Digi International (Nasdaq: DGII) reported fiscal third-quarter 2026 revenue of $138.7 million, up 29% from $107.5 million, while GAAP diluted EPS rose 48% to $0.40 from $0.27 for the quarter ended June 30, 2026. Net income increased 54%, operating margin expanded by 260 basis points, and quarterly operating cash flow reached $33 million as organic product demand, acquisitions, and operating expense efficiencies supported results.

Core Earnings Results

Revenue, profit, and annualized recurring revenue reached quarterly records. The year-over-year comparison includes a full quarter of Jolt and Particle following Particle’s January 2026 acquisition, so the reported growth was not entirely organic.

Profit increased faster than revenue. Digi attributed the margin expansion to operating expenses growing more slowly than volume and, within IoT Product & Services, the absence of elevated inventory-related costs incurred a year earlier.

Adjusted EPS and adjusted EBITDA are non-GAAP measures. Digi changed its adjusted net income methodology in fiscal 2026 to include interest expense and recast prior-period adjusted EPS for comparability.

Business and Segment Performance

Both operating segments expanded revenue, ARR, and operating margin, although their growth drivers differed substantially.

IoT Product & Services generated a $12.4 million increase in one-time sales and $7.4 million of recurring revenue growth. Digi said a significant majority of the segment’s revenue increase came from organic customer demand, with additional support from Particle. Pricing had no material effect. Its ARR increase was driven primarily by Particle, along with subscription growth across remote management platforms, extended warranties, and technical support.

IoT Solutions added $8.9 million of recurring revenue and $2.5 million of one-time sales. A significant majority of both increases came from Jolt, although Digi also reported growth in its existing Solutions businesses. Expense efficiencies as volume expanded drove the segment’s 570-basis-point operating margin improvement.

Companywide ARR ended the quarter at a record $191 million, up 52% year over year. The segment data show that acquisitions were particularly important to recurring-revenue growth, while organic demand played a larger role in Product & Services revenue.

Profitability, Cash Flow, and Balance Sheet

Quarterly operating cash flow increased to $33 million from $24 million. Digi attributed the change primarily to a decrease in deferred income-tax benefits related to accelerated utilization of tax assets under the One Big Beautiful Bill Act. For the first nine months of fiscal 2026, operating cash flow was $110.4 million, compared with $80.0 million in the prior-year period.

Digi ended June with $28 million of cash and cash equivalents and $109 million of outstanding debt, resulting in net debt of $81 million. Long-term debt on the balance sheet declined to $108.1 million from $159.2 million at September 30, 2025. Management said it intends to continue deleveraging, while also maintaining acquisitions as a top capital-allocation priority.

Inventories increased to $45.0 million from $38.9 million at the end of fiscal 2025. Digi did not provide a specific explanation for that increase.

Fiscal 2026 Guidance

Digi raised its full-year outlook for ARR growth, revenue, and adjusted EBITDA. The adjusted EBITDA revision was the largest, with expected growth increasing to 35%-36% from the previous 23%-26% range.

The fourth-quarter adjusted EPS forecast assumes 39.1 million diluted shares and includes an expected interest expense effect of $0.02-$0.03 per share. Management said demand for connected operations remains durable but acknowledged an evolving global trade environment and rising component costs, particularly memory. Digi plans to manage those pressures through pricing, supply-chain adjustments, and a larger recurring-revenue base.

Recent Insider Transactions

The supplied six-month summary shows 307,598 shares acquired across 10 transactions and 134,462 shares sold across seven transactions, resulting in net acquisitions of 173,136 shares. Because the detailed records include option exercises, the acquisition total should not be interpreted as open-market buying.

The records show that some of the larger recent sales occurred alongside option exercises. The transaction data alone do not establish insiders’ views on Digi’s future performance.

Risks Investors Should Monitor

• Acquisition integration and growth quality: Particle and Jolt made substantial contributions to ARR and Solutions revenue. Sustaining growth will depend on successful integration and continued expansion of Digi’s existing operations.
• Component and trade-related costs: Management specifically identified rising memory prices and an evolving global trade framework. If pricing and supply-chain actions do not offset those costs, gross margin could come under pressure.
• Competing capital priorities: Digi reported $81 million of net debt and intends to keep deleveraging, but acquisitions remain a top priority. Additional transactions could affect the pace of debt reduction and cash deployment.

Summary

Digi’s fiscal third quarter combined 29% revenue growth with faster profit growth, margin expansion, and higher operating cash flow. Organic demand supported IoT Product & Services, while Particle and Jolt materially strengthened ARR and Solutions growth. The raised fiscal 2026 outlook reflects improved operating leverage, but acquisition integration, component costs, and the balance between new deals and deleveraging remain the principal areas to monitor.

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