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DATE
Wednesday, Nov. 11, 2026
CALL PARTICIPANTS
- Chief Financial Officer-James Loch
- President and Chief Executive Officer-Ronald Konezny
TAKEAWAYS
- Full-Year Revenue Growth — 24% for fiscal 2026, driven by a split of 50% onetime revenue and 50% recurring revenue growth.
- Total Annual Cash Generation — $153 million, allowing the company to end the fiscal year with a net debt position of $39 million.
- Operating Leverage — 47% of revenue in the fourth quarter, reflecting a decrease from 51% in the prior-year period.
- Acquisition of Disruptive Technologies — $130 million in cash, which management expects to fund via an existing credit facility and close on Nov. 30, 2026.
- IoT Products and Services Revenue — grew nearly 30% year over year, accompanied by a 320 basis point improvement in operating margin.
- IoT Products and Services ARR — 100% year-over-year growth, which management attributed to the acquisition of Particle alongside organic growth.
- Solutions Revenue — 20% year over year, resulting in a nearly 600 basis point improvement in operating margin.
- R&D Investment — 15% of revenue, focused on innovation across hardware, connectivity, software, and artificial intelligence applications.
- Disruptive Technologies Operational Scale — over 250,000 sensors deployed globally, primarily in the European market through channel partners.
- Sensor Battery Life — up to 15 years for Disruptive Technologies hardware, enabling ease of deployment in various industrial applications.
- Fiscal 2027 Revenue Guidance — 10% to 15% growth, including the anticipated impact of the Disruptive Technologies acquisition.
- Fiscal 2027 ARR Growth Guidance — at least 15%, reflecting a transition of acquired onetime models toward recurring subscription models.
- Fiscal 2027 Profit Growth Guidance — 12.5% to 17.5% for the full year.
- First Quarter Fiscal 2027 Revenue Guidance — 14% to 18% growth year over year.
- First Quarter Adjusted EBITDA Guidance — 25% to 30% growth year over year.
- First Quarter Adjusted EPS Guidance — 27% to 34% growth, based on an assumption of 39.5 million diluted shares.
- Expected Interest Expense — $0.02 to $0.04 per diluted share for the first fiscal quarter of 2027.
- Disruptive Technologies EBITDA Target — $9 million in incremental adjusted EBITDA expected by fiscal 2028 after integration is complete.
- Customer Deployment Longevity — seven years on average, which management stated requires high uptime and system redundancy.
- Inventory and Demand Planning — nine to 12 months, extended from the traditional six-month window to manage supply chain allocation and lead times.
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RISKS
- Loch stated, “The AI data center surge and build-out has really put a lot of pressure on the supply chain, especially memory,” noting that these conditions have created both cost and allocation challenges across the global provider network.
- Loch warned that while days to win metrics are improving sequentially, they have yet to return to levels seen prior to the COVID-19 pandemic.
- Konezny indicated that certain channel partners typically reduce inventory positions toward the end of their fiscal years, which historically impacts the company’s first-quarter performance.
SUMMARY
Digi International Inc. (DGII +2.94%) reported record results for fiscal 2026, highlighted by growth across all primary financial metrics and the announcement of a pending $130 million acquisition of Disruptive Technologies. Management indicated that the company is on track to reach its long-term goal of $200 million in annualized recurring revenue in fiscal 2027, one year ahead of the original 2028 target. The strategic focus remains on integrating hardware with subscription-based management services and leveraging the new acquisition to expand the SmartSense solution into European markets. Management noted that the current supply chain environment requires longer-term demand planning and surgical pricing adjustments at the individual SKU level to manage rising component costs, particularly in memory.
- The company plans to transition Disruptive Technologies from a one-time hardware sale model to a recurring subscription model to better align with customer outcomes and build ARR.
- Management is exploring internal cross-selling opportunities for Disruptive Technologies sensors across its Opengear and cellular business units, including applications for data centers and financial institutions.
- The Opengear division is pursuing expansion into the hyperscale data center market, with Konezny stating, “We’re excited to try to continue that success by landing potentially a hyperscaler. That’s a long road, and we’re very well along that road.”
