Digi International (DGII) Q4 2026 earnings review
Digi's subscriptions keep rising, but its plan halves sales growth
Digi, which sells devices and software that put machines online, finished a strong year but plans a slower one. Sales rose 25% in the quarter, helped by software companies it bought recently. Profit climbed faster, because office and management costs fell even as revenue grew. By our math, the plan leaves sales growth near 11% after the first quarter.
| Quarterly sales growth without recent purchases | About 17% 25% as reported; by our math |
|---|---|
| Annual recurring revenue | $197M +30% from a year ago; about 16% without Particle |
| Profit per share, excluding one-offs | $0.78 +47% from a year ago |
| Next year's sales outlook | New: 10–15% growth 24% growth this year |
⚖️ Verdict: 🔴 Bearish
The story got worse, because the outlook confirms that growth will drop sharply once recent purchases sit in both years. The plan also has the profit margin barely moving next year. The good news: by our math, subscription income grew about 16% without acquisitions, and cash repaid most of Digi's debt.
The question now is whether the new plan is cautious or a true slowdown. If it is cautious, Digi will beat it again, as it did this year; if customers ordered hardware early, sales will slow as planned. First-quarter hardware sales, in the next report, will show which.
🐂 Bull Case
Subscriptions Grew About 16% Without Acquisitions
Digi reports annual recurring revenue (ARR), the yearly value of its subscription contracts. ARR reached $197 million in September, 30% above a year ago. Particle, a software firm that links devices to the cloud, brought about $20 million of that when Digi bought it in January.
Without Particle, ARR grew about 16% by our math. Digi said its IoT Solutions unit, which sells monitoring and workflow subscriptions, lifted ARR 11%, “driven by organic growth across our Solutions businesses”.
- Added in the quarter: $6 million
- Added a year earlier, minus Jolt, the store-software firm bought then: about $6 million by our math
- Added this year, minus Particle: about $25 million by our math
This matters because subscriptions renew each year, so they steady results when hardware orders swing. The outlook calls for ARR growth of at least 15% next year, about $30 million of additions by our math. That beats this year's $25 million, unless DT, the sensor maker Digi plans to buy, counts toward it.
What to watch: ARR at the end of December, in the next quarterly report. Another quarter near $6 million without acquisitions would leave Digi short of the pace its new target needs.
Overhead Costs Fell While Sales Rose 25%
Digi earned more on each dollar of sales because its office and management costs fell while revenue climbed. Operating margin reached 16.5%, up 4 percentage points from a year ago. Digi said the gain came as “volume expanded at a rate greater than operating expenses”.
General and administrative costs, which cover finance, legal and management, fell 7% in dollars. Their share of revenue dropped 3.7 percentage points to 10.9%, which accounts for most of the gain. Sales and marketing took 0.6 points less of revenue, while research spending held steady.
What to watch: operating margin in the first quarter. Digi's plan has its profit margin before interest, tax, depreciation and amortization dipping slightly, so a further gain would show overhead savings still at work.
Cash Flow Cut Net Debt to $39 Million
Digi borrows to buy companies, then repays the loans with cash from operations. Net debt, its borrowing minus cash, fell to $39 million in September from $137 million a year ago.
Cash from operations rose 42% for the year. Digi tied part of the gain to the “accelerated utilization of tax attributes under the One Big Beautiful Bill Act”, a US tax law, so lower tax payments explain some of it.
The other side: Digi plans to pay for DT, a Norwegian sensor maker, with its credit line. By our math, that lifts net debt to about $169 million, or 1.1 times this year's profit before interest, tax, depreciation and amortization.
What to watch: net debt at the end of December, the first balance sheet after DT should close. A steady fall from there would show the borrow-and-repay cycle still works.
Positives this quarter didn't test
Several positives from earlier quarters got no new figures in this release, so they stand where they did. Each item below names the disclosure that would test it.
- DANI, the AI assistant inside Digi's device-management software: no usage or revenue figure yet; a customer count would test it.
- Jolt savings: Digi targeted $11 million of yearly profit gains from Jolt, its store-software purchase, by the end of 2026; a progress figure would test it.
- Particle profit: Digi expected about $5 million from Particle in fiscal 2027 after savings; segment margins in the first quarter will show it.
🐻 Bear Case
Digi's Plan Has Sales Growth Halving Next Year
Digi's sales rose 24% this year, but software firms it bought supplied part of that. Jolt sells task software to stores and restaurants, and Particle links devices to the cloud. Next year both sit in the comparison, so the outlook has sales rising 10–15%.
The first quarter still gets a full lift from Particle, which joined in January. Digi plans sales of $140–144 million, about 16% above a year ago. By our math, that leaves growth near 11% for the rest of the year.
This matters because the outlook shows what Digi earns without new deals. Digi expects its profit before interest, tax, depreciation and amortization to grow 12.5–17.5%, against 37% this year. This quarter's sales beat Digi's own plan by about 2%, the smallest margin in more than a year.
But Digi opened this year with the same 10–15% sales plan and finished at 24%. Without Particle, growth still reached about 21% by our math.
What to watch: first-quarter sales, in the next quarterly report. A result well above $144 million would show the new plan carries last year's caution.
Gross Margin Slipped as Digi Flags Memory Costs
Digi says its subscription model “insulates our margin structure in ways purely hardware-dependent businesses cannot match”. The same release flagged “rising component costs, most notably memory”, which Digi plans to offset with pricing and supply-chain moves.
