Digi International (DGII) Q4 2025: ARR Jumps 31% as Subscription Model Drives Platform Leverage
Digi International’s Q4 capped a pivotal year, with ARR surging and recurring revenue now representing a third of the business, underlining a successful pivot to multi-year solution subscriptions. The Jolt acquisition accelerated cross-sell momentum and platform integration, while strong free cash flow and debt paydown highlight disciplined execution. Management’s double-digit growth guidance for fiscal 2026 signals confidence in the durability of Digi’s industrial IoT platform and its expanding role in edge and AI-driven automation.
Summary
- Subscription Model Shift: Recurring revenue now anchors growth, with ARR at 35% of total revenue.
- Platform Integration: SmartSense and Jolt synergies are fueling early cross-sell traction and operational unity.
- AI and Edge Expansion: Management is investing in AI at the edge to unlock new automation and efficiency levers.
Performance Analysis
Digi International delivered record Q4 results, achieving $114 million in revenue, up 9% year-over-year, and closing the year with $430 million in total revenue. The standout metric was annual recurring revenue (ARR), which reached $152 million, a 31% increase over the prior year, now making up 35% of total revenue. This marks the fourth straight quarter of double-digit ARR growth, reflecting Digi’s ongoing transition from transactional hardware sales to solution-based, multi-year subscription contracts.
Adjusted EBITDA for the year climbed 11% to $108 million, while free cash flow generation was robust at $105 million, providing an 8% yield and enabling the company to fully pay down its Ventus acquisition debt. The integration of Jolt, a SaaS platform for operations management, contributed over $20 million in ARR and accelerated Digi’s cross-sell and platform unification efforts. Management cited strong demand across data centers, utilities, healthcare, and food verticals, with data center expansion especially benefiting the OpenGear console server business. However, Digi’s broad vertical mix ensures no single segment dominates, providing resilience against sector-specific slowdowns.
- ARR Expansion: Recurring revenue is now a key growth engine, supporting margin uplift and predictability.
- Cash Conversion Strength: Inventory reduction and operational discipline drove high free cash flow and rapid deleveraging.
- Segment Diversification: Growth is broad-based, with cellular routers leading percentage gains and data center exposure lifting hardware sales.
Margin expansion is expected to continue as ARR mix rises, with attach rates trending toward 100% in most device lines by fiscal 2028. Management’s confidence is reflected in guidance for double-digit growth across ARR, revenue, and adjusted EBITDA in fiscal 2026.
Executive Commentary
"We reported a record $152 million of ARR, with the inclusion of Jolt software acquired in August of this year, which represents a 31% year-over-year increase. This marks our fourth consecutive quarter of double-digit ARR growth. ARR now represents approximately 35% of total revenue, underscoring our continued transition from transactional sales to multi-year solution subscriptions."
Ron Koneczny, President and CEO
"At the time that we did the acquisition, we've indicated really two things. We had said that Jolt was coming in with over $20 million of ARR... I would say thus far we're tracking well, both in terms of how we are focused on our integration with our people as well as being able to obtain both the top and bottom line synergies that we have laid out."
Jamie Locke, CFO
Strategic Positioning
1. Subscription Revenue Model Transformation
Digi’s business model pivot from hardware sales to subscription-based solutions is now firmly established, with ARR comprising 35% of total revenue. This structural change supports higher margins, recurring cash flow, and customer lock-in, and is reinforced by rising attach rates—already at or near 100% in key product lines. The company expects attach rates to reach 100% across most devices by fiscal 2028, further stabilizing revenue streams.
2. Platform Integration and Cross-Sell Synergies
The Jolt acquisition, a SaaS platform for operations management, and its integration with SmartSense, Digi’s IoT monitoring solution, are producing tangible cross-sell opportunities. Management highlighted unified sales and operational teams, with early pipeline movement reflecting customer appetite for bundled offerings. This platform approach is designed to accelerate both ARR and margin expansion, while also streamlining go-to-market execution.
3. AI and Edge Computing Enablement
Digi is actively leveraging AI to drive internal productivity and is now embedding AI features into its customer-facing applications. The company is exploring “tiny language models at the edge”—compact AI algorithms deployed on IoT devices—to enable autonomous decision-making and reduce latency. This positions Digi to capture value as industrial automation and edge intelligence become mainstream in IoT deployments.