- The company has identified a fifth strategic pillar centered on artificial intelligence, aiming to use edge and cloud processing to improve customer time to value.
- Konezny noted that security requirements are driving customer demand for managed solutions, stating, “I think this day of managing internally is becoming more and more burdensome for those companies that have chosen that path.”
- Management expressed interest in expanding into high-growth verticals such as defense technology, drones, and robotics, though these areas have not been traditional strongholds for the company.
INDUSTRY GLOSSARY
- ARR: Annualized Recurring Revenue, a metric used to predict the annual value of subscription-based contracts.
- SmartSense: A Digi-owned wireless monitoring system used to track temperatures and facility operations in healthcare and food service.
- Out-of-band management: A method of managing network equipment via a secondary communication channel, separate from the main network traffic.
- Console Server: A hardware device that provides remote access to the system consoles of other networking equipment.
- Opengear: A Digi business unit specializing in secure out-of-band management solutions for data centers and edge locations.
- Particle: A Digi division that provides integrated IoT hardware and software solutions, including cellular modules and a cloud platform.
- CVE: Common Vulnerabilities and Exposures, a list of publicly disclosed cybersecurity vulnerabilities.
Full Conference Call Transcript
Operator: Good day, and thank you for standing by. Welcome to the Fiscal Q4 2026 Digi International Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Jamie Loch, Chief Financial Officer. Please go ahead.
James Loch: Thank you. Good day, everyone. It’s great to talk to you again, and thanks for joining us today to discuss the earnings results of Digi International. Joining me on today’s call is Ron Konezny, our President and CEO. We issued our earnings release after the market closed today. You may obtain a copy of the press release through the Financial Releases section of our Investor Relations website at digi.com. This afternoon, Ron will provide a comment on our performance, and then we’ll take your questions. Some of the statements that we make during this call are considered forward-looking and are subject to significant risks and uncertainties.
These statements reflect our expectations about future operating and financial performance and speak only as of today’s date. We undertake no obligation to update publicly or revise these forward-looking statements. While we believe the expectations reflected in our forward-looking statements are reasonable, we give no assurance such expectations will be met or that any of our forward-looking statements will prove to be correct. For additional information, please refer to the forward-looking statements section in our earnings release today and the Risk Factors section of our most recent Form 10-K and subsequent reports on file with the SEC. Finally, certain of the financial information disclosed on this call includes non-GAAP measures.
The information required to be disclosed about these measures, including reconciliations to the most comparable GAAP measures are included in the earnings release. The earnings release is also furnished as an exhibit to Form 8-K that can be accessed through the SEC Filings sections of our Investor Relations website. Now I’ll turn the call over to Ron.
Ronald Konezny: Thank you, Jamie. And again, welcome, everyone, to Digi’s Fourth Fiscal Quarter and Full Year 2026 Earnings Call. First and foremost, Happy Veterans Day to everyone. My father had 2 tours with the U.S. Army. So it’s a very personal holiday for me. And I want to thank all those veterans for giving our country the greatest honor service to our nation. That said, we’ve got a good agenda for you today. We’re going to review fiscal 2026 highlights. We’re going to talk about some results and our guidance and give an update on our long-term goals. Some key messages for the year. As you recall, we are a customer-driven organization. Customers are our #1 priority.
We provide them a complete, secure, reliable solution for business and mission-critical applications. We devote about 15% of our revenue to innovation. Innovation spans across hardware, connectivity, software and now increasingly the use and leverage of AI for ROI. We complement this award-winning technology with impeccable service. Our customers need 24/7 expert support. They need flexible solutions, whether they self-manage them or offer Digi to fully manage those solutions. We back that up with a company that’s strong, that’s thriving, that’s executing on its financial and operational priorities. We’re happy to announce yet another set of record quarterly revenue, ARR and adjusted EBITDA metrics. And we’ve delivered results that are above our guidance almost across the Board.
