025, and higher proceeds from stock option exercises and employee stock purchase plan transactions.2025.

The following table summarizes our contractual obligations at MarchJune 31,30, 2026:

The operating leases included above primarily relate to office space. The table above does not include possible payments for uncertain tax positions. Our reserve for uncertain tax positions, including accrued interest and penalties, was $0.2 million as of MarchJune 31,30, 2026. Due to the nature of the underlying liabilities and the extended time often needed to resolve income tax uncertainties, we cannot make reliable estimates of the amount or timing of future cash payments that may be required to settle these liabilities. The table above also does not include those obligations for royalties under license agreements as these royalties are calculated based on future sales of licensed products and we cannot make reliable estimates of the amount of cash payments.