Digi International Inc. (DGII) - Q2 2026 10-Q Summary
Business Context and Reporting Period
This filing covers the quarterly period ended March 31, 2026 (Q2 Fiscal 2026). Digi International Inc. is a global provider of IoT connectivity products, services, and solutions, operating through two segments: IoT Products & Services and IoT Solutions. The period includes the full impact of the Jolt Software acquisition (completed August 2025) and the partial impact of the Particle Industries acquisition (completed January 2026).
Key Financial Metrics
| Metric | Q2 2026 (3 Months) | Q2 2025 (3 Months) | YTD 2026 (6 Months) | YTD 2025 (6 Months) |
|---|---|---|---|---|
| Total Revenue | $130.7 million | $104.5 million | $253.2 million | $208.4 million |
| Gross Profit | $83.7 million | $64.9 million | $160.1 million | $129.3 million |
| Gross Margin | 64.0% | 62.1% | 63.2% | 62.1% |
| Operating Income | $17.1 million | $13.7 million | $33.4 million | $27.1 million |
| Net Income | $11.3 million | $10.5 million | $23.0 million | $20.6 million |
| Diluted EPS | $0.29 | $0.28 | $0.60 | $0.55 |
| Operating Cash Flow (YTD) | $77.1 million (vs. $56.0 million YTD 2025) | |||
| Long-Term Debt | $143.0 million (Net of issuance costs) | |||
| Cash & Equivalents | $31.7 million |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 25.1% QoQ and 21.5% YTD, driven by organic growth and acquisitions. IoT Solutions revenue grew 38.9% QoQ, largely due to the Jolt acquisition.
- Margin Expansion: Gross margin improved by 190 basis points QoQ to 64.0%, attributed to lower manufacturing costs and a higher mix of recurring revenue.
- Acquisition Impact: The company acquired Particle Industries for ~$50.4 million in January 2026, funded by cash and a $34.0 million draw on its credit facility. This increased goodwill by $16.0 million and added intangible assets.
- Expense Increases: Operating expenses rose 30.1% QoQ, primarily due to incremental labor costs, amortization of acquisition-related intangibles, and integration costs from Jolt and Particle.
- Interest Expense: Net interest expense increased 66.2% QoQ to $2.2 million due to higher outstanding debt levels following the Particle acquisition.
Guidance, Outlook, and Risks
- Key Metric (ARR): Annualized Recurring Revenue (ARR) reached $184 million, a 50% increase year-over-year, signaling strong growth in the subscription business.
- Outlook: Management expects operating margins to expand as recurring revenue becomes a larger portion of total revenue. They anticipate continued growth in Industrial IoT and AI infrastructure spending.
- Risks:
- Supply Chain: Reliance on single-source suppliers and third-party manufacturers in regions like China and Thailand poses disruption risks.
- Geopolitical: Military conflicts (Ukraine, Middle East) and trade tensions (China) could impact component availability and costs.
- Goodwill Impairment: Future impairment charges may be required if operating results do not meet forecasts or market capitalization declines.
- Customer Concentration: Two distributors represented over 10% of consolidated revenue in Q2 2026.
- Unusual Items: A $5.0 million reserve for potential product replacement was recorded related to the Jolt acquisition purchase accounting adjustments.
Investor Verification Checklist
- Verify the sustainability of the 190 basis point gross margin expansion given rising labor and amortization costs.
- Monitor the integration progress and revenue contribution of the Particle Industries acquisition.
- Assess the impact of the $144 million revolving loan draw on future interest expenses and leverage ratios.
- Review the $236.4 million remaining performance obligation to gauge future revenue visibility.
- Confirm the status of supply chain constraints for single-source components mentioned in Risk Factors.