Our ARR, which is the biggest sign of customers accepting Digi solutions is ahead of our target. We combine that financial performance, deploy organic initiatives — with that cash we generate, we’re able to finance acquisitions with debt, pay down the debt through the synergies we are able to capture. For example, recently, we integrated Jolt and Particle into common systems and processes, achieved our financial objectives. We now are on the [ precipice ] of our most recent acquisition, Disruptive Technologies, which extends SmartSense to Europe and [ CSS ] into new markets with new award-winning sensors. So the idea of acquiring, integrating, generating and compounding has now been established within Digi.
The key pillars of our IoT value proposition are a combination of security. And in today’s world, security is a rapidly evolving and frequently changing landscape. The advent of AI has brought threats that are now happening on a much more frequent basis, and we are responding with zero trust device authentication and then encryption, automated vulnerability management and having certification to the highest standards of carrier-grade type security. We combine that with 4 decades of reliability, high uptime, longevity of devices that carry you through an average of a 7-year deployment, which is what many of our customers see and really redundant and fault tolerance systems.
Our offering scale both in numbers and across geographies, many of our customers need us to perform across the world. We’re managing millions of edge devices. We’re cloud native. We’re an API-first architecture. Our solutions work as well for small businesses as they do the largest companies in the world. And they’ve got to be easy to use. They got it easy to provision, intuitive to use and get you really the quickest time to value with plug-and-play hardware and again, complemented by expert support.
And now with the advent of AI, we’ve got a fifth pillar, which is really leveraging AI, both at the edge and in the cloud to make our systems even more valuable and improving that time to value. We also offer our customers a range of models. As I mentioned earlier, customers can pursue a more traditional model where they purchase our equipment, they use our device management tools, and they really self-manage their solution. They’re also increasingly a fully managed solution, where we’re offering the complete solution, hardware, software, connectivity services, zero down monthly fee. And quite frankly, for many of our customers, that better matches the ROI.
They don’t have a spike of ROI that then tempers over time. They actually build up overall ROI over time, and that better matches a fully managed solutions for many of our customers. In some cases, the customer never owns the equipment and what we’re delivering is outcomes. That outcome may be asset uptime. It may be enhanced security, it may be leveraging field resources more efficiently. But they can really leverage the decades of our experience and excellence and decide how much effort they want to put into their IoT solution. We’ve had success across multiple verticals. We’ve been a long supplier to infrastructure, utilities and energy.
We’re providing connectivity for the smart grid for meters and for renewable solutions where our routers and gateways and [ road ] manager solutions are very popular. We’re very, very involved in the healthcare industry, both with medical devices through our Particle by Digi division, but also with SmartSense. We’re providing temperature monitoring for sensitive medical applications. In our Opengear division, we provide out-of-band management for both data centers and edge solutions across the globe. We’re also involved in retail and point of sale where we’re providing really drop-in networking for the use of our digi routers and managed services.
Transportation, we are frequently deployed in a number of mass transit solutions where Digi TX routers are used for visibility of fleet telematics and enabling ridership WiFi, digital signage and other solutions. And lastly, we participate in a number of industrial manufacturing opportunities where our Particle by Digi XBee and ConnectCore solutions provide secure reliability, connectivity for remote access. As I mentioned earlier, we’ve developed a flywheel over my soon-to-be 12-year tenure. We are using a global database of solutions to source and eventually identify acquisitions that we think can be accretive to the value proposition for our customers and, of course, to our operational model.
We acquired those companies using debt that protects the Digi shareholder and making sure that we’re building value that will accrue to the stock price, not just market capitalization. We then integrate those companies, and we take pride in integrating them into our systems, into our culture, into our processes. We then leverage growth opportunities through cross-selling, and we also then look at when appropriate cost base synergies on cost of goods and manufacturing and implement our quality initiatives. We then generate strong cash. That ARR-focused solutions provider really generates cash with a capital-light model that we can then use to repay that debt, lever down and allow us the opportunity to pursue additional acquisitions.
Our recent acquisitions of Jolt and Particle were in the last 2 years. We now have Disruptive Technology that’s pending. On Disruptive Technologies, we are joining forces with a company that has, we think, the world’s leading IoT sensor. As you can see here, smaller than the postage stamp, incredible versatility in the types of things it can measure and its battery life, which is up to 15 years, ease of deployment and driving ROI in some of the most unexpected places. We are purchasing Disruptive Technologies for $130 million of cash, which we’re going to be funding from our credit facility. We expect it to generate $9 million in incremental adjusted EBITDA in our fiscal 2028 period.
