Digi International Inc. (DGII) is in the IoT business, serving industrial customers in sectors including manufacturing, utilities, and transportation. Once primarily a provider of “point products,” DGII is —successfully so far — transforming into a complete systems provider, highlights George Gilder, editor of Gilder’s Technology Report.
The company’s Digi 360 platform provides an integrated, complete, but flexible system — connected devices, software, and services — to help industrial customers monitor and manage operations.
Traditional point product companies focus on performance at the device level, with sometimes splendid results. But point products leave the chore of system integration within larger environments or ecosystems to their clients. In contrast, system providers deliver comprehensive packages that combine hardware, software, and services into fully integrated offerings that address multiple customer needs while reducing complexity.
DGII’s transformation is showing up nicely in its financials. The company just had a great quarter...
Revenues: Digi’s revenues saw a pandemic/post-pandemic peak, followed by an almost inevitable falloff. We focus not on the inevitable dip, but how much of the anomalous increase a company subsequently retained. By that standard, Digi is doing very well.
For Q3 (calendar) 2021, just before revenues started to soar, Digi had $80 million in sales. For Q3 2023, sales peaked at $112 million, a $32 million rise. For Q3 2024, sales were $105 million, meaning Digi retained more than 80% of its anomalous peak revenues.
Gross Margin: Hit 61%, an all-time high.
Operating Profit: Came in at $14.9 million, 10% higher than the year-ago quarter on $7 million less in revenue.
Net Profit: Up some 68%, thanks to a 55% reduction in interest expense on a 34% reduction in long-term debt.
Digi is on the right side of the most powerful trend in industry: Digital transformation. The combination of AI-driven automation with AI-powered sensors to evaluate the machines’ performance — all networked through the Internet of Things back to human supervisors — has only just begun to transform production. As the IoT evolves into the Spatial Web, companies like Digi are in very sweet spots.
Recommended Action: Buy DGII.
