Digi Q3: 47% EBITDA Growth, 52% ARR Surge to $191M

For investors, Digi's Q3 is less about the 29% revenue print and more about the quality of earnings: adjusted EBITDA rose 47% on a 29.1% margin while ARR accelerated 52% to $191 million. That mix shift toward higher-margin recurring revenue is the core re-rating signal for DGII.

Digi International closed its fiscal third quarter with a clear inflection in profitability as software and recurring revenue grew faster than total sales. On the Aug. 5 earnings call, CEO Ronald Konezny and CFO James Loch reported Q3 2026 revenue of $138.7 million, up 29% year over year, driven by organic customer demand and the Particle and Jolt acquisitions. The headline is not just growth but mix: adjusted EBITDA climbed 47% to $40.4 million, producing a 29.1% adjusted EBITDA margin, while adjusted EPS rose 47% to $0.75 from $0.51 a year earlier. That operating leverage allowed profits to grow roughly 1.6 times as fast as revenue.

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Fourth-quarter revenue guidance of $138 million to $142 million implies only modest sequential growth from Q3's $138.7 million, but the full-year revenue range of $529 million to $533 million represents 23% to 24% growth.

The segment breakdown explains the shift. IoT Product & Services revenue reached $100 million, up 25%, with a $12.4 million increase in one-time sales and $7.4 million in recurring revenue growth. IoT Solutions revenue jumped 41% to $39 million, primarily from the Jolt acquisition and growth in existing solutions. More importantly, ARR rose 52% to $191 million. IoT Product & Services ARR doubled to $60 million, supported by Particle and expanded subscription bases, while IoT Solutions ARR grew 36% to $131 million on strength in SmartSense and Ventus. This recurring base gives Digi a more predictable earnings stream and underpins its margin trajectory.

Profitability metrics reinforced the quality of the quarter. Gross margin expanded 130 basis points to 64.8%, aided by favorable product mix and higher-margin software services. Operating margin widened 260 basis points to 16.5% as volume grew faster than operating expenses. Cash flow from operations rose 38% to $33 million and, on an annualized basis, exceeded year-to-date adjusted EBITDA, signaling that the earnings are converting into cash. For a company integrating two acquisitions, that cash conversion is a notable positive.

The M&A integration appears to be delivering. Particle and Jolt contributed not only to revenue but also to the recurring revenue base and margin profile. The 100% jump in IoT Product & Services ARR shows that Particle's subscription model is scaling within Digi's distribution, while Jolt helped lift IoT Solutions revenue and ARR. The 52% enterprise ARR growth is likely to be a focal point for investors because it reduces reliance on lumpy one-time hardware sales and creates a higher-quality revenue mix.