Digi International Inc (DGII) October 2026 Conference Transcript

Good day, and thank you for standing by. Welcome to the Digi International, Inc. conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jamie Locke, CFO of Digi International. Please go ahead.

Hey, thank you, Michelle. Good day, everyone. Always great to talk to you. Thanks for joining us today to discuss Digi International's intention to acquire disruptive technologies. Joining me on today's call is Ron Knesny, our president and CEO. We issued the Disruptive Technologies Acquisition press release before the U.S. market opened You may obtain a copy of the press release and an investor deck through the financial releases section of our investor relations website at digi.com. Today, Ron will provide a few comments on the intended deal, and then we'll take your Some of the statements that we make during this call are considered forward-looking and are subject to significant risks and uncertainties. These statements reflect our expectations about future operating and financial performance and speak only as of today's date. We undertake no obligation to update publicly or revise these forward-looking statements. While we believe the expectations reflected in our forward-looking statements are reasonable, we give no assurance such expectations will be met or that any of our forward-looking statements will prove to be correct. For additional information, please refer to the forward-looking statements section in our press release today and the risk factor section of our most recent Form 10-K and subsequent reports on file with the SEC. Now I'll turn the call over to Ron.

Good morning and thank you for joining us. Earlier today, we announced our agreement to acquire Disruptive Technologies. Founded and led by Erik Fasem-Feribald in 2013 and headquartered in Oslo, Norway, Disruptive Technologies is a pioneer in wireless sensing. When scaling sensor-based solutions, deploying an operating solution can discourage adoption and ROI. batteries die and someone needs to replace the sensor slowly turning the deployment into a maintenance project customers want more sensing more data without worrying about the maintenance burden most solutions use standard radios and chipsets and attempt to optimize around them disruptive technologies didn't assemble this from off-the-shelf parts they designed the system silicon up the company created an ASIC and its own wireless protocol purpose-built for a broad array of sensing in an incredibly small form factor with extremely low power consumption this is world-class technology that has been proven in real world deployment over 250,000 sensors installed this unique and proprietary solution lets customers place sensors in locations that used to be impractical and then stop worrying about them. Their teams can spend more time acting on insights rather than on technology. Because the architecture is so efficient, customers need less infrastructure behind each sensor. That lowers the cost and complexity of going from pilot to full deployment, which is where many IoT projects can stall. The total cost of ownership changes, and customers get quicker time to value. smart sense helps customers turn data into action through analytics and AI disruptive technology strengthens this foundation and that solution better and more expansive sensing integrated with smart senses leading application and AI solutions will allow smart sense customers to spend more time using data to deliver on their mission critical objectives disruptive technologies has been growing fast relying on a more traditional value proposition of one-time sensor sales and a separate software subscription the integration with SmartSense will include technology processes organizations and go to market moving to SmartSense's value proposition combining sensors and software into a single subscription this combination also brings new markets like building automation and occupancy, and extends SmartSense into new geographies across Europe. Now I'll turn over the call to Jamie for some financial details.

Yeah, thanks, Ron. What an exciting day for Digi. While we're announcing the signing of the agreement, there is regulatory approval required for close. We currently expect that approval before the end of calendar 2026. Once approved, we'll be integrating Disruptive with our SmartSense business and its results will be reported in our IoT solutions business segment. As we've discussed, our model here at Digi is to generate cash, pay down debt, and use that capacity to invest in growth. We're funding this transaction through our existing credit facility, and we'll stay disciplined on paying that debt down. Based on our updated fiscal guidance of 2026 provided on August 5th, this transaction adds under a one-times lever to our gross outstanding debt balance. To the extent the transaction is closed, we will fold Disruptive's contributions into our fiscal 2027 guidance at that time. As you will see on slide 5 of our presentation posted to our investor website, for calendar 2025, Disruptive generated $15 million in revenue and had $4 million in ARR. We will be focused on the integration of our teams, processes, systems, and manufacturing in fiscal 2027, with the benefits of that integration to deliver an incremental $9 million of adjusted EBITDA and free cash flow in fiscal 2028. Ron, any final remarks?

Thanks, Jamie. We couldn't be more excited to add the Disruptive Technologies team and solution to Digi. Disruptive Technologies brings proprietary technology further differentiating SmartSense. Customers will benefit from more and higher quality data easily deployed, scaled, and maintained. We are thrilled to have Eric and his talented team join the Digi family. And we look forward to integrating the Disruptive Technologies and SmartSense teams to deliver greater outcomes. We will now take your questions.

Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment while we compile our Q&A roster. Our first question is going to come from the line of Tommy Moll with Steve. Your line is open. Please go ahead.

Good morning, and thank you for taking my questions. Morning, Tommy. Morning, Tommy. So in the slides, you referenced some profit synergy opportunity here, And I'm curious if you had to rank order the opportunities. Is the bigger opportunity pulling more SmartSense sales into Europe or pulling more disruptive technology sales into the U.S.? Or maybe something I haven't mentioned.

