Digi International Inc. (DGII) | The Buildout — AI Infrastructure

The Verdict

Digi International makes Internet of Things connectivity products, services, and software. Its Opengear console servers and out-of-band management equipment sit in data centers and edge locations, giving operators visibility and control of network infrastructure even when primary connectivity is down. That is the concrete link to AI infrastructure: as data centers and edge campuses are built, operators need ways to manage that gear. Digi also embeds DANI, an AI agent, in its Digi Remote Manager platform, but monetization is not the current priority.

Earnings Beat

Digi reported record third-quarter fiscal 2026 results: revenue of $139M, up 29% year over year, gross margin of 64.8%, up 130 basis points, and adjusted EBITDA of $40M at a record 29.1% margin. ARR reached a record $191M, and net debt declined to $81M.

Management tone: Management's tone was execution-focused and deliberately bounded. They emphasized promises kept and repeated that ARR and profits are growing faster than revenue. They declined to treat the record 64.8% gross margin as a new floor, instead describing a "base camp" in the low-to-mid-60s with a 62–63% floor, and excluded hyperscaler wins and DANI monetization from near-term expectations.

Management Guidance

Q4 FY2026 guidance calls for revenue of $138M–$142M, adjusted EBITDA of $40M–$41.5M, and adjusted EPS of $0.75–$0.78 on 39.1 million shares. Full-year FY2026 guidance is revenue of $529M–$533M, up 23.5% year over year, adjusted EBITDA of $146M–$147.5M, up 35.5%, adjusted EPS of $2.67–$2.70, and ARR growth of at least 27% year over year. Management said the guide is up from prior guidance and that ARR and profits continue to grow faster than revenue.

Trajectory

Revenue has accelerated through fiscal 2026: $122.5M in Q1, $130.7M in Q2, and $139M in Q3 with 29% year-over-year growth. Gross margin reached 64.8%, while adjusted EBITDA margin set a 29.1% record. Management attributed the quarter to balanced product and solutions volume with high attach rates, but bounded the margin story by calling the gross-margin base camp low-to-mid-60s with a 62–63% floor.

The Model

The model projects FY+1 revenue of $524M and EBITDA of $121M, a 23.1% margin. For FY+2, it projects revenue of $610M and EBITDA of $149M, a 24.5% margin. The near-term anchor is the company's current ARR and recurring-revenue mix; the FY+2 growth case depends on continued recurring-revenue expansion and the Opengear data-center opportunity.

Projections are the median of 5 independent model runs. The model’s revenue sits 8.4% above analyst consensus.

Q4 FY2026 guidance calls for revenue of $138M–$142M, adjusted EBITDA of $40M–$41.5M, and adjusted EPS of $0.75–$0.78 on 39.1 million shares. Full-year FY2026 guidance is revenue of $529M–$533M, up 23.5% year over year, adjusted EBITDA of $146M–$147.5M, up 35.5%, adjusted EPS of $2.67–$2.70, and ARR growth of at least 27% year over year. Management said the guide is up from prior guidance and that ARR and profits continue to grow faster than revenue.

What Could Go Right — and Wrong

Looking Ahead

Over the next twelve months, the story turns on Q4 FY2026 delivery against the raised guide, ARR progression toward the $200M objective, and whether Opengear's data-center strength broadens into named hyperscaler wins. Product and software adoption—DANI, Digi Axess, Remote Reach, TX65, Connect EZ TS—plus 2026 lease decisions and the next debt-funded acquisition are the other signposts.

Financials

Annual Summary

Key Ratios (Trailing)

The Company

Digi International provides business- and mission-critical IoT connectivity products, services, and solutions. Its portfolio spans embedded and wireless modules, console servers, enterprise and industrial routers, infrastructure management equipment, the Digi Remote Manager platform, and professional services. Brand families include Digi XBee, Digi Connect, ConnectCore, and Opengear. The company helps customers deploy, monitor, and manage communications infrastructure in demanding environments with high security and reliability requirements.

Digi runs two reportable segments: IoT Products & Services and IoT Solutions. It sells heavily through distributors, with larger names by sales volume including Arrow Electronics, Avnet, Bressner, Digi-Key, Express Systems, Ingram Micro, MiTac, Mouser Electronics, Synnex, and World Wide Technology. The only owned facility is a 58,000 sq ft manufacturing and warehousing site in Eden Prairie, Minnesota; the remaining sites are leased, including headquarters in Hopkins, Minnesota. The company subcontracts most product manufacturing to third parties across Mexico, Thailand, Taiwan, Cambodia, and China.

Business Segments

Competitive Landscape

The source material does not name direct competitors in Digi's filings; spider-sourced competitor names such as Cisco, Belden, Ericsson, Lantronix, and Semtech are flagged as plausible but unconfirmed. Management describes Opengear as the "solution of choice" for many neo clouds in out-of-band management, but no revenue split or market-share claim is disclosed.

Supply Chain

Digi designs IoT connectivity hardware and software, subcontracts most manufacturing, and sells through a distribution-heavy channel to OEMs, enterprises, and government customers.