Finvest
DGII IoT Connectivity · IoT · Recurring revenue · Small cap · Thesis updated July 19, 2026

Recurring revenue is lifting Digi faster

01 Running thesis

The pivot is speeding up

Digi is moving from mostly selling connected devices once to selling hardware, software, and services that repeat over time. That plan looked much stronger in Q2 fiscal 2026. Revenue grew 25.1% year over year to $131 million, and ARR, which means annualized recurring revenue, grew 50% to $184 million.

The older IoT Products & Services business is no longer just recovering from inventory cleanup. It grew 20.4% in Q2 after growing 11.0% in Q1. That suggests demand improved, though Particle also helped after Digi bought it in January 2026.

The higher-recurring IoT Solutions segment is still the faster grower. It grew 38.9% in Q2, helped by Jolt and organic growth. If more of Digi's sales come from software and services, margins can keep improving over time.

The bear case has shifted. The worry is less about whether demand can return, and more about whether Digi can integrate Jolt and Particle well. Operating expenses rose with the deals, so missed revenue targets could hit profit harder. The stock also has a price question, so good execution may already be partly expected.

May 2026▲Q2 fiscal 2026 revenue grew 25.1% year over year to $131 million, and ARR rose 50% to $184 million. Growth accelerated in both reporting segments, making the bull case stronger.
Feb 2026▲Q1 fiscal 2026 revenue grew 17.9% year over year. IoT Products & Services returned to growth, and the January 2026 Particle deal added another push toward recurring revenue.
Nov 2025▲Fiscal 2025 showed ARR up 31% to more than $152 million and gross margin at 62.9%. Jolt was added late in the year to expand SmartSense.
Aug 2025▲Q3 fiscal 2025 revenue returned to growth at 2.2% year over year. Gross margin reached 63.5%, while ARR grew 12%.
May 2025→Q2 fiscal 2025 kept the recurring revenue thesis alive, with ARR up 12% and gross margin at 62.1%. The offset was a 3.0% consolidated revenue decline as product customers kept reducing old inventory.
Feb 2025→Q1 fiscal 2025 showed ARR up 11% and gross margin up 440 basis points. Product weakness still held back total revenue.
Nov 2024→Fiscal 2024 confirmed the main tension. ARR grew 9% to more than $116 million, but total revenue fell 4.7% as the larger products segment declined.
02 Business model

Hardware today, subscriptions tomorrow

Digi makes money in two main ways. It sells IoT products, such as embedded modules, routers, and other connectivity gear. It also sells software and services that help customers manage connected devices, monitor sites, and run operations.

The better part of the model is recurring revenue. A customer that uses SmartSense, Ventus, Digi Remote Manager, Jolt, or Particle may keep paying for software, cloud tools, and managed service support. That can make revenue more predictable than one-time hardware orders.

The weak point is that Digi still depends on product demand, supply chains, and customer budgets. If customers delay projects or use up extra inventory, hardware sales can slow. If the newer software assets do not grow on their own, the recurring revenue story may look less strong than the headline ARR growth suggests.

03 Product portfolio

The tools Digi sells

Cash cow

IoT Products & Services

This is the larger segment and made up 71.6% of Q2 fiscal 2026 revenue. It sells connectivity products and related services for customers that need devices linked to networks and cloud systems.

Growth engine

SmartSense by Digi

SmartSense is a monitoring and operations solution inside IoT Solutions. It supports Digi's push toward recurring software and service revenue.

Growth engine

Ventus

Ventus provides managed connectivity offerings. It is one of the recurring revenue engines named in Digi's filings.

Steady

Digi Remote Manager

Digi Remote Manager helps customers manage connected devices from a central cloud system. It ties hardware customers closer to Digi's software layer.

Growth engine

Jolt Software

Jolt adds task management, workforce management, and labeling tools. Digi bought Jolt in fiscal 2025 and placed it in IoT Solutions.

Option

Particle

Particle adds an edge-to-cloud IoT application platform. Digi bought Particle in January 2026 to strengthen OEM solutions and embedded-as-a-service offerings.

04 Business segments

Two segments, one shift

IoT Products & Services72%growing fast
IoT Solutions28%growing fast

The mix is from Q2 fiscal 2026 revenue. IoT Products & Services is still the larger business, while IoT Solutions is the main recurring revenue driver.

05 Risk factors

What could break the story

Jolt and Particle do not integrate well

High impact · Medium odds

The recent ARR jump was helped by acquisitions. Jolt drove much of the IoT Solutions increase, and Particle contributed to IoT Products & Services. If these assets do not keep growing after the deal boost fades, the recurring revenue story could weaken.

We watchTrack ARR growth, segment margins, and management comments on Jolt and Particle retention.

Organic growth is hard to see

Medium impact · Medium odds

Digi reported strong segment growth in Q2, but acquisitions helped both segments. The open question is how much growth came from existing products and customers. Investors need proof that the core business is improving without relying only on bought revenue.

We watchLook for organic growth disclosures for IoT Solutions and IoT Products & Services.

Costs rise faster than sales

High impact · Medium odds

The company added operating expenses through Jolt and Particle. That is fine if revenue and recurring gross profit keep rising. If demand slows, the extra cost base could pressure earnings.

We watchWatch operating expense growth compared with revenue growth and any update to margin targets.

Cloud security failure

High impact · Low odds

Digi is selling more cloud-based tools and managed services. That makes customer trust central to the model. A breach or service failure could hurt renewals, new sales, and the value of recurring revenue.

We watchMonitor security incident disclosures, service outages, and customer churn signals.

Distributor concentration

Medium impact · Medium odds

Digi disclosed that one distributor customer was 13% of consolidated revenue in fiscal 2025. That creates a real concentration risk. A change in that customer's buying pattern could show up quickly in reported revenue.

We watchWatch annual customer concentration disclosures and any slowdown in distributor orders.

Tariffs, supply chains, and fast tech change

Medium impact · Medium odds

Digi sells hardware in a market exposed to component supply, trade policy, and changing technology. The company also says it is considering adding AI to some offerings, which could bring new rules and stronger competition. These risks can raise costs or make products age faster.

We watchTrack tariff updates, supply chain commentary, gross margin, and new AI-related product disclosures.
06 Quick answers

In one breath

What does Digi International do?

Digi sells hardware, software, and services that connect machines, sensors, and remote sites to networks and cloud systems. Its goal is to make more money from recurring software and service fees over time.

Why does ARR matter for DGII?

ARR means annualized recurring revenue. For Digi, it shows how much of the business is tied to repeat software and service payments instead of one-time hardware sales.

What is the biggest risk for DGII now?

The biggest near-term risk is execution after the Jolt and Particle deals. Digi needs to prove those businesses can keep growing and help margins after the first acquisition boost.

Is Digi still a hardware company?

Yes, hardware is still a large part of Digi because IoT Products & Services made up 71.6% of Q2 fiscal 2026 revenue. But the strategy is to attach more software and services to that hardware base.