It is subject to regulatory approval, which we expect to receive this month. And our forward guidance includes assuming Disruptive Technologies joins Digi on November 30. In calendar ’25, you can see Disruptive Technologies had more of a onetime financial model where they sold sensors and had a lower subscription fee. They’ve deployed over 250,000 sensors. Majority of those are in Europe and many times through channel partners. Digi’s model is to flip this on its edge and that recurring revenue will be the focus, and we’re going to be embedding those sensors into a subscription rather than having them sold separately onetime. We think that’s in the customer’s best interest.
It closely matches their outcomes and, of course, helps us build ARR. Why did we choose Disruptive Technologies? As I mentioned, best-in-class sensing. Small sensors, 15-year battery life, a unique protocol, we think is industry-leading and allows us to gain an edge. It also has additional sensing capabilities that we don’t offer today or we offer to third parties. We enter the European market. We are taking SmartSense on the road. We’re going to leverage the relationships and channel partners that Disruptive Technologies have in place across over 20 European companies. We enter new markets of building automation, occupancy and further extending SmartSense food and healthcare markets.
As I mentioned, we’re going to be transitioning DT to a subscription model, and it’s going to provide even more data that establishes really the foundation for leveraging AI. We’re really putting live data generators out there in the physical world. As I mentioned earlier, it will be financially accretive to Digi, especially in 2028 fiscal period where we have gone through most of our integration and are able to then accelerate its growth. I’m going to pass over to Jamie for some comments on our results and our fiscal ’27 guidance.
James Loch: Everyone, nice to see you. What a great year, a milestone year for Digi. It’s — I’m in the fortunate position to be able to share the output that comes with all the things that Ron had previously talked about. So for Q4, we just had a banner year, record quarterly revenue, record ARR, record adjusted EBITDA. Our revenue growth was pretty evenly split this quarter. About $16 million of that revenue growth came from onetime revenue with about $13 million coming from recurring revenue.
Our operating leverage, which is also a really great thing to see, our operating expenses fell in Q4 to 47% of revenue, which is down year-over-year from 51% — gross margins are down a little bit this quarter. But as we’ve talked about, we are in the range of the low to mid-60s, which is really the right range for us to play in. That revenue mix is going to be a partial driver from ARR growing faster than revenue. But inside then of that onetime revenue, there is product mix that will kind of get us inside of that range, and we’re firmly comfortable in that range right now.
As we look deeper into our results into our segments, you can see we have strong performance against — inside of both of our segments. Our IoT Products and Services business is up nearly 30% in revenue year-over-year with a 320 basis point improvement in operating margin year-over-year and a 100% increase in our ARR. That ARR increase is impacted by our acquisition of Particle, but there is also a nice organic growth that is taking place inside of that number. In our Solutions business, our 20% revenue growth, with a nearly 600 basis point improvement in our operating margin year-over-year and an 11% increase in our ARR number.
And you can see that ARR number is right on the edge of 200, which we’ll talk about here in a minute. That wraps up then for the year and what an absolutely incredible year it was for Digi. Record revenue, record ARR, record adjusted EBITDA. You can see nearly 25%, 24% to be exact on revenue growth. That revenue growth is really split about 50-50 between onetime and recurring. Strong operating margins, strong GAAP EPS, continued growth in our adjusted EBITDA and our adjusted EBITDA margins. Our operating leverage fell for the year from [ 48% ] to 49% from 50% for the full year.
Gross margins, while down a little bit in Q4 on the heels of what was very strong margin performance for the year was up year-over-year on fiscal ’26. So just an absolute record year, a phenomenal performance by all of our teams. That’s great to see it manifested in the P&L. It’s a good sign that customers are getting the services and the support that they need to hit their critical objectives. Ron talked about the flywheel. And one of the things that Digi is very proud of is kind of old school fundamentals. We generate profits and we generate cash. In this quarter, we generated $42 million in cash.
