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Digi International (DGII): analysis traps
Where its figures could mislead a reader, and what to check before taking them at face value · Data: Q3 FY26, to Jun 30, 2026, filed Aug 5, 2026; rules v1.1
Digi International (DGII): 3 rules of 10 triggered on the filings to Jun 30, 2026: stock compensation added back = no economic cost; FCF growth = the business improved; adjusted profit = economic profit. 2 to review; 2 not applicable. Each is a question to verify, with the normal explanation that would produce the same figures.
Check these first
Stock compensation added back = no economic cost Triggered · severity medium · confidence high
Stock compensation was $15M, 3.6% of revenue, in FY25; buybacks were $7M (0.4× the SBC) and the diluted share count still rose 2.0%. 'Adjusted' figures that add SBC back treat pay in shares as free; the cost is borne by every shareholder as dilution, or by the cash spent to buy the shares back.
Innocent reading: A young company paying in equity while it scales; intensity falls as revenue grows.
FCF growth = the business improved Triggered · severity medium · confidence medium
Free cash flow rose $24M (+30%), from $81M to $105M, but working capital released $12M more cash than the year before: 51% of the increase came from sources that need not repeat. Operating cash flow before working capital rose by $12M.
Innocent reading: An expansion programme finished, so capex fell back to maintenance levels for good.
Adjusted profit = economic profit Triggered · severity medium · confidence low
Adjusted EPS was at least 10% above GAAP in 3 of the last 3 quarters (on average 48% above). Costs excluded every quarter (restructuring, stock compensation, amortisation of acquired intangibles, litigation) are a recurring cost of the business, not a one-off.
Innocent reading: A genuine one-off this year (an impairment, a settlement) that happens to span several quarters.
Every rule
A01 FCF growth = the business improved Triggered severity medium · confidence medium
Free cash flow rose $24M (+30%), from $81M to $105M, but working capital released $12M more cash than the year before: 51% of the increase came from sources that need not repeat. Operating cash flow before working capital rose by $12M.
The figures and how they are read
| Fiscal year before | FY24 |
| Fiscal year | FY25 |
| Operating cash flow, year before | $83M |
| Operating cash flow | $108M |
| Capex, year before | $2M |
| Capex | $3M |
| Free cash flow, year before | $81M |
| Free cash flow | $105M |
| Change in FCF | $24M |
| Change in capex | $404K |
| Working capital: change in its cash contribution | $12M |
| Of which: capex cut | 0.00 |
| Of which: working capital released | $12M |
| Share of the increase that need not repeat | +51.0% |
| Operating cash flow before working capital: change | 12390000.00 |
FCF = operating cash flow − cash capex; ΔFCF = ΔOCF − ΔCapEx; the working-capital part is the change in the cash-bridge items (receivables, inventory, payables, accruals), with the sign of the cash flow statement
Source: FY25 (cash flow statement, fiscal year) · FY24 (cash flow statement, fiscal year before)
What would explain it innocently
- An expansion programme finished, so capex fell back to maintenance levels for good
- Suppliers agreed longer payment terms in a contract
- Inventory was brought down after a glut and will stay down
What to look for in the filing
- Maintenance capex (what it costs to keep the assets working)
- Supplier payment terms and any supply-chain financing
- Management's capex guidance for next year
What would show the trap does not apply
- Next year's FCF holds or rises with capex back at its earlier level and working capital no longer releasing cash
- The 10-K's capex guidance and the segment capex show the cut is a completed programme, not deferral
- The working-capital release matches a disclosed change in terms or a divestiture, not stretched payables or a collection push
Look again: next filing.
A07 Stock compensation added back = no economic cost Triggered severity medium · confidence high
Stock compensation was $15M, 3.6% of revenue, in FY25; buybacks were $7M (0.4× the SBC) and the diluted share count still rose 2.0%. 'Adjusted' figures that add SBC back treat pay in shares as free; the cost is borne by every shareholder as dilution, or by the cash spent to buy the shares back.
The figures and how they are read
| Fiscal year | FY25 |
| Stock compensation | $15M |
| Revenue | $430M |
| SBC / revenue | +3.6% |
| Buybacks | $7M |
| Buybacks / SBC | 0.5 |
| Diluted shares, year before | 37.0M shares |
| Diluted shares | 37.7M shares |
| Diluted shares: change | +2.0% |
SBC / revenue from the cash flow statement's add-back; the diluted weighted share count year over year; buybacks from the financing section
Source: FY25 (stock compensation, buybacks and the diluted share count, fiscal year)
What would explain it innocently
- A young company paying in equity while it scales; intensity falls as revenue grows
- Buybacks at prices below intrinsic value make up for the dilution over time
- A one-off grant (an acquisition, a founder award) rather than a steady level
What to look for in the filing
- The share count after the latest buybacks (the next 10-Q's cover)
- The price paid for the buybacks against the shares' value
- Unvested awards outstanding
What would show the trap does not apply
- The diluted share count falls over two years with buybacks at least equal to the stock compensation
- Stock compensation falls as a share of revenue in each of the next two years
Look again: next filing.
B02 Receivables growing = future cash is certain Not triggered confidence medium
Receivables grew -5% against revenue 29% in Q3 FY26; DSO 41 against a median of 54: collections are keeping pace with sales.
