Conestoga Capital Advisors, LLC on Digi International Inc.
Thesis
Digi sells connected-device hardware, software and services that let businesses monitor and control assets remotely. It delivered record revenue, recurring revenue and adjusted EBITDA margins, suggesting the platform is scaling profitably. Integration of prior acquisitions has supported operating leverage and cash generation, prompting an increase to management's outlook. Its large portfolio weighting reinforces Conestoga's strong commitment to the idea.
“Underlying business results remained strong, with the company generating record revenue, recurring revenue and adjusted EBITDA margins”
Key risks
- The business must integrate recent acquisitions successfully to sustain operating leverage.
- Industrial customers could slow IoT connectivity investment in a higher-rate environment.
- A premium valuation could contract despite strong operating results.