That puts us over our adjusted EBITDA number for the year, $153 million of cash for the year. That leads to a debt balance of gross at $69 million. But really from a net debt perspective, when you look at the cash on hand, we’re right at $39 million, well below even a onetime lever. So at this point, it’s just phenomenal to see the flywheel fully into effect. It puts us in a position to execute on disruptive and follow the same pattern where we will generate cash and move that debt down. Moving into our guidance for fiscal ’27. We are right now projecting that our ARR growth for fiscal ’27 will be at least 15%.
For the year, we’re anticipating revenue growth to be between 10% and 15%. We’re anticipating our profit growth to be between 12.5% and 17.5%. This guidance, as Ron indicated, does include Disruptive Technologies. That was announced on October 1. We are anticipating a close date of November 30. And as a reminder, Particle closed in January of 2026. You can see on the chart on the left where it kind of lands from a midpoint perspective with those ranges in terms of dollars. Very excited to see continued double-digit growth throughout all 3 areas of our main P&L lines.
Specifically for Q1, we are anticipating revenue growth to be between 14% and 18%, adjusted EBITDA growth to be between 25% and 30% and our adjusted net income per diluted share to have growth of 27% to 34%, which is an assumption on 39.5 million shares. Again, the guidance includes Disruptive Technologies closing on November 30. Reminder that particle closed in January. That — the adjusted net income number per diluted share does include interest expense, which we anticipate to be between $0.02 and $0.04 per diluted share for FQ1. We mentioned this briefly on our main 5-year goals.
We had indicated at the end of 2023 that we wanted to have $200 million in ARR and $200 million in adjusted EBITDA by the end of ’28. You can see that based on our guide, we would expect to be able to deliver on that ARR objective here in ’27, which is a year early. You can see on the adjusted EBITDA at the midpoint, right, we’ve got a little bit of work to do. It is a 15% CAGR through from the time we set the goal through ’26. And so we fully anticipate that we will meet this objective by the end of ’28 as we originally outlined. But just absolutely phenomenal performance.
It’s great to see us continuing to execute on the objectives that we’ve laid out and continue to deliver on the commitments that we’ve made. So with that, we will take your questions. And so operator, please provide our participants instructions to ask a question.
Operator: [Operator Instructions] And our first question comes from Tommy Moll of Stephens.
Thomas Moll: I wanted to start with the demand update. What can you tell us about the opportunity pipeline? And I know the days to win KPI is one that’s helpful. So please give us an update there.
Ronald Konezny: Let me start with the funnel, the pipeline. It’s up double digit. It’s actually the highest it’s ever been. I’m going to have Jamie comment on some of our progression of those opportunities, but we’re seeing great deal registration, great channel participation and our direct selling business units within solutions are also seeing really record pipelines.
James Loch: Yes, Tommy, I think on the days to win, it continues to improve. I think there was maybe a little bit of a slowdown in that improvement. I think the elections bring or brought at least a level of uncertainty and maybe a little bit of wait and see. But they continue to improve, which is a good sign. I would say they are not back to pre-COVID levels, but they are improving sequentially, and they continue to improve year-over-year. So we continue to see that moving in the right direction.
Thomas Moll: And then I wanted to ask about the recurring revenue guide, 15% for the year. Even if I strip out Disruptive, I think it would still imply maybe like a 13% growth rate. So solidly double digit and pretty healthy. What gives you the confidence that you can execute at that level in the coming 4 quarters?
James Loch: Yes. Tommy, great question. I think some of the data we shared on the pipeline and being predictive about how those opportunities are going to progress throughout the sales stages and ultimately win rates, that’s giving us a lot of confidence that we’ve got a good handle, especially over the external factors. But we’ve got enough, I think, history experience. We’ve got brand-new products. I think we’re leading in IoT AI deployment, both at the edge and at the cloud. And I think customers with the risk that’s being increased almost daily with security and support, customers are increasingly saying, “You know what, I can’t do this internally anymore.
I need help.” I need to manage my IoT assets as actively and carefully as I do my IT assets. And I think that goes right into Digi’s value proposition.
