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February 16, 2024

VIA EDGAR

U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Technology
100 F Street, NE
Washington, D.C. 20549
Attention:    Dave Edgar

Re:    Digi International Inc.
Form 10-K for the fiscal year ended September 30, 2023
Form 8-K furnished on January 31, 2024
File No. 001-34033

Ladies and Gentlemen:

Set forth below is the response of Digi International Inc. (“we”, “us”, “our” or “Digi”) to the comments raised by the staff (the “Staff”) of the U.S. Securities and Exchange Commission (the “Commission”) in a letter to us dated February 2, 2024 (the “Comment Letter”).  For your convenience, the text of the comment in the Comment Letter has been duplicated in bold type to precede our response.

Form 10-K for the fiscal year ended September 30, 2023

Management's Discussion and Analysis of Financial Condition and Results of Operations

Consolidated Results of Operations, page 23

1.You state that the increase in IoT Products and Services revenue in fiscal 2023 was

primarily due to the growth in sales volume for both your OEM and Infrastructure product lines. In addition, you attribute the growth in the IoT Solutions revenue to both your SmartSense by Digi and Ventus offerings, as well as the Ventus acquisition. Where two or more factors contribute to a material change in revenue or expenses from period-to period, including any offsetting factors, please revise to include a quantitative discussion of such factors. Also, avoid using vague terms such as "primarily" in favor of specific quantification. Similar revisions should be made to your discussion of operating expenses along with a separate discussion of any material change in each individual expense line item. Refer to Item 303(b) of Regulation S-K.

We respectfully acknowledge the Staff’s comment and note that our revenue can be impacted by changes in the volume of units sold, by the amount of services under contract, as well as changes in our realized average selling price per unit sold.

In each case, while our discussion focused on the material drivers only by operating segment, we will revisit future disclosures commencing with our fiscal Q2 Form 10-Q (for the period ending March 31, 2024) to quantify more clearly any material changes in both volume and pricing, as well as a quantitative discussion when multiple factors contribute to a material change in accordance with Regulation S-K Item 303(b).

In addition, we will continue to assess and revise the disclosure in our future filings to include a quantitative discussion, to the extent applicable and reasonably practicable, of the factors, including any offsetting factors, that have contributed to a material change in a particular financial statement line item.

In future filings, commencing with the quarterly report on Form 10-Q for the quarter ended March 31, 2024, we will expand our discussion similar to the below example which uses data from our Form 10-K for the fiscal year ended September 30, 2023:

Revenue:

IoT Products & Services

IoT Products & Services revenue grew by $48 million, consisting of an approximately $44 million increase in product sales attributed to increased sales volume, with no material impact from pricing, from our OEM and Infrastructure Management product lines and $4 million in recurring revenue volume growth.

IoT Solutions

IoT Solutions revenue grew by approximately $9 million, consisting of a $10 million increase in recurring revenue, of which $5 million is the result of a full year of Ventus in 2023 as compared to 11 months in 2022 and $5 million resulting from increased solutions volume growth, partially offset by a $1 million decline in hardware sales.

Gross Profit:

IoT Products & Services

IoT Products and Services gross profit margin increased 60 basis points for fiscal 2023 as compared to the prior fiscal year. This increase was the result of a reduction in the price of component purchases due to eased inflationary pressures leading to an expansion of 66-basis points partially offset by write-downs of inventory that had a 6-basis point effect.

IoT Solutions

The IoT Solutions gross profit margin increased 290 basis points for fiscal 2023 as compared to the prior fiscal year. This increase was primarily the result of growth in higher margin ARR subscription revenues.

Operating Expenses

The $24.0 million increase in operating expenses in fiscal 2023 from fiscal 2022 was primarily the result of a $6.2 million gain in the fair value of contingent consideration in 2022 that did not repeat in 2023, a $4.7 million increase in stock-based compensation expense resulting from increased share price spread across sales and marketing, R&D, and G&A, and an approximately $10 million increase in sales and marketing expenses, focused on go-to-market strategies and largely concentrated in Console Servers and SmartSense by Digi.

