Strong IoT Solutions Demand and Strategic Acquisitions Drive Record Revenue, ARR Growth, and Cash Flow Performance in Q2 Fiscal 2026
Digi International, a global provider of mission-critical Internet of Things (IoT) connectivity products, software, and solutions, has reported record financial results for the second quarter of fiscal 2026, highlighting strong momentum across both revenue growth and recurring software-based services. The company announced record quarterly revenue of $131 million, record annual recurring revenue (ARR) of $184 million, and record operating cash flow of $41 million for the quarter ended March 31, 2026.
The results reflect Digi’s continued transformation from a traditional hardware-focused IoT vendor into a recurring revenue-driven solutions company centered on software-enabled connected operations, cloud services, and intelligent edge infrastructure. The company also cited strong contributions from recent acquisitions, including Jolt and Particle, as key drivers of growth across its reporting segments.
Digi reported second-quarter revenue of $131 million, representing a 25% increase compared with the same quarter in fiscal 2025. The company’s gross profit margin expanded to 64.0%, an improvement of 190 basis points year-over-year, while operating margin remained steady at 13.1%.
Net income increased 8% to $11 million, while diluted earnings per share rose 4% to $0.29. On a non-GAAP basis, adjusted net income climbed 33% to $24 million, and adjusted diluted earnings per share increased 29% to $0.62.
The company also reported adjusted EBITDA of $34 million, up 32% year-over-year, further reinforcing management’s strategy of emphasizing recurring revenue streams and higher-margin software-driven offerings.
One of the strongest indicators of Digi’s ongoing business transformation was the sharp rise in Annualized Recurring Revenue. ARR reached a record $184 million at the end of the quarter, representing 50% growth compared with the same period last year.
Management stated that the fiscal 2026 results include contributions from Jolt for the full six-month period, while the recently acquired Particle business contributed following its acquisition in January 2026.
President and Chief Executive Officer Ron Konezny said the quarter marked another milestone in Digi’s long-term growth strategy, with both of the company’s operating segments contributing through a combination of organic expansion and acquisition-driven growth.
According to Konezny, the strong ARR performance reflects customer confidence in the recurring value delivered by Digi’s solutions portfolio. He emphasized that the company’s expanding cash flow generation demonstrates the capital efficiency of Digi’s business model while also enabling continued acquisition activity designed to accelerate long-term growth.
Konezny added that Digi remains focused on a solutions-oriented strategy centered on delivering measurable return on investment for customers while positioning the company for sustained long-term value creation.
The company’s record cash flow from operations represented another significant financial highlight during the quarter. Digi generated $41 million in operating cash flow during the second fiscal quarter, compared with $26 million during the same period in fiscal 2025.
Management attributed the increase primarily to improvements in net operating assets, which decreased by approximately $15 million during the quarter compared with a decrease of $4.5 million during the prior-year period.
Digi also provided updated information regarding its balance sheet and acquisition financing activities. The company used a combination of debt financing and cash reserves to fund the acquisition of Particle, a leading provider of edge-to-cloud application infrastructure for intelligent connected devices.
At the end of the quarter, Digi reported total outstanding debt of $143 million and cash and cash equivalents totaling $32 million, resulting in net debt of approximately $111 million.
The company indicated that it intends to continue deleveraging its balance sheet over time while still maintaining acquisitions as a core component of its long-term capital allocation strategy.
Management described acquisitions as a major strategic priority, particularly transactions capable of expanding Digi’s scale and accelerating recurring revenue growth. The acquisition of Particle is expected to add approximately $20 million in ARR to Digi’s IoT Products & Services segment.
Digi said it plans to remain disciplined regarding future acquisitions, focusing specifically on opportunities that align with the company’s long-term recurring revenue objectives and software-enabled growth strategy.
The company’s IoT Products & Services segment delivered second-quarter revenue of $94 million, representing a 20% increase compared with the same period last year.
Management stated that the growth included a $10.3 million increase in one-time sales along with $5.5 million in recurring revenue growth. The company noted that pricing changes had no material impact on segment growth during the quarter.
Most of the expansion was driven organically, with additional contribution coming from the Particle acquisition.