Operator: And our next question comes from Scott Searle of ROTH Capital Partners.
Scott Searle: Nice job on the quarter, nice to also see continued strong growth into fiscal ’28. Maybe to start on the supply chain and gross margins, a little bit challenged this quarter, but still well within the targeted range. I wonder if you could just talk us through some of the puts and takes in terms of what you’re seeing out there. There’s a lot of talk not just about memory, but certainly extended lead times and other components. How you guys are managing that and how that’s kind of crafting your outlook for gross margins over the next couple of quarters?
James Loch: Yes. Scott, you mentioned it’s a difficult environment out there. The AI data center surge and build-out has really put a lot of pressure on the supply chain, especially memory. But it’s spilled over into other components as well that are fighting for capacity all the way down to the fab level. I can’t give our team enough credit in collaboration between the demand side of our equation within our business units and of course, our supply chain professionals. They are out there taking advantage of decades-long relationships with both first and second-tier type of providers in coordination with a global set of contract manufacturers. We have both cost challenges and allocation challenges.
We’re fighting through those allocation challenges pretty well. The cost challenges, quite frankly, are unavoidable. We’re being very, very thoughtful and surgical down to the SKU level of when we can use price to help capture some increased costs and quite frankly, where we can’t. And we’re always being mindful of that solution revenue to make sure we’re not putting our ARR at risk. We’re playing a long game with our customers. We don’t want to take advantage of any kind of onetime or transitionary increase in pricing. We do think eventually memory pricing will stabilize. None of us know exactly when, but I think I’m really proud of the team for fighting through it.
Scott Searle: Great. And if I could follow up on Opengear and out-of-band management. I’m just wondering if you could give us some thoughts in terms of what you’re seeing overall demand, kind of the growth expectations there, particularly when you look at some of the opportunities for you, whether it’s in Neocloud or hyperscalers, which you guys have not historically participated. How should we be thinking about that opportunity as we enter fiscal ’28?
James Loch: Yes. The Opengear team is a great team with a great leader. They’re having really broad-based growth. And what I mean by that is both campus and edge deployments in addition to data center opportunities. They’re growing as strongly in Europe and APAC and LatAm as they are in the U.S. I mean they’ve really become a bit of a global standard within smart out-of-band console server. And we’re excited to try to continue that success by landing potentially a hyperscaler. That’s a long road, and we’re very well along that road. There are no guarantees, but we’re fighting hard.
In many cases, we do business with them, but not in their core cloud business, but with their IT groups or with maybe smaller offerings that’re not as large and central as their core data center application. But we’re really excited about some of the progress we’re making.
Operator: And our next question comes from Matthew Maus of B. Riley Securities.
Matthew Maus: Congrats on the strong close to the fiscal year. Just to quickly go over ARR again. In terms of Disruptive, I’m wondering how quickly do you expect disruptive customers to move to the SmartSense subscription model and how you think that shapes ARR for fiscal ’27 and beyond?
James Loch: Yes, it’s a great question. We haven’t quite closed the transaction yet. So a lot of this execution is yet to remain. There’s a lot of course planning discussions happening between the teams right now. We’re going to be very deliberate and careful, and ’27 will be a year of transition. If you recall, a lot of disruptive technologies relationships are through channel partners. So there’s a combination of working directly with end users, but also working closely with the channel partners, both in Europe and in the U.S. So we do think it will take some time to transition. We’re patient. We’re long-term thinkers.
We’re going to be very deliberate and thoughtful, but we do think that transition will happen over time. But it will be a very thoughtful, gradual. It won’t be a snap the chalk type of transition.
Matthew Maus: Got it. Sounds good. It was also great seeing a strong outlook for fiscal ’27. I pretty sure the slides mentioned it includes Disruptive. So I’m just wondering how we should think about the organic growth embedded in that 10% to 15% range and what would get you toward the upper end?