Notes to Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies

Revenue Recognition, page 44

2.Please explain your reference to ASC 845 as it relates to estimated sales returns for your distributor stock rotation program and tell us what consideration was given to accounting for such returns as variable consideration pursuant to the guidance of ASC 606-10-32-5 to 32-10.

Our contracts with distributors include two discrete return and stock rotation features. The first such feature allows distribution customers to return certain inventory for future credits. The second allows distribution customers to exchange certain inventory for other inventory. We account for each as variable consideration in accordance with Accounting Standard Codification (“ASC”) 606-10-32-5 through 32-10. At the time of sale, we reduce the transaction price based on an estimate of the amount that we expect the customer to return in accordance with the terms of our distributor agreement. As such, in the future we will revise both our revenue recognition and accounts receivable policy disclosures to remove the reference to ACS 845 – Nonmonetary Transactions as the guidance does not reflect our account policy for such programs.

The reserve related to the stock rotation program accounted for as variable consideration was less than $1 million in each of fiscal 2023, 2022 and 2021. The activity in the reserve was similarly less than $1 million in each of these periods. We consider both the reserve balance and activity to be immaterial in each period presented.

3.You state that that platform-as-a-service (PaaS) revenue and support services revenue are recognized over the life of the contract term. Please revise to clarify when you invoice your customers for such services. Also, tell us whether the number of devices being managed or monitored for a customer changes throughout the PaaS period and if so, what impact that has on the amount of revenue recognized each period. Lastly, revise to clarify the methods used to recognize revenue for services that are transferred over time. Refer to ASC 606-10-50-18(a).

We respectfully advise the Staff that, as disclosed in Note 11 on page 59 of our Form 10-K for the fiscal year ended September 30, 2023, we invoice our customers for subscription services on a monthly, quarterly or annual basis. These invoices are billed both in advance and in arrears, based on additional contract terms that can be influenced by multiple factors.

Platform-as-a-service (“PaaS”) contracts typically outline a fixed number of devices that can be used on the platform over the contracted term. Changes in device quantity are initiated by notice from the customer that will indicate an increase or, if permitted under the customer’s contract, a decrease in devices to be granted access. When determining the term of a contract to our application of ASC 606, we take into consideration whether the customer has the right to reduce devices under the contract. An increase will result in an additional agreement being reached with the customer and will result in additional transaction price being charged to the customer based on a contracted set price list per device per month. We account for modifications prospectively. As such, additions will result in incremental revenue, based on the revised transaction price, that

is recognized over the contract term. If the customer requests a decrease in devices and the decrease is permitted under the terms of the contract, then changes will take effect after the expiration of the notice period set forth in the contract. After that time, the associated revenues for removed devices will not be recognized for future periods included in the original contracted term. While changes of this type occur, there is less frequency of devices being removed from service than added.

Subscription service revenues that are transferred over time are recognized under the series guidance outlined in ASC 606-10-25. We apply ASC 606-10-25-27 and have determined that in subscription service arrangements we transfer services over time and meet the series criteria outlined in ASC 606-10-25-15, with each distinct service in the series representing a performance obligation to be satisfied over time and progress being measured using the same method of measurement.

Going forward, we will enhance our discussion similar to the below example based upon our fiscal 2023 10-K:

We derive service revenue from our platform-as-a-service (“PaaS”) offerings, whereby customers pay for services consumed based on the number of devices managed or monitored per month. Depending on the billing method set forth in the contract, we invoice our customers monthly, quarterly or annually either in advance or in arrears. Revenue is recognized over the life of the service term as the customer simultaneously receives and consumes the services. Because these arrangements involve repetitive services that are substantially the same from one month to the next, we apply the guidance under ASC 606-10-25-15. We utilize a time-based output method to recognize revenue over time as this properly depicts our transfer of control to the customer. These revenues are included in our IoT Products & Services segment.

4.Please address the following as it relates to your contracts with multiple performance obligations:

• Explain further what is included in the implementation fee that is charged when you retain ownership of the equipment and how you determined that ratable recognition is appropriate.

