Digi International Inc.

What they do

Digi sells IoT connectivity hardware and services to OEMs, enterprise and government customers, including embedded and wireless modules, console servers, enterprise and industrial routers, and infrastructure management equipment.

Revenue drivers

• IoT Products & Services — Largest segment, representing the majority of fiscal 2025 sales; sells embedded and wireless modules, console servers, and enterprise and industrial routers, historically via one-time product sales with growing emphasis on subscription offerings. Revenue was $100 million in the third fiscal quarter of 2026, up 25%, with ARR of $60 million.
• IoT Solutions — Comprised of SmartSense by Digi (temperature and condition monitoring, employee task management, label printing, enhanced by the fiscal 2025 Jolt Software acquisition) and Ventus Managed Network-as-a-Service. Primarily subscription-based with higher-margin recurring revenue; revenue was $39 million in the third fiscal quarter of 2026, up 41%, with ARR of $131 million.
• Recurring subscription and ARR base — The company tracks ARR as its key subscription metric; ARR was $191 million at the end of the third fiscal quarter of 2026, up 52% year-over-year, spanning IoT Products & Services ($60 million) and IoT Solutions ($131 million).

Recent performance

For the third fiscal quarter ended June 30, 2026, Digi reported record revenue of $139 million, up 29% year-over-year, with gross margin of 64.8% and operating margin of 16.5%. Net income was $16 million, or $0.40 per diluted share, and adjusted net income was $29 million, or $0.75 per diluted share. Adjusted EBITDA was $40 million, up 47%, and cash flow from operations was $33 million for the quarter. End-of-quarter ARR was $191 million, up 52%.

Strategy

Digi's stated focus is growing subscription-based recurring revenue across both segments, supported by acquisitions including Jolt Software (fiscal 2025) and Particle Industries (January 2026). The company highlights an acquisition flywheel and intends to continue deleveraging its balance sheet; outstanding debt was $109 million at the end of the third quarter of 2026 versus $28 million of cash. Management emphasizes operating leverage from volume growth exceeding operating expense growth. IoT Products & Services is adding subscription offerings across its historically one-time product portfolio.

Risks

• Supply chain and limited-source suppliers — The company depends on outside manufacturing and several single-source suppliers, and Ventus relies almost exclusively on a manufacturer in China for hardware.
• Interest expense and leverage — Interest expense rose to $1.6 million in the quarter and $6.1 million for the nine months ended June 30, 2026, due to increased debt from the Particle acquisition; debt net of cash was $81 million.
• Goodwill impairment — Digi states it may be required to record future goodwill impairment charges if operating results do not meet forecasts or if there is a sustained decline in market capitalization.
• Macroeconomic and industry downturns — The 10-K states each business segment is susceptible to downturns due to general macro-economic conditions and continued industry development.

Outlook

Management stated Digi set new records for revenue, end-of-quarter ARR and profit in its third fiscal quarter and highlighted operating leverage and cash generation. The company intends to continue deleveraging its balance sheet. No specific numerical guidance is provided in the excerpts. Management attributes ARR growth to customer ROI from remote presence and control over mission-critical and business-critical assets.