Digi International Q3 Earnings Call Highlights

Key Points

• Digi International delivered record fiscal Q3 2026 results: Revenue rose 29% year over year to $139 million, ARR reached $191 million, adjusted EBITDA increased to $40 million, and operating cash flow climbed 38% to $33 million.
• The company raised its full-year outlook to $529 million–$533 million in revenue, $146 million–$147.5 million in adjusted EBITDA, $2.67–$2.70 in adjusted EPS, and at least 27% ARR growth. Digi also reaffirmed longer-term targets of $200 million in ARR and adjusted EBITDA by 2028.
• Demand trends improved, with faster customer decisions and pipeline growth, although sales cycles remain uneven. Digi is embedding its new DANI AI capability into its cloud platform, while continuing acquisitions and integration efforts with net leverage below one times.

Digi International NASDAQ: DGII reported record fiscal third-quarter 2026 revenue, annual recurring revenue, adjusted EBITDA margin and operating cash flow, while raising its outlook for the fourth quarter and full fiscal year.

Chief Financial Officer Jamie Loch said quarterly revenue reached $139 million, up 29% from a year earlier. Gross margin was 64.8%, while cash flow from operations totaled $33 million, an increase of 38% year over year. The company’s non-GAAP annual recurring revenue, or ARR, rose to a record $191 million, and adjusted EBITDA was $40 million, representing a record 29.1% margin.

Loch said Digi continued to see operating leverage, with ARR and profit growth outpacing revenue growth. He also said the company’s cash flow from operations, on an annualized basis, exceeded its year-to-date adjusted EBITDA.

Raised Fourth-Quarter and Full-Year Outlook

For fiscal fourth quarter 2026, Digi forecast revenue of $138 million to $142 million, adjusted EBITDA of $40 million to $40.15 million, and adjusted earnings per diluted share of $0.75 to $0.78. The guidance assumes a diluted share count of 39.1 million.

The company increased its full-year outlook and now expects:

• Revenue of $529 million to $533 million, representing projected year-over-year growth of 23.5%.
• Adjusted EBITDA of $146 million to $147.5 million, up 35.5% year over year on an annualized basis.
• Adjusted diluted EPS of $2.67 to $2.70.
• ARR growth of at least 27% year over year.

Loch said the updated forecast implies annualized recurring revenue of at least $193 million. The company has set a longer-term objective to reach $200 million in ARR and $200 million in adjusted EBITDA by 2028. He said the company was ending the year at roughly $147 million in adjusted EBITDA and was tracking toward those goals.

Pipeline Activity and Demand Trends

During the question-and-answer session, Loch said customers are making decisions faster than they had in the past, improving Digi’s “days to win” metric. However, he cautioned that decision cycles have not returned to what could be considered normalized levels.

He said some opportunities entering the pipeline carry a degree of urgency and are moving through the sales process more quickly. Digi also reported pipeline growth across all stages, from early-stage opportunities through later-stage deals.

President and Chief Executive Officer Ron Konezny cited relatively strong purchasing managers’ index readings, AI-related infrastructure activity and emerging supply-chain concerns as factors influencing customer behavior. He said memory supply issues have received significant attention and that supply-chain urgency could be prompting customers to place orders earlier to secure delivery schedules.

Konezny said Opengear continued to perform well across edge, campus and data-center applications. He said the company has been a provider to “NeoPods” deploying assets that require visibility and control, while Digi is also pursuing opportunities with hyperscale customers. He described hyperscale sales cycles as lengthy and difficult to predict, adding that such expectations are not included in the company’s guidance.

ARR, Margins and Product Mix

Konezny said the company saw balanced contributions during the quarter across products, services and solutions. Higher product volumes and strong attachment of solutions to existing products supported results in the products and services business, he said. In the solutions segment, he cited contributions from Ventus and SmartSense, including enterprise deals that helped drive ARR.

Loch said product mix supported the quarter’s strong gross margin, with higher-margin products performing well across much of the company’s product portfolio. He said Digi still views the low-to-mid-60% range as its gross-margin “base camp,” identifying roughly 62% to 63% as the floor of that range.

Over a longer period, Loch said Digi expects ARR to grow faster than revenue and support approximately 10 to 15 basis points of gross-margin improvement. He noted that quarterly results can vary more substantially, potentially by 200 to 300 basis points, based on product mix.

AI Offering and Acquisition Strategy

Konezny highlighted the company’s recently introduced DANI, or Digi Artificial Network Intelligence, capability. The cloud-based tool enables users of Digi Remote Manager to ask natural-language questions about the platform, connected Digi devices and associated assets. He said users can ask about network performance, available software updates and other operational issues, with potential over time to request actions through the system.

The company is initially embedding the AI capability within existing software to encourage adoption and improve customer support, training and use of Digi’s platform, Konezny said. While the company may eventually monetize the offering, he said monetization is not currently the priority.

Digi also described its acquisition approach as a cycle of acquiring companies with debt, integrating them, expanding ARR and profitability, generating cash flow and reducing leverage. Konezny said the company monitors hundreds of potential acquisition opportunities and is actively evaluating a smaller group at any given time.

He said integrations of Jolt Software, acquired in fiscal 2025, and Particle, acquired in fiscal 2026, have progressed in line with internal and external targets. Loch said net debt had fallen to $81 million and that the company was leveraged at well below one times.

About Digi International (NASDAQ:DGII)

Digi International Inc is a provider of Internet of Things (IoT) connectivity products and services designed to link devices to networks and applications securely. The company develops a broad range of networking hardware, including cellular and Ethernet routers, gateways, embedded modules and adaptors, as well as accessories and antennas. Digi's solutions enable businesses to deploy remote monitoring, control and automation systems across diverse industries such as transportation, utilities, healthcare, retail and industrial manufacturing.

In addition to its physical devices, Digi offers cloud-based management software and professional services that simplify device configuration, monitoring and over-the-air updates.

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