4. Capital Allocation and Acquisition Flywheel
Acquisitions remain Digi’s top capital deployment priority, with management signaling a robust pipeline in the fragmented industrial IoT sector. The company’s strong cash generation and debt paydown have reloaded its balance sheet, enabling pursuit of both large and small targets that meet strict ARR and strategic fit criteria. Management views this acquisition flywheel as a key lever to accelerate its $200 million ARR and EBITDA targets by fiscal 2028.
5. Vertical and Geographic Diversification
Digi’s revenue is well-diversified across verticals—including data centers, utilities, healthcare, and food—limiting exposure to any single end market. While North America remains the core (over 70% of revenue), management sees Europe as a meaningful but slower-growing contributor, with country-specific opportunities.
Key Considerations
Digi’s Q4 performance underscores a business in transition from legacy hardware to a high-visibility, software-driven platform. The successful Jolt integration, strong cash generation, and double-digit growth guidance position Digi for durable compounding, but execution on ARR growth and margin expansion targets remains critical.
Key Considerations:
- Recurring Revenue Momentum: ARR growth is outpacing overall revenue, supporting higher margins and valuation multiples.
- Cross-Sell Execution: Early signs of SmartSense and Jolt synergy must scale to accelerate platform adoption.
- AI and Edge Innovation: Embedding AI at the device level could unlock new automation and differentiation, but industry adoption will be gradual.
- Acquisition Discipline: Maintaining strategic fit and integration pace is essential as Digi ramps M&A activity.
- Vertical Shifts: Strength in data centers, utilities, and healthcare is balancing softness in segments like residential solar.
Risks
Persistent macro uncertainty, including government shutdowns and geopolitical volatility, continues to elongate sales cycles in some verticals. While Digi’s diversification mitigates single-market risk, execution on integration and cross-sell of acquired businesses is critical. AI investment cycles and data center demand may prove less durable than anticipated, and any slowdown could impact OpenGear and related segments. Europe remains a “wild card,” with growth potential but slower momentum than North America.
Forward Outlook
For fiscal 2026, Digi guided to:
- Double-digit growth in ARR, total revenue, and adjusted EBITDA.
- Continued improvement in free cash flow and margin structure as ARR mix rises.
For full-year 2026, management maintained its commitment to:
- Progress toward $200 million in ARR and adjusted EBITDA by fiscal 2028.
Management’s outlook is anchored by:
- Rising attach rates and unified platform execution.
- Ongoing acquisition pipeline in industrial IoT.
Takeaways
Digi International is executing a high-conviction pivot from hardware to subscription solutions, with ARR now a third of revenue and growing rapidly. The Jolt acquisition and SmartSense integration are creating a platform for cross-sell and margin expansion, while strong free cash flow supports further M&A. AI and edge investments offer long-term upside, but near-term growth depends on continued execution in ARR attachment and successful acquisition integration.
- Subscription Model Entrenchment: Recurring revenue base is transforming Digi’s margin profile and growth visibility.
- Platform Synergy Realization: Early cross-sell traction from Jolt and SmartSense validates the platform thesis, but scaling is the next hurdle.
- Execution Watchpoint: Investors should monitor attach rate progress, acquisition discipline, and evolving AI productization for signs of sustained outperformance.
Conclusion
Digi’s Q4 results mark a strategic inflection point, with recurring revenue and platform integration driving both growth and resilience. Execution on ARR scaling and M&A integration will define the pace and durability of Digi’s transformation into a leading industrial IoT platform company.
Industry Read-Through
Digi’s results highlight a broader industrial IoT trend: hardware-centric vendors are racing to build subscription revenue streams and platform ecosystems to capture higher margins and lock in customers. AI at the edge is emerging as a differentiator, but adoption will be staggered by industry and data readiness. The OpenGear data center exposure reflects the ongoing build-out of AI infrastructure, but also signals that cyclicality and power constraints could temper growth. Industrial IoT consolidation is likely to accelerate, with disciplined acquirers like Digi positioned to benefit from sector fragmentation and the premium placed on ARR-heavy targets.