Digi International's Q4 2025 Earnings Call: Contradictions Emerge on M&A, AI Infrastructure, Recurring Revenue, and Macroeconomic Outlook

Date of Call: November 12, 2025

Financials Results

• Revenue: $114.0M Q4 (record), up 9% YOY; FY2025 revenue $430M, up 1% YOY

Guidance:

• In FY2026 expect double-digit growth in ARR, revenue and adjusted EBITDA.
• Target $200M ARR and $200M adjusted EBITDA by end of FY2028; strategic acquisitions may accelerate timeline.
• Adjusted EBITDA margin guidance of 15%–20%; management expects 20%+ growth in FY27–FY28 to reach targets.
• Jolt acquisition (> $20M ARR) is incorporated into FY26 guidance and ARR base.

Business Commentary:

* Revenue and ARR Growth: - Digi International reported record revenue of $114 million for Q4 2025, up 9% year-over-year, marking a return to top line growth. - The company reported record ARR of $152 million, representing a 31% year-over-year increase, driven by the inclusion of Jolt Software acquired in August.

• Acquisition and Integration:
• The acquisition of SmartSense and Jolt is being embraced by the market, with cross-selling opportunities unfolding.
• The integration of the teams and the vision for the combined platform are propelling the company forward.

* AI and Edge Computing: - Digi is leveraging AI for productivity gains internally and for product and solution enhancement. - The company is exploring AI integration as a search tool within web applications and using tiny language models at the edge, potentially enhancing customer experience and unlocking additional ROI.

• Diversified Revenue Streams:
• Digi's broad industrial IoT offerings are contributing to resilience and relevance across a wide variety of industries.
• The diversity in product lines, which include embedded solutions to edge solutions to vertical offerings, appeals to various industries and applications.

Sentiment Analysis:

Overall Tone: Positive

• "record quarterly revenue of $114 million, up 9% year-over-year"; "record $152 million of ARR...31% year-over-year"; management: "we expect double-digit growth for all 3 of our key metrics" and confidence in $200M ARR / $200M adjusted EBITDA by FY2028.

Q&A:

• Question from Thomas Moll (Stephens Inc.): Ron, I wanted to start on the P&S recurring revenue trends, strong growth again this quarter, whether you're looking quarter-over-quarter, year-over-year. What can you share about the field level execution here? Any tweaks you've made in the go-to-market? What's driving some of the success? And if you keep this up, how much of that segment, in particular, is up for grabs to sell on a recurring basis?
  Response: Attach rates are increasing due to focused solution selling and partner adoption; management expects continued progress toward 100% attachment and growth to continue in FY26.

• Question from Thomas Moll (Stephens Inc.): On the trend for recurring revenue, it sits below what your reported revenue is expected to be, what's driving the spread between those two? How much are you assuming for Jolt so we can strip it out? And how much are you assuming for data centers?
  Response: Guidance deliberately incorporates Jolt (> $20M ARR) and expected synergies; Jolt historically sold bottoms-up while SmartSense is enterprise, and data center contributes meaningful one-time revenue lifts embedded in guidance.

• Question from Scott Searle (ROTH Capital Partners): Can you break out Jolt so we have an idea of the organic uplift in the quarter? Things seemed to accelerate; comment on pace of business by vertical and any government headwinds?
  Response: Jolt closed mid‑August and had >$20M ARR so Q4 included ~1.5 months of contribution; demand is accelerating in some verticals but broader uncertainty (e.g., government shutdown) is causing delays.

• Question from Scott Searle (ROTH Capital Partners): Can you expand on edge processing, tiny language models, customer interest and design activity, and update on M&A appetite given improved balance sheet?
  Response: AI at the edge is a long‑lead opportunity requiring normalized data; customers want edge autonomy (local decisions/updates); Digi remains acquisitive but selective, prioritizing ARR‑centric, strategically aligned targets.

• Question from Scott Searle (ROTH Capital Partners): On long‑term guidance for ARR and adjusted EBITDA margins, what gives you comfort on the FY28 targets and operating leverage assumptions?
  Response: ARR path is straightforward (starting FY26 at $152M, modest annual growth reaches $200M by FY28); adjusted EBITDA requires stronger revenue growth and margin expansion (management expects to achieve via scale and productivity).

• Question from Caden Dahl (Piper Sandler): What tailwinds are you seeing on the AI infrastructure side with larger customers, and can you parse what's going into AI data center use cases?
  Response: Opengear benefits most from data center AI spend by enabling out‑of‑band access to equipment; AI buildouts face pacing constraints (power/space) so uptake may be uneven but supportive for Opengear.

• Question from Caden Dahl (Piper Sandler): Is Europe still a wildcard and what needs to be worked through there?
  Response: Revenue remains North America‑centric (~70%+ NA, 15–20% Europe); Europe is country‑by‑country with mixed product fit—Europe meaningful but NA likely to grow faster.

• Question from Josh Nichols (B. Riley Securities): With stronger revenue and a sharper EBITDA increase expected for FY26, do you expect continued gross margin improvement from the quarter?
  Response: Historically ARR expansion nudges gross margins higher (10–20 bps sequentially); management expects similar pattern but does not provide explicit gross margin guidance.

• Question from Josh Nichols (B. Riley Securities): Any update on attach rates and where you think they could be over the next couple years toward FY28 targets?
  Response: Some product lines already at 100% attach; many are 50–75%; management expects to reach 100% attach for most devices by end of FY28.

