Digi International targets $200M ARR and adjusted EBITDA by 2028 while integrating Particle acquisition

Earnings Call Insights: Digi International (DGII) Q1 2026

MANAGEMENT VIEW

* President and CEO Ronald Konezny reported that Digi International is "off to a strong start in fiscal 2026," highlighting quarterly revenues of $122 million, annualized recurring revenue (ARR) of $157 million, and adjusted EBITDA of $32 million. Konezny stated, "$157 million of annualized recurring revenue, which is up 31% year-over-year and our fifth consecutive quarter of double-digit growth." He emphasized broad-based strength across product lines and vertical industries as "critical to sustaining double-digit growth rates."
* Konezny discussed the integration of Jolt and the acquisition of Particle, noting, "We have combined the SmartSense and Jolt organizations and offerings into SmartSense ONE. We're seeing strong customer response to this combined platform and the cross-selling opportunities we envisioned are materializing." Regarding Particle, Konezny said, "Particle brings robust AI-ready embedded edge devices, coupled with wireless services and a cloud-based solution supporting over 240,000 developers across 14,000 companies."
* Konezny explained that Particle's addition strengthens Digi's edge-to-cloud capabilities and expands the addressable market in IoT device management: "Particle brings our IoT Products & Services reporting segment $20 million in ARR and further balances ARR contributions across Digi's 2 reporting segments."
* Konezny reiterated Digi's long-term goals: "We remain confident in our goal of achieving $200 million of ARR and $200 million of adjusted EBITDA by the end of fiscal 2028. Strategic acquisitions may accelerate this time line."
* CFO James Loch provided a direct statement: "For fiscal 2026, our guidance reflects both our updated operational outlook combined with the January 2026 acquisition of Particle. We anticipate ARR growth of 23%, revenue growth of 14% to 18% and adjusted EBITDA growth of 17% to 21%."

OUTLOOK

* CFO Loch projected that the impact of Particle and its expected synergies is approximately $20 million to $22 million in ARR, $13 million to $14 million in revenue, and $1 million to $2 million in adjusted EBITDA for fiscal 2026. For Q2 2026, revenue is estimated between $124 million and $128 million, and adjusted EBITDA is expected between $31.5 million and $33 million. Adjusted net income per diluted share is anticipated to be between $0.56 and $0.59, assuming a weighted average diluted share count of 38.8 million shares and including an expected impact from interest of between $0.05 and $0.06 per diluted share.
* Loch added, "After capturing synergies, we expect Particle to contribute $5 million to our fiscal 2027 adjusted EBITDA."

FINANCIAL RESULTS

* Digi International reported $122 million in quarterly revenues, $157 million in ARR, and $32 million in adjusted EBITDA. The company set a new quarterly record with a 25.8% adjusted EBITDA margin and generated $36 million in quarterly cash.
* Both reporting segments contributed to ARR growth, with IoT Solutions growing 32% and IoT Products & Services growing 26% year-over-year.

Q&A

* Thomas Moll, Stephens Inc.: Asked about the demand environment and specifically data centers. Konezny responded, "We're seeing a lot of success in mass transit and utility segment. We're also seeing a lot of success in retail, digital signage. We also are seeing some success in data center as well, in particular the Opengear product line."
* Moll followed up on benchmarking versus the previous quarter. Konezny replied, "I think they're improving and increasing. I think we're all worried about how long the AI infrastructure build-out will sustain. But for now, it's been improving."
* Moll also questioned the sales synergy opportunity with Particle. Konezny explained that the move into Embedded as a Service is "newer for, I think, both the industry as well as for Digi. And so leveraging this as the catalyst to really get OEM solutions more in line with both the company's objectives of ARR and contributing at a relative scale has been really important for us."
* James Fish, Piper Sandler: Asked how Digi will manage Particle for growth versus profitability. Konezny responded, "We want to scale the business. And when you get to $20 million of ARR, that's when you can really start thinking about that scale profitably."
* Josh Nichols, B. Riley: Asked about gross margin direction. Loch said, "Historically, we've seen sort of in that 10 to 15 basis point expansion sequentially. I think we're going to continue to see that."
* Nichols also inquired about guidance range, and Konezny noted risks such as tariffs, commodity prices, and memory challenges related to AI expansion.
* Scott Searle, ROTH Capital: Clarified the treatment of interest in guidance. Loch stated, "The impact of interest on the quarter was $0.06."
* Searle also asked about competitive landscape. Konezny said, "There are certain segments that are very, very concerned about having Chinese-originated parts, especially radios."
* Anthony Stoss, Craig-Hallum: Asked about memory pricing and Jolt synergies. Konezny described memory as volatile, stating, "Our #1 objective is to make sure we have our supply allocations."

SENTIMENT ANALYSIS

* Analysts focused on integration, the Particle acquisition, guidance rationale, and margin sustainability, with a neutral to slightly positive tone as they probed on synergies and risk factors.
* Management maintained a positive and confident tone during prepared remarks, using phrases such as "we remain confident" and "we are encouraged," but became more measured in Q&A, especially regarding guidance prudence and market risks.
* Compared to the previous quarter, management's tone remained optimistic but displayed increased caution around guidance and the impact of macro risks. Analyst sentiment shifted from curiosity about organic growth and attach rates last quarter to more direct questioning of acquisition integration and risk management this quarter.

QUARTER-OVER-QUARTER COMPARISON

* The current quarter included the acquisition of Particle, introducing $20 million ARR and $13 million to $14 million in revenue to 2026 guidance; the previous quarter focused on integrating Jolt and cross-selling opportunities.
* Guidance language this quarter was more cautious, with explicit reference to waiting for midyear before considering operational raises, compared to a more optimistic tone previously.
* Key metrics improved, with ARR and adjusted EBITDA both setting new records.
* Analysts shifted focus from product attach rates and data center contributions in Q4 2025 to questions about acquisition synergies and risk management in Q1 2026.
* Management's confidence in achieving long-term goals continued, but with more explicit risk disclosures and a measured approach to guidance updates.

RISKS AND CONCERNS

* Management highlighted risks such as tariffs, commodity pricing, and memory shortages driven by AI expansion.
* Konezny stated, "We feel confident we can fight through those, but those are some risks out there."
* Analysts raised concerns about guidance conservatism, market volatility, and memory supply stability.

FINAL TAKEAWAY

Digi International leadership reiterated confidence in achieving $200 million ARR and adjusted EBITDA by fiscal 2028, supported by record-breaking quarterly results and the integration of the Particle acquisition. Management emphasized a disciplined approach to guidance, continued focus on profitable growth, and proactive risk management amid evolving industry dynamics and macroeconomic uncertainties.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/dgii/earnings/transcripts]

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