Digi International Inc.

Thank you for standing by and welcome to DG International Inc. Q3 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. Thank you. I would now like to turn the conference over to Jamie Locke, CFO. Please go ahead.

Thank you. Good day, everyone. It's great to talk to you again, and thanks for joining us today to discuss the earnings results of Digi International. Joining me on today's call is Ron Konesny, our president and CEO. We issued our earnings release after the market closed today. You may obtain a copy of the press release through the financial releases section of our investor relations website at digi.com. This afternoon, Ron will provide a comment on our performance, 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 statement section in our earnings release today and the risk factor section of our most recent form 10-K and subsequent reports on file with the SEC. Finally, certain of the financial information disclosed on this call includes non-GAAP measures. The information required to be disclosed about these measures, including reconciliations to the most comparable GAAP measures, are included in the earnings release. The earnings release is also furnished as an exhibit to form 8K that can be accessed through the SEC filing sections of our investor relations website. Now I'll turn the call over to Ron.

Thank you, Jamie. Good afternoon, everyone. Before we open the line for questions, I'd like to share a few highlights from our third fiscal quarter. Digi delivered a strong quarter returning to year-over-year revenue growth. annual recurring revenue through double digits year-over-year for the third consecutive quarter. ARR now represents a new record of approximately 30% of our trailing 12-month revenues. Importantly, both of our reporting segments contributed to this growth. Our tailored IoT solutions make it simpler and faster for customers to deploy intelligent and cloud-connected edge solutions. Our solutions enable remote monitoring, improve machine uptime, and deliver actionable analytics, which produce rapid ROI for our customers. This value proposition is resonating across industries and applications. Profitability improved, driven by ARR, and favorable product mix. partially offset by increased freight and duties costs. Adjusted EBITDA margins hit a record 25.6%. We expect ARR and profit growth to increasingly outpace revenue growth as our model scales. Free cash flow generation is a hallmark of our fiscal 2025 performance. Our results were driven by discipline operations, increased productivity from our AI initiatives, and continued inventory optimization. After retiring $30 million in debt this quarter, we now stand at $20 million in net debt and remain on track to be net cash positive by the end of our fiscal 2025. Our CapEx Lite model delivers a 9% free cash flow yield, underscoring the efficiency of our business. Strategic acquisitions remain a top priority we continue to evaluate opportunities that align with our ARR, growth, and scale objectives. Looking ahead to the final quarter of our fiscal 2025, our outlook assumes a dynamic macro environment. Digi's 40-year legacy demonstrates our ability to adapt and to thrive. Our diversified global supply chain positions us to respond quickly when needed, while maintaining a long-term focus. on our customer's success. I'll now turn the call back to the operator for Q&A.