James Loch: Yes. It’s Disruptive Technologies that we just talked about. It’s going to be a little different than what they’ve experienced historically, where historically, they would see very, very strong growth rates on the onetime ARR, not maybe as strong because the revenue model was much more onetime oriented. So you’re going to see really a shift from that onetime growth into recurring. Recurring will then much more closely match the Digi model where recurring revenue grows faster than that onetime.
Matthew Maus: Got it. And last one for me, just in terms of — for the future, like which end markets are you most excited about for the near term? Is it data centers, utilities, healthcare or some other?
James Loch: I’m sorry, Matthew, I think we lost you a little bit in the audio. I believe you might be asking about where we’re seeing pockets of strength in verticals.
Matthew Maus: Can you hear me now?
James Loch: Yeah, we got you now.
Matthew Maus: Yes. So in terms of end markets, I’m wondering like what you’re most excited about for the near term? Is it data centers, utilities, healthcare or some other?
James Loch: Yes. We touched on it earlier in the presentation. And those verticals we touched on, and you can see how diverse our business is and our different product lines have different strengths. So in healthcare, SmartSense and our Particle by Digi had great success in utilities. We have great success in cellular routers. Thank you, Jamie. We do a lot of work with our Ventus by Digi solution in financial services and point of sale. So you’ve got — these are the verticals we are most excited about that we think are really powering our growth, both in the past and we think into the future.
Matthew Maus: Great. That was all for me. Congrats on the strong quarter. I’ll hop back into queue. Thank you.
Operator: And our next question comes from Timothy Shubsda of Piper Sandler.
Timothy Daniel Shubsda: This is Tim on for Fish here. Just wondering if you could kind of talk about how you guys are feeling about supply versus the level of demand that you’ve been seeing in terms of like your 2027, how are your supply levels in terms of like your guidance? Are you kind of on track? Or do you have ample supply? Do you still need to go out and get some more?
James Loch: Yes. Timothy, it’s a really good question. We generally are in the mode where demand is not as big a challenge as supply is. And as I mentioned, we’ve got just a great collaboration between our product lines, understanding their demand, educating their customers on lead times. And of course, our supply chain group really resourcefully finding all of the components we need, not always at the price we’d like, but nonetheless, fighting through this. We also are having to look farther out than we have traditionally. A lot of times, we’re looking out 6 months on our demand planning. Now we’re having to go to 9 months, in some cases, as far as 12 months.
And it is a really careful message that we manage with our customers. Of course, we’ve got SKUs that are high runners, and we’re using a lot of our historical demand numbers to help guide. But then there are some other SKUs that are more unique to certain applications or customers. And those — we have to have really collaborative discussions with our customers that are seeing either increases in their business or having to offer a new market or new offering. And we’re having to get them to commit earlier to make sure we’ve got the product to meet their time lines.
Timothy Daniel Shubsda: Got it. And you guys have mentioned kind of security here kind of being a little bit of a motivating factor for customers. In terms of just general customer behavior, have you guys been seeing like more of a pull in, any pushouts or anything to comment on there?
James Loch: Yes, we don’t see any dramatic pulling in or pushing out. Our price increases when they do go in effect for certain SKUs have been pretty modest, single-digit type of situation. So not enough to really dramatically change behavior. I’d say lead times has probably been a bigger opportunity for us to work through to make sure people are thinking 3, 6, in some cases, 9 months out on their demand side, recognizing that some of these solutions may be harder to procure, take more time. But we’re not seeing significant pull in or push out. We still think customers are really ROI driven.
And in some cases, our best prospect is the customer has been managing their own IoT solution internally and have realized, boy, it is no longer set and forget it. You have to really actively manage these solutions. You have to have security staff that are monitoring [ CVEs ], putting patches and solutions in place and then able to get those solutions out to these edge devices be it an automated software platform in addition to protecting your cloud and API assets. So I think this day of managing internally is becoming more and more burdensome for those companies that have chosen that path.
Operator: And we have a follow-up from Tommy Moll of Stephens. Your line is open.
Thomas Moll: Just a question on the first quarter guidance, Jamie. EBITDA dollars are guided down sequentially. What can you highlight as the driver there?