ARR within the IoT Products & Services segment reached $57 million at quarter end, representing an increase of 104% compared with the same quarter in fiscal 2025. Digi attributed the growth primarily to the Particle acquisition, along with continued expansion in subscription-based remote management platforms, extended warranty services, and technical support offerings.
Operating margin within the segment increased by 40 basis points to 14.9% of revenue during the second quarter. The company said the improvement resulted largely from lower manufacturing-related costs, partially offset by increased amortization expenses tied to acquisition-related intangible assets.
The IoT Solutions segment also posted strong results during the quarter. Revenue for the segment increased 39% year-over-year to $37 million.
According to Digi, the increase consisted primarily of a $7.8 million rise in recurring revenue along with a $2.6 million increase in one-time sales. The majority of the growth within the segment was attributed to the Jolt acquisition.
ARR for the IoT Solutions segment climbed 34% to $127 million, driven mainly by Jolt as well as ongoing expansion within Digi’s existing solutions businesses.
While segment revenue and ARR grew strongly, operating margin declined modestly by 80 basis points to 8.3% during the quarter. Management said the decrease was primarily related to increased amortization expenses associated with acquisition-related intangible assets.
Digi’s broader strategic narrative centers on the growing demand for software-driven connected operations across industrial, infrastructure, transportation, healthcare, and enterprise markets. The company believes businesses are increasingly moving away from legacy “set it and forget it” infrastructure models toward intelligent connected systems that provide continuous monitoring, automation, analytics, and operational visibility.
Management noted that customers increasingly view connectivity and software capabilities as essential infrastructure investments rather than discretionary spending. Even amid broader macroeconomic uncertainty and ongoing trade and tariff challenges, Digi said customers continue accelerating investments in connected operations, edge computing, and intelligent infrastructure modernization.
The company believes this trend positions Digi favorably within the expanding global IoT market, particularly as organizations prioritize operational efficiency, regulatory compliance, cybersecurity resilience, remote asset management, and AI-enabled automation.
Digi emphasized that its strategy focuses heavily on solutions capable of generating recurring revenue streams beyond the initial hardware sale. This includes subscription services, cloud management platforms, software licensing, remote monitoring solutions, predictive maintenance services, and lifecycle support offerings.
According to management, the company’s recent financial performance demonstrates the effectiveness of this recurring revenue-focused model. Strong ARR growth, expanding margins, and customer retention metrics continue reinforcing Digi’s confidence in achieving its long-term financial objectives.
The company reiterated its target of reaching $200 million in ARR and $200 million in adjusted EBITDA within its planned time horizon.
Reflecting stronger-than-expected first-half performance and continued momentum entering the second half of fiscal 2026, Digi also raised its full-year financial outlook.
For fiscal 2026, the company now expects ARR growth of approximately 25%, revenue growth between 20% and 22%, and adjusted EBITDA growth between 23% and 26% compared with fiscal 2025.
Management stated that the midpoint of the updated revenue guidance implies approximately 20% expected growth during the second half of fiscal 2026 compared with the same period last year. Meanwhile, the midpoint of the adjusted EBITDA outlook implies roughly 30% growth in the second half of the fiscal year.
For the third fiscal quarter, Digi expects revenue to range between $130 million and $134 million. Adjusted EBITDA is projected between $35.5 million and $37.0 million.
The company also provided guidance for adjusted net income per diluted share between $0.65 and $0.68, assuming a weighted average diluted share count of approximately 38.8 million shares.
Management noted that beginning in fiscal 2026, adjusted net income per diluted share now includes interest expense, with prior-year figures recast for comparability purposes.
Digi said expected interest expense will reduce adjusted earnings per diluted share by approximately $0.03 to $0.04 during the quarter.
The company declined to reconcile certain non-GAAP forward-looking metrics directly to comparable GAAP measures, citing uncertainty surrounding factors such as foreign exchange fluctuations, restructuring activities, interest expense variability, and tax-related events.
Industry analysts continue to view Digi as a significant participant within the rapidly growing IoT connectivity and intelligent infrastructure market. Demand for connected devices, industrial automation systems, edge computing platforms, and software-enabled operational intelligence continues expanding as enterprises modernize critical infrastructure and deploy more data-driven operational technologies.
The increasing convergence of IoT, cloud computing, artificial intelligence, and edge analytics is creating substantial opportunities for companies capable of delivering integrated hardware, software, and managed services solutions.
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