Digi International enters its fiscal fourth-quarter report with an unusual combination: the most confident outlook management has offered in a year, and a stock that has drifted lower since it delivered that outlook. The company raised its full-year targets for revenue, adjusted EBITDA and recurring revenue last quarter. Shares have since fallen 6.6%, trailing the S&P 500 by about four percentage points. The report, due after the close on November 11, will test whether that skepticism is justified or simply leaves room for another upside surprise.
The Street expects non-GAAP earnings of $0.76 a share on revenue of $140.4 million. Revenue would be up 22.8% from a year ago, and earnings would be up roughly 60% from $0.47. Management guided to $0.75 to $0.78 a share on revenue of $138 million to $142 million. That puts consensus revenue at the midpoint and the earnings estimate in the upper half of the range. The Earnings Whisper of $0.80 sits above the top of guidance, which is the more telling signal. To clear that bar, Digi needs to beat its own forecast, not just meet it, and the company has trained investors to expect exactly that. Guidance has climbed steadily this year. The full-year revenue target rose from a midpoint near $499 million early in the year to $529 million to $533 million. EBITDA growth expectations went from around 20% to roughly 35%.
The central operating question is margin durability. Adjusted EBITDA margin reached a record 29.1% last quarter, up from about 26% in the first half. On the prior call, management had warned that EBITDA would dip sequentially from the third to the fourth quarter because of product mix and memory costs. Three months later, that caution turned into a raise. Holding margins near the high-20s would confirm that operating leverage from integrating Particle and Jolt is real. A slide back toward 26% would suggest the third quarter was flattered by favorable mix. Pricing for DDR4, DDR5 and eMMC memory has been a worry all year and remains the most obvious swing factor for gross margin.
Demand quality matters just as much. Management said deals were closing faster, the pipeline was growing at every stage, and customers were placing orders early out of supply-chain anxiety. That last point cuts both ways. Early orders help near-term revenue, but they can borrow from future quarters, so any sign that the pull-forward is fading deserves attention. Annualized recurring revenue is a cleaner read. It stood at $191 million against a year-end target of at least $193 million, a modest bar. A figure comfortably above that would support management's view that the $200 million goal for fiscal 2028 will arrive well ahead of schedule. Early revenue from the newly launched DANI AI tool inside Digi Remote Manager, which management said would begin showing up this quarter and next, would add credibility to the software story.
Sentiment has cooled noticeably, moving from mildly bullish before the last report to moderately bearish now. The stock trades at $71.83, comfortably above its 200-day moving average of $63.09. It sits in the lower half of its post-earnings range of $66.16 to $86.84, well off the spike that followed last quarter's raise. The market seems to doubt that record margins and AI-adjacent data-center demand can last, especially since hyperscaler opportunities are excluded from guidance.
The narrative stays intact if Digi lands near or above the top of its range while holding margins close to last quarter's record despite memory costs. Results at the midpoint with slipping profitability would hand the skeptics their argument. Any early commentary on whether demand holds once the supply-chain urgency fades will shape how investors frame next year.