The quarter did not bear out the first claim. Gross margin fell to 63.7% from 64.8% in the June quarter. Against a year ago, the cost of making products took 0.2 percentage points more of revenue, while hardware sales outgrew subscriptions.
What to watch: gross margin in the first quarter. A second drop while memory prices climb would show subscriptions cannot fully offset hardware costs.
One-Time Hardware Orders Drove Most Quarterly Growth
Digi earns money two ways: one-time sales of hardware such as cellular networking gear, and recurring subscriptions. One-time sales added $15.8 million from a year ago, against $13.1 million from recurring revenue. Nearly all the hardware gain came from IoT Products & Services, the unit that sells this equipment.
Digi credited “increased customer demand” and pointed to investment “accelerating across automation, energy, and data infrastructure”. Yet the same release flagged rising memory costs, and buyers facing scarce parts sometimes order early. Inventory sits 18% above a year ago, and the first-quarter plan has sales slightly below this quarter.
What to watch: one-time sales in the hardware unit next quarter. A drop from this quarter's level would suggest customers bought ahead of need.
Risks this quarter didn't answer
Several standing risks got no new numbers in the release, so they stand where they were. Each item below names the disclosure that would move it.
- Customer concentration: one distributor bought 11% of sales in the first nine months; the annual report will update the figure.
- Deal timing: Digi gave no update on how long sales take to close; call commentary or the annual report would show it.
- Jolt product reserve: Digi set aside $5 million earlier this year to replace some Jolt products; the annual report will show how much it used.
- Systems: Digi planned to move Jolt and Particle onto its own sales and finance systems by year-end; the release does not say whether it did.
- Trade rules: Digi cited an “evolving global trade framework” but gave no tariff cost; the annual report will show it.
👓 Other Themes
Digi Agrees to Buy Norwegian Sensor Maker DT
Digi agreed on September 30 to buy Disruptive Technologies (DT), a Norway-based sensor maker, for $130 million in cash. Chief executive Ron Konezny said “DT stands out in its breadth of applications, ease of implementation, size, and long battery life”. The deal should close before November 30, once regulators approve, according to Konezny. Digi has not said how much revenue DT brings.
💲 Other KPIs
The share count kept rising, up 3.1% from a year ago, as Digi pays staff partly in stock and the release shows no buybacks. Dilution has stayed near 3% for a year. The first-quarter plan assumes 39.5 million shares, so per-share profit keeps trailing net income.
Customers paid faster. Receivables, the money customers owe Digi, rose only 8% while sales climbed 25%. By our math, Digi now collects in about 44 days, a week quicker than a year ago, which helped lift operating cash flow.
Digi paid a much larger share of profit in tax: 33.4% of pretax income, against 20.2% a year ago. For the full year the rate climbed to 26%. Net income still rose 50%, because operating profit jumped 66%.
🔮 Guidance
New. The plan has sales rising about 12.5% at the middle of the range, roughly half this year's pace. By our math, after the first quarter that leaves about 11% growth for the rest of the year. Digi opened fiscal 2026 with the same range, then raised it three times and finished at 24%.
New. The plan has profit before interest, tax, depreciation and amortization, excluding one-offs, rising about 15% at the middle, to roughly $170 million by our math. That is well below this year's 37%. By our math, the rest of the year after the first quarter adds about 12%, with the margin near 28%.
New. The plan has annual recurring revenue, the yearly value of subscription contracts, reaching at least $227 million by our math. Growth halves from this year's 30% because Particle no longer counts as new. Digi has not said whether DT, the sensor maker it plans to buy, counts toward the target.
New. The plan has first-quarter sales about 16% above a year ago, but slightly below this quarter's $143 million. Particle joined in January, so the quarter still gains a full quarter of its sales as growth. Digi beat its quarterly sales range in each of the last five quarters, though this time by the smallest margin.
New. The plan has first-quarter profit before interest, tax, depreciation and amortization, excluding one-offs, about 28% above a year ago. By our math the margin dips to about 28.4%, below this quarter's 29.1%. The full-year plan keeps it near 28% after that. Digi beat this range by about 2% this quarter, against an average of 9% in the four before.
New. The plan has profit per share, excluding one-offs, about 30% above a year ago. That still sits below this quarter's $0.78. Digi assumes 39.5 million diluted shares and an interest cost of $0.02 to $0.04 per share.
Unchanged. Digi still aims for $200 million of ARR and the same amount of yearly profit before interest, tax, depreciation and amortization, excluding one-offs. Chief executive Ron Konezny said ARR is approaching that mark. By our math, the profit goal needs about 17% growth in fiscal 2028 after this plan's 15%.
❓ Key Questions
How much of ARR growth came without acquisitions?
Digi gives no figure for growth without acquisitions. By our math, ARR grew about 16% without Particle, but that rests on Particle's ARR at purchase. A reported number would show whether the new target needs fresh deals.
Does next year's outlook include the DT purchase?
Digi expects to close the DT deal before November 30 but did not say whether its revenue, ARR and profit ranges include it. Without that, readers cannot tell how much of the plan comes from the existing business.
How much hardware demand came from early orders?
One-time sales added more revenue than subscriptions this quarter, while Digi flagged rising memory costs. A split between steady demand and orders placed early to secure parts would show how much of this year's growth may not repeat.
What share of sales comes from data centers?
Digi points to investment in data infrastructure as a source of demand but gives no revenue share. A concentrated exposure would make next year's hardware sales harder to judge if that spending slows.
Did Jolt's product problem cost more than reserved?
Digi set aside $5 million earlier this year to replace some Jolt products and has not discussed the issue since. An update would show whether the reserve covered the problem.