The figures and how they are read
| Quarter | Q3 FY26 |
| Revenue, year over year | +29.0% |
| Receivables, year over year | -5.1% |
| Quarter before | Q2 FY26 |
| Revenue y/y, quarter before | +25.1% |
| Receivables y/y, quarter before | 0.0% |
| Days sales outstanding | 40.7 |
| DSO, median of eight quarters | 53.9 |
| Receivables | $63M |
| Revenue | $139M |
receivables and revenue against the same quarter a year earlier; DSO = receivables / quarterly revenue × days, against the median of the eight quarters before
Source: Q3 FY26 (receivables and revenue) · Q3 FY25 (the same quarter a year earlier)
B08 Adjusted profit = economic profit Triggered severity medium · confidence low
Adjusted EPS was at least 10% above GAAP in 3 of the last 3 quarters (on average 48% above). Costs excluded every quarter (restructuring, stock compensation, amortisation of acquired intangibles, litigation) are a recurring cost of the business, not a one-off.
The figures and how they are read
| Quarter / adjusted EPS / GAAP EPS / gap | 2025-12-31 / 0.56 / 0.31 / 0.446; 2026-03-31 / 0.62 / 0.29 / 0.532; 2026-06-30 / 0.75 / 0.4 / 0.467 |
| Quarters with adjusted ≥ 10% above GAAP | 3 |
| Quarters compared | 3 |
| Latest gap | +46.7% |
the analysts' 'actual' (usually the company's adjusted EPS) against GAAP net income ÷ diluted shares for the matching quarter; a gap of 10% or more counts (the stand-in until three releases' reconciliation tables are on file)
Source: 2025-12-31 (adjusted 0.56 vs GAAP 0.31) · 2026-03-31 (adjusted 0.62 vs GAAP 0.29) · 2026-06-30 (adjusted 0.75 vs GAAP 0.40)
What would explain it innocently
- A genuine one-off this year (an impairment, a settlement) that happens to span several quarters
- Amortisation of acquired intangibles, which many investors also exclude by choice
- The analysts' 'actual' is not the company's own adjusted figure
What to look for in the filing
- The reconciliation table in the earnings release: which items, how much, how often
- Whether the same items were excluded in earlier years
What would show the trap does not apply
- The reconciliation shows the excluded items ending (a restructuring with its final charge, a settlement paid) and the gap to GAAP closes in the next quarters
- The excluded items are only amortisation of acquired intangibles and the cash paid for the deals is in the investing cash flow
Look again: next filing.
C02 Low net debt = no refinancing risk Not triggered confidence medium
Nothing comes due within a year; net debt is $80M.
The figures and how they are read
| Cash and investments | $28M |
| Debt | $108M |
| Net debt | $80M |
| Due within a year | 0 |
| Read from | the current portion of debt on the balance sheet |
| Free cash flow, twelve months | $136M |
| Cash plus free cash flow | $164M |
| Coverage of what is due | — |
| Due in the second year | — |
| Balance sheet date | 2026-06-30 |
due within a year from the maturity table (else the current portion of debt), against cash and investments plus free cash flow over the last twelve months (zero if negative); no credit lines assumed
Source: 2026-06-30 (debt maturities, cash and investments)
D03 EPS growth = profit growth Not triggered confidence high
EPS rose 49% and net income rose 54% in Q3 FY26; the share count rose 3.4%: EPS growth follows profit growth.
The figures and how they are read
| Quarter | Q3 FY26 |
| Quarter before | Q3 FY25 |
| EPS, year before | $0.27 |
| EPS | $0.40 |
| Net income, year before | $10M |
| Net income | $16M |
| Diluted shares, year before | 37.7M shares |
| Diluted shares | 38.9M shares |
| EPS growth | +48.5% |
| Net income growth | +53.7% |
| Diluted shares: change | +3.4% |
| eps from profit | $0.15 |
| eps from share count | -$0.01 |
EPS and net income against the same quarter a year earlier; the EPS bridge attributes the change to profit first, then to the share count (the order is fixed and disclosed)
Source: Q3 FY26 (net income, diluted shares, EPS) · Q3 FY25 (the same quarter a year earlier)
E02 Low P/E at a cyclical peak = undervalued To review confidence medium
Net income of $49M is at a high against a median of $19M over eight years; at 57.0× the market is not pricing it as cheap, but a multiple on this year's profit still understates the mid-cycle one (143.4×).
The figures and how they are read
| market value | $2.8B |
| net income ttm | $49M |
| pe ttm | 57.00 |
| net income median fy | $19M |
| pe mid cycle | 143.40 |
| net income peak fy | $41M |
| years | FY18 / 1.0; FY19 / 10.0; FY20 / 8.0; FY21 / 10.0; FY22 / 19.0; FY23 / 25.0; FY24 / 23.0; FY25 / 41.0 |
| down years in window | 2 |
P/E on the trailing twelve months' net income against the P/E on the median net income of the last eight fiscal years (a mid-cycle stand-in); 'at a peak' = this year's profit at or above 90% of the best year and at least 1.3× the median
Source: Q3 FY26 (net income, trailing twelve months)
What would show the trap does not apply
- Profit holds at this level through the next two years (the eight-year peak was a new base, not a top)
- The industry's capacity and prices stay where they are rather than reverting
Look again: next filing.
E07 A precise DCF value = the true value To review confidence high
The DCF's point value is 23.36 a share (price 71.43); 63% of it is the terminal value, a number about years no one has seen. Moving operating margin by ±3 pts alone takes it from 18.03 to 28.68; across every method the research ran the range is -13 to 93. The value is a range; the decimals are not information.
The figures and how they are read
| dcf value | 23.36 |