Key Highlights

  • Digi International shares are trading down 13.83% at $57.70 versus a prior close of $66.96.
  • Fiscal fourth quarter Revenue hit a record $143.3 million, up 25%, with adjusted EPS of $0.78 versus $0.76 expected.
  • Annual Recurring Revenue reached $197 million, up 30%.
  • First quarter revenue guidance of $140 million to $144 million sat slightly below consensus at the midpoint.
  • Management flagged rising memory costs and a transitional fiscal 2027.

Digi International (NASDAQ:DGII) is trading down 13.83% at $57.70, giving back its 2.94% gain from Wednesday's close at $66.96. The company posted record fiscal fourth quarter revenue of $143.3 million, up 25%, and adjusted Earnings of $0.78 per share against $0.76 expected. Peer Lantronix (NASDAQ:LTRX) is trading down 3.28%, while Belden (NYSE:BDC) is down 0.76%.

Record Results, Softer Near Term

Annual recurring revenue reached $197 million, up 30%, and full-year revenue grew about 24%, split roughly evenly between one-time and recurring sales. Operating expenses fell to 47% of revenue in the fourth quarter from 51%. Gross Margin dipped in the quarter but remains in the low to mid 60% range.

IoT Products and Services revenue rose nearly 30%, with ARR up 100% helped by the Particle acquisition. Solutions revenue grew 20%, with ARR up 11%.

Why Guidance Spooked Investors

Management flagged rising memory component costs and Supply chain pressure on gross margin and first quarter EBITDA. First quarter revenue guidance of $140 million to $144 million had a midpoint slightly below consensus.

Still, the guide calls for revenue growth of 14% to 18%, adjusted EBITDA growth of 25% to 30% and adjusted EPS growth of 27% to 34% on 39.5 million shares.

Fiscal 2027 Becomes a Transition Year

Fiscal 2027 guidance, including Disruptive Technologies, calls for ARR growth of at least 15%, revenue growth of 10% to 15% and adjusted EBITDA growth of 12.5% to 17.5%. Digi expects to reach its $200 million ARR goal in fiscal 2027, a year early, and still targets $200 million of adjusted EBITDA by the end of fiscal 2028.

The pending $130 million cash Acquisition of Disruptive Technologies is funded from the Credit facility, with regulatory approval expected this month and a November 30 close assumed in guidance. Digi expects $9 million of incremental adjusted EBITDA from the deal in fiscal 2028 and plans to shift the Business from one-time sensor sales to subscriptions, so fiscal 2027 is a gradual transition.

Cash Generation Stays Strong

Digi generated $42 million of cash in the fourth quarter and $153 million for the year. Gross Debt was $69 million and net debt about $39 million before the acquisition draw.

Margins and Deal Close Set the Next Test

The selloff shows how much weight investors put on near-term margin, not recurring revenue. Five analysts cover the stock, four bullish and one neutral, with targets from $45 to $86 against the $57.70 price.

The next markers are the Disruptive Technologies close, first quarter gross margin against memory cost pressure and the pace of subscription conversion. A first quarter print that lands inside the $140 million to $144 million range with stable margins would test whether Wednesday's results were better than the reaction suggests.