• Tell us the amount of revenue from multiple performance obligation arrangements for each period presented as well as from the implementation fees included in such arrangements.

• Tell us and revise to disclose how you determine the stand-alone-selling price for each of the performance obligations in your multiple performance obligation arrangements.

We respectively advise the staff that our contracts with multiple performance obligations exist when customers purchase and take legal ownership of devices and also pay for the performance of (i) an implementation service to assure the device is operational, and (ii) other services that we may perform. In these situations, we apply ASC 606-10-25-15 through 25-22 and have concluded that such contracts contain two or more performance obligations. Generally, there is one performance obligation to deliver the customer the device they have purchased and another performance obligation to provide contracted services.

Alternatively, there are instances where customers elect to receive ongoing services while we retain ownerships of devices they utilize. In these situations, we sell only a subscription for services to an integrated solution for customers. This integrated solution can include providing services, use of hardware owned and controlled by us and implementation. In these cases, the entire transaction price associated with providing services is included in a single subscription fee to the customer. Any implementation required in these arrangements does not transfer any good or service to the customer as it only affects the hardware owned by us and does not enhance a customer-controlled asset. Therefore, we do not consider the implementation service to be distinct or separately identifiable from promises for the subscription services. As such, the services constitutes a single performance obligation in accordance with ASC 606-10-25-15 through 25-22. We recognize subscription revenue using the series guidance, as each distinct service in the series represents a performance obligation to be satisfied over time and progress is measured using the same method of measurement. Accordingly, we recognize any revenue ratably for these agreements over the term of the contract as the subscription is fulfilled in accordance with ASC 606-10-55-51.

Contracts with multiple performance obligations that include implementation fees are isolated to SmartSense arrangements in which we do not retain ownership of devices. SmartSense product sales were $7.0 million, $8.9 million and $16.9 million in fiscal 2023, 2022 and 2021. Less than 2% of our SmartSense revenues stemmed from implementation fees in fiscal 2023 and 2022. For fiscal 2021 implementation fee revenues were higher as we were transitioning from selling hardware to a model where we retain ownership of the hardware utilized to deliver services. Implementation fee revenues in fiscal 2021 represented less than 2% of our consolidated revenue.

The separate obligations in contracts with multiple performance obligations are recorded at the standalone selling prices (SSP) that we determine using the relative standalone selling price method outlined in ASC 606-10-32. SSP is estimated for each distinct performance obligation and judgement may be required in this determination. The best evidence of SSP is the observable price of a product or service when we sell the goods separately in similar circumstances and to similar customers. In instances where SSP is not directly observable, we determine SSP using information that may include market conditions and other observable inputs.

Going forward, we will expand our discussion similar to the below example based upon our fiscal 2023 10-K:

Contracts with Multiple Performance Obligations

From time to time, we have contracts with customers that include multiple performance obligations. For instance, hardware products may be combined with our Digi Remote Manager PaaS offering as well as other services in an individual contract. In these cases, each performance obligation is recognized at a transaction price determined using the standalone selling price for the distinct obligation. In situations when we are providing subscription services, while retaining ownership of the equipment, we have determined there is a single performance obligation encompassing the various activities that are inputs into the service. As such, all revenue derived from the service is recognized over the subscription term of the contract ratably as a series. We have made an accounting policy election to exclude from the measurement of our revenues any sales or similar taxes we collect from customers.

Note 4. Segment Information and Major Customers, page 53

5.We note that you considered various qualitative and quantitative factors in determining that your various operating segments should be aggregated into two reportable segments. Please provide us with a detailed analysis of each of the criteria in ASC 280-10-50-11 for each operating segment to support such aggregation. Also, provide us with any underlying financial information considered as part of your quantitative analysis.

We respectfully advise the Staff that, in accordance with the standards set forth in ASC 280, management has determined that we have the following six operating segments:

•Cellular Routers

•Console Servers

•Infrastructure Management

•OEM

•SmartSense by Digi

•Ventus

Based on management’s analysis u