• Question from Josh Nichols (B. Riley Securities): Can you give more color on how much revenue is going into data center specifically?
  Response: Data center is important but not dominant across the company; Opengear is roughly half data center and half edge, and other verticals (utilities, medical, food) remain significant contributors.

• Question from Anthony Stoss (Craig‑Hallum): Rank order product segments — cellular routers, Opengear, IoT solutions — which will be the fastest‑growing in 2026?
  Response: Cellular router division is expected to grow fastest on a percentage basis; infrastructure management is the smallest product line.

• Question from Anthony Stoss (Craig‑Hallum): Is improving tariff/macro visibility driving greater customer confidence and pickup in demand?
  Response: Yes — increased certainty in some areas and strong vertical investment (utilities, data centers, medical devices) are supporting demand while diversification allows pivoting away from softer verticals.

• Question from Gregory Mesniaeff (Kingswood Capital Partners): Can you reiterate the guidance on Jolt accretion given in August and progress against those goals?
  Response: At acquisition Jolt had >$20M ARR and management projected an $11M run‑rate EBITDA by end of calendar 2026; integration is progressing well with unified sales and early cross‑sell opportunities tracking to plan.

Contradiction Point 1

M&A Environment and Opportunities

It highlights differing perspectives on the M&A environment and potential opportunities, which is crucial for strategic growth and investor expectations.

What opportunities exist for edge processing and tiny language models? What is the current stance on M&A given available debt capacity? - Scott Searle (ROTH Capital Partners)

2025Q4: The M&A environment is robust with a healthy pipeline. We focus on opportunities with strong ARR, growth profiles, and profitability. - Ronald Konezny(CEO)

How do you assess the M&A environment and what opportunities exist? - Caden Patrick Dahl (Piper Sandler)

2025Q3: M&A environment is robust with a healthy pipeline. We focus on opportunities with strong ARR, growth profiles, and profitability. - Ronald Konezyma(CEO)

Contradiction Point 2

AI Infrastructure and Opengear Growth

It involves differing assessments of AI infrastructure's impact on Opengear's growth, which is significant for product strategy and investor expectations.

What are the key drivers for AI infrastructure growth among larger customers? Is AI adoption driving data center use cases? - Caden Dahl (Piper Sandler)

2025Q4: Opengear serves both data center and Edge applications with a 50-50 split. AI infrastructure is growing, with hybrid deployments becoming more prevalent. This trend benefits Opengear, particularly in data centers. - Ronald Konezyma(CEO)

How is AI infrastructure development affecting Opengear? - Matthew Maus (B. Riley Securities)

2025Q3: Opengear serves both data center and Edge applications with a 50-50 split. AI infrastructure is growing, with hybrid deployments becoming more prevalent. This trend benefits Opengear, particularly in data centers. - Ronald E. Konezyma(CEO)

Contradiction Point 3

Recurring Revenue Growth Strategy

It involves the strategic approach to growing recurring revenue, which is crucial for the company's financial stability and investor confidence.

What are the current trends in recurring revenue and execution at the field level? Have there been any changes to the go-to-market strategy contributing to success? How much of the recurring revenue segment is currently at risk or subject to renegotiation? - Thomas Moll(Stephens)

2025Q4: Digi is focused on selling solutions with 100% attached, aiming for complete customer leverage. There's good progress in terms of attach rates, especially in co-termination and renewals. - Ronald Konezny(CEO)

What operational levers are you using to drive recurring revenue growth? - Thomas Moll(Stephens)

2025Q2: Two key levers are being emphasized: offering a solution by attaching software and services to products to provide a more complete solution, and providing a Ventus model where customers can pay for services over time instead of a one-time upfront cost. - Ronald Konezny(CEO)

Contradiction Point 4

Macroeconomic Conditions and Customer Spending

It reflects the company's assessment of macroeconomic conditions and their impact on customer spending, which is critical for revenue forecasts and investor confidence.

Are customers becoming more confident in the macroeconomic environment? - Anthony Stoss(Craig-Hallum)

2025Q4: Customer confidence is improving, driven by Fed policy and strong demand in certain verticals like utilities, data centers, and medical devices. - Ronald Konezny(CEO)

How has macro volatility impacted customer spending across your product portfolio? - Caden Dahl(Piper Sandler)

2025Q2: We see steady demand overall, with stability in sales ops statistics, pipeline, days to close, and average order size. - Ronald Konezny(CEO)

Contradiction Point 5

AI Infrastructure and Data Center Growth

It concerns the potential for AI infrastructure to drive data center growth and the overall expected impact on Digi's revenue streams, which are key areas of focus for investors.

What are the growth drivers in AI infrastructure from larger customers? Are they contributing to data center use cases? - Caden Dahl (Piper Sandler)

2025Q4: Data centers are the primary beneficiary of AI expansion, particularly for Opengear. Data center growth could be constrained by infrastructure issues, but the potential is significant. - Ronald Konezny(CEO)

How should we consider potential tailwinds from IT budgets, data center refreshes, and use cases such as ATMs, point-of-sale sensors, and gaming? - James Fish (Piper Sandler)

2025Q1: There's a favorable backdrop for infrastructure investment, with a potential uplift in the hard goods economy. Western companies favor Western providers for IoT solutions, presenting opportunities for Digi. - Ronald Konezny(CEO)