Digi International Inc M&A announcement

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 Konezny, our President and CEO. We issued the Disruptive Technologies acquisition press release before the U.S. market opened today. 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 questions. 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 factors 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 Fossum Færevaag in 2013 and headquartered in Oslo, Norway, Disruptive Technologies is a pioneer in wireless sensing. When scaling sensor-based solutions, deploying and operating the 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 deployments with 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. SmartSense helps customers turn data into action through analytics and AI. Disruptive Technologies strengthens this foundation and that solution.

Better and more expansive sensing integrated with SmartSense's leading application and AI solutions will allow SmartSense 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. 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 to 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 will stay disciplined on paying that debt down. Based on our updated fiscal guidance of 2026 provided on August 5th, this transaction adds under a 1x lever to our gross outstanding debt balance. To the extent the transaction is closed, we will pull Disruptive's contributions into our fiscal 2027 guidance at that time.

As you will see on slide five 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 by Digi. Customers will benefit from more and higher quality data, easily deployed, scaled, and maintained. We are thrilled to have Erik and his talented team join the Digi family, and we look forward to integrating the Disruptive Technologies and SmartSense by Digi teams to deliver greater outcomes for our customers. We will now take your questions.