Yeah, great question. We do think there are three levers. One, I think, first and foremost, is really expanding and growing faster. That starts in North America, where we have our greatest ends over to Europe, where there's a lot of existing relationships that disruptive technologies have in place. As you know, in Europe, it's more country by country. So those growth rates can be uneven depending upon the country you're in. And we're excited about entering new markets. That's the third level, is this building automation and occupancy. We now have a broader array of sensors. We have motion sensors, tactile sensors, CO2 sensors, and things that we don't do today in SmartSense that unlock these new markets.

Yep. And maybe, Ron, on the building automation and monitoring front, are there specific verticals where disruptive technology is particularly strong? You know, Class A office or industrial or medical, can you give us a sense of where they participate currently?

Yeah, it's more in the traditional office space as well as to a lesser extent manufacturing.

All right, great. Thank you. I'll turn it back.

Thank you. And one moment for our next question. Our next question is going to come from the line of James Fish with Piper Sandler. Your line is open. Please go ahead.

Hey, guys. Nice announcement here this morning. You know, what, obviously $15 million in revenue today, $4 million in ARR, I understand the business model here, but, you know, what is it actually roughly growing this calendar year, just so we have a sense as we start to think about 2027's impact for you guys, and more specifically as well on that profit synergy side, how do you, can you just kind of walk us through how you get to kind of $9 million between some of the integration efforts that you're working on, whether it's, you know, go-to-market side or on the cost side.

Hey, thanks for joining the call. Really appreciate it, James. As I mentioned in my comments, they've been growing fast, you know, well into double digits, a little bit more one-time oriented because most of their sales are really selling sensors. And as you know, with DIGI, we're an ARR-focused machine, and so we really want to incorporate the sensors. And we're seeing more of that in calendar 26, where that top line is growing fast. But we'd like to see that. That's why we wanted to specifically call that out, because as you know at DIGI, we're much more about growing ARR, avoiding as much as possible that one-time sale. And over time, you could see that top line really not growing as fast because we're going to be burying that one-time cost into the subscription, and ARR will be the primary driver.

Got it. Go ahead, Jamie.

I was just going to answer the second part of your question, Fish. In terms of achieving synergies, it probably scales a little bit more to the cost side. There's really an economies of scale that the combination brings together in terms of R&D, in terms of manufacturing, in terms of blending the go-to-market together. I do think there's opportunities that we're looking at where you are seeing some top-line synergy, but it probably leans a little bit more to the scale that you can get by bringing the two organizations together from that manufacturing and R&D perspective.

Makes sense. And, Ron, maybe just going back to what you said and making sure we're thinking about it right. So there is going to be a business model change for disruptive where we move towards recurring or more like a hardware rental, and so is there a way to think about how long that sort of business model change for disruptive could kind of take and what that recurring mix would look like relative to the one-time hardware sale?

Yeah, it's a really good question. As Jamie mentioned, we think fiscal 27 is going to be this real integration focus, and there's technology, there's manufacturing process. of course, the teams as well. And, you know, disruptive technologies, like a lot of younger companies, relied on that one-time revenue, you know, to fund the business. They also have a number of channel relationships in place that are more centered around that one-time sensor sale. And so that's one of the reasons why this integration will take us in 27. It's not just about the internal combination, but it's also working with and together with these channel partners that have been established that are wonderful relationships that Disruptive Technologies has in place. But we need to work with them to transition these models as well, not just internally. What you'll envision is this will be a single solution sold. It won't be like, well, you either buy Disruptive or you buy SmartSense. You are buying a SmartSense solution of which Disruptive Technologies will be a key part of powering that solution. Thanks, guys.

As a reminder, to ask a question, please press star 11 on your telephone. We have a follow-up question from the line of Tommy Mon with Stevens. Your line is open. Please go ahead.

Thanks for letting me back in. Noted you're not going to give too much granularity on 27 but I just wanted to ask on an EBITDA line can you can you discuss are we in the red are we in the black for 27 and on earnings per share are we on the accretive side or dilutive side? We don't have to have the exact sizing, but just anything you can give us before you have to guide to this here pretty soon would be appreciated. Thank you.

Yeah, Tommy, obviously we're not going to say a whole lot with 27 guidance not being out there. I think it's safe to say that there will be some accretion, but beyond that, I wouldn't be comfortable really commenting.

That's, just to clarify, that's accretion at the EPS line, Jamie? Yeah, that's right. Okay, thank you.

Thank you, and I'm showing no further questions at this time, and I would like to hand the conference back over to CEO Ron Konezny for closing remarks.

Hey, again, thank you for joining our call this morning. We are so excited about this unique proprietary solution, Disruptive Technologies, and their wonderful team brings to the SmartSense value proposition. This will be the second acquisition of 18 months within the SmartSense team, and it shows that commitment and investment to a market we think is just at the beginning of its evolution here, and that Digi can be really the leader in this technology. So thank you again for joining us on this call today.

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.