Digi International (NASDAQ:DGII) reported record quarterly revenue, annual recurring revenue and adjusted EBITDA for its fiscal fourth quarter, capping a year in which revenue grew 24%, executives said on the company’s earnings call.
Management forecast double-digit growth in fiscal 2027 and said its guidance assumes the pending acquisition of sensor maker Disruptive Technologies closes on Nov. 30. Executives also said supply constraints, particularly for memory components, are increasing costs and requiring longer planning periods.
President and CEO Ron Konezny said results exceeded the company’s guidance “almost across the board.” Chief Financial Officer Jamie Loch said fourth-quarter revenue growth was split between approximately $16 million from one-time revenue and $13 million from recurring revenue.
Growth across both segments
Loch said fourth-quarter revenue in Digi’s IoT products and services segment increased nearly 30% year over year, while its operating margin improved by 320 basis points. Annual recurring revenue, or ARR, doubled in the segment, aided by the acquisition of Particle as well as organic growth, he said.
In the solutions segment, revenue rose 20%, operating margin improved by nearly 600 basis points and ARR increased 11%, Loch said.
For the full fiscal year, revenue growth was split approximately evenly between one-time and recurring revenue. Loch said full-year gross margin improved from the prior year, although fourth-quarter gross margin declined. The company remains comfortable with gross margins in the low- to mid-60% range, he said.
Operating expenses represented 47% of revenue in the fourth quarter, down from 51% a year earlier. For the full year, the ratio fell to 49% from 50%, Loch said.
Digi generated $42 million in cash during the quarter and $153 million for the year, according to Loch. Gross debt stood at $69 million, while net debt was approximately $39 million.
Fiscal 2027 outlook
Digi projected fiscal 2027 revenue growth of 10% to 15%, ARR growth of at least 15% and profit growth of 12.5% to 17.5%. The outlook includes Disruptive Technologies and assumes the deal closes on Nov. 30, Loch said.
For the fiscal first quarter, the company forecast revenue growth of 14% to 18%, adjusted EBITDA growth of 25% to 30% and adjusted net income per diluted share growth of 27% to 34%. The per-share forecast includes anticipated interest expense of $0.02 to $0.04 per diluted share.
Asked why first-quarter adjusted EBITDA dollars were guided lower sequentially, Loch cited margins expected closer to the middle of the company’s range and expenses that occur seasonally in the first quarter. Konezny added that channel partners typically tighten inventory before their fiscal year-end, contributing to a slower start for Digi’s IoT products and services segment.
Loch said the company expects to reach its $200 million ARR goal in fiscal 2027, a year ahead of the target it established at the end of 2023. He said Digi still expects to meet its separate goal of $200 million in adjusted EBITDA by the end of fiscal 2028.
Acquisition and supply challenges
Digi agreed to purchase Disruptive Technologies for $130 million in cash funded through its credit facility. The transaction remains subject to regulatory approval, which Konezny said the company expects to receive this month. Digi expects the acquisition to generate $9 million in incremental adjusted EBITDA in fiscal 2028.
Konezny said the acquisition would extend Digi’s SmartSense business into Europe and add sensor capabilities for markets including building automation and occupancy monitoring. Disruptive Technologies has deployed more than 250,000 sensors, most of them in Europe, he said.
Digi plans to move the acquired business toward a subscription model rather than relying primarily on one-time sensor sales. Konezny described fiscal 2027 as a transition year and said the shift would be gradual, requiring coordination with both customers and channel partners.
On supply, Konezny said the build-out of AI data centers has put pressure on memory and other components. Digi is facing both higher costs and allocation challenges, he said, and has selectively implemented modest price increases on some products.
The company is also extending its demand planning from a typical six months to nine months and, in some cases, 12 months. Despite the constraints, Konezny said Digi had not seen significant customer order pull-ins or delays.
Konezny said the company’s opportunity pipeline was up by double digits and at its highest level. Loch said the time taken to win business continued to improve sequentially and year over year, though it remained above pre-COVID levels.
About Digi International (NASDAQ:DGII)
Digi International provides products and services for connecting, managing and securing devices used in the Internet of Things (IoT). Its offerings include cellular routers and gateways, embedded modules, console servers and other networking equipment, along with software and services for device management and remote monitoring. The company serves businesses and organizations across industries such as transportation, energy, healthcare, industrial automation and retail. Its solutions support deployments ranging from connected equipment and infrastructure to remote access and network management, with customers in markets around the world.
