Digi International closed its fiscal third quarter ended June 30, 2026. Revenue grew 29 percent from a year earlier, to $139 million. Record annualized recurring revenue came in at the quarter's highest level. That figure is up 52 percent, and it is the headline metric of the report.
The strategic argument is that a 40-year-old industrial connectivity hardware franchise is converting itself into a subscription business. The IoT Solutions segment, which sells condition monitoring, task management, and managed wide area network services, grew 41 percent in the quarter. It now contributes 28 percent of revenue, and it holds 68 percent of total annualized recurring revenue. The IoT Products and Services segment, the hardware core, grew 25 percent and is itself adding recurring subscription lines. The segment ARR doubled in one year, a shift from one-time sales to contract renewals that changes the character of the earnings.
The counterweight is valuation. The stock closed near $69, a market capitalization of roughly $2.6 billion. That represents about 18 times the adjusted EBITDA guided for fiscal 2026. Management has raised full-year guidance twice, and the share price pulled back about 20 percent from its August high of nearly $87. That pullback suggests the market has begun pricing in a substantial share of the turnaround, and it means no new information is required to explain the current multiple. The falsifiable question is whether recurring revenue can keep compounding without the M&A that got the company here, because at current levels of goodwill and intangible assets, a stall in organic subscription growth is the event that breaks the thesis.