Digi’s IoT Strategy Fuels Record Quarterly Performance

Digi International Inc. has kicked off its 2026 fiscal year by surpassing market expectations for both revenue and profit. The company's strategic pivot toward a software-centric subscription model within its Internet of Things (IoT) divisions is delivering tangible results, driving consistent growth. A key question for investors is whether this momentum in recurring revenue streams can be sustained.

The company's earnings performance showed marked improvement, even amid ongoing investments to transform its business model. Adjusted net income reached $0.56 per share, edging past the consensus forecast of $0.55. A 23% surge in adjusted EBITDA to $32 million resulted in a record margin of 25.8%.

The gross margin held steady at a robust 62.4%. Management attributed this stability to a favorable shift in product mix, with software-enabled solutions claiming an increasing share. Executives also highlighted growing demand for AI applications, which continues to fuel the need for integrated hardware and software connectivity platforms.

Robust Revenue Growth and Subscription Momentum

Digi reported total revenue of $122.5 million for the quarter, significantly exceeding the average analyst estimate of $115.7 million and representing an 18% year-over-year increase. The emphasis on high-margin software and services is most evident in the Annualized Recurring Revenue (ARR) metric, which climbed 31% to $157 million.

Should investors sell immediately? Or is it worth buying Digi?

This marks the fifth consecutive quarter of double-digit growth for this crucial indicator. Recurring revenue is becoming an increasingly central component of the financial structure, reducing reliance on the more cyclical hardware business.

Acquisitions Power Expansion

Strategic acquisitions served as a significant growth catalyst. The integration of Jolt was a primary driver for the IoT-Solutions segment, propelling its revenue upward by 39% to $36 million. Furthermore, the company finalized its acquisition of Particle in January 2026. This purchase is projected to contribute approximately $20 million in ARR to the IoT-Products segment during the current fiscal year.

Looking ahead, management provided guidance for the second quarter of 2026, forecasting revenue between $124 million and $128 million, with adjusted earnings expected to range from $0.56 to $0.59 per share. For the full year, the company is targeting revenue growth of 14% to 18%. The long-term strategic goal is to surpass $200 million in both recurring revenue and adjusted EBITDA by the close of fiscal year 2028.