James Loch: Yes, Tommy, I think maybe a couple of things. One, based on a lot of what Ron has talked about relative to the supply chain, I think we’re maybe guiding a little bit more of the margins to be in the middle of our kind of range as opposed to on the higher end. And so I think we’d probably see them maybe being down a little bit. I think as you walk into the first quarter, there are certain expenses that occur in the first quarter that don’t occur at the tail end of the year due to some seasonality that takes place. And so it’s that combination that maybe has you a tick down on a sequential basis.
Ronald Konezny: And seasonally, for our IoT Products and Services segment, where they really all their work through channels, a lot of channel partners really like to tighten up their inventory positions prior to their fiscal year-end. So [indiscernible], have been the slower start for our year.
Thomas Moll: Great. Thanks for the insight. That’s all I needed.
Operator: And we have a follow-up from Scott Searle of ROTH Capital Partners.
Scott Searle: Ron, 2 quick follow-ups. First, on Disruptive, given the battery life and the overall RF performance of the solution, I’m wondering if you’re thinking about as driving it as something more broad. For instance, cellular and WiFi are standards-based solutions, but we’ve also had nonstandards-based solutions that became de facto places in the marketplace, things like LoRa. And so I’m wondering if you’re thinking about this more broadly or too early to contemplate on that front.
James Loch: Well, it’s a good question, Scott. I think our first stage in thinking about this is actually internally beyond SmartSense. So we’re going to get the solution in the hands of our cellular business unit, our Opengear business unit, our Particle business unit, so they can better understand the technology and look for applications. So for example, we service a lot of financial institutions. We provide connectivity to their ATMs. Disruptive Technology has a door open, door closed solution. Very, very potentially great feature for our ATM customers to know when that safe has been accessed, right, and coordinating that with their field services resources. There’s a lot of those applications we think we can lock in a data center.
A lot of these conditions need to be monitored, temperature, water, may be in some’s cases. So we think there’s some great opportunities there to monitor our customers’ IT assets and the environment that surrounds them. So we think that first step is really leveraging it internally. There certainly is the potential to take our show on the road, especially with the particle group that takes this type of technology puts it in a package like an XP or a ConnectCore and then allows others to incorporate this technology into their devices. That’s going to be a little bit further out. Embedded solutions take time. But I think we’ve got a lot of opportunities internally beyond SmartSense.
Scott Searle: Got you. Very helpful. And if I could, as I look out at the landscape, what you guys do very well in addition to connectivity is reliability and security thrown on top of that and you’re bringing edge processing to the equation. So with that stated, markets that come to mind are things like defense tech, drones, robotics, which we haven’t heard you guys talk a lot about. So I’m wondering if you could kind of frame the opportunity for you in those verticals? Or do they just not have enough interest given, I’ll call it, the other nuances that go along with them?
James Loch: No, it’s a very good point you bring up, Scott. And you’ve seen some other companies that have had success in defense, AeroTech. That’s not traditionally an area that we’ve had a lot of exposure to. And we’re seeing that if you can get a snowball going in those verticals, they can develop into a reliable source of customer satisfaction and, of course, revenues for us. So we do a little bit of work in that area, not quite as much as we’d like. We talk a lot about devoting resources specifically to high-growth applications, and those are certainly a few of them that come to mind.
Operator: I’m showing no further questions at this time. I’d like to turn it back to Ron Konezny for closing remarks.
Ronald Konezny: Thank you. And I want to thank everybody for joining the call today during the results of what’s really been a breakthrough fiscal 2026 for Digi. I want to thank, first and foremost, our team. This is a team sport. I can’t be prouder of our leadership team, the entire company, collaborating both on their business units and functional areas, but also as we survey the market, both Digi and non-Digi customers. We always come out top on reliability, quality, service and support, and that’s a testament to the team. I want to thank our suppliers as well. Without them, we can’t build these great solutions that our customers enjoy.
We’re going to be at the Stephens [ Growth ] Conference next week in Nashville. So please, if you get time, say hi to us, and we’ll be able to share more of our story at that event. So I want to thank everybody for joining the call, and we’re looking forward to our next update.
Operator: This concludes today’s conference call. Thank you for participating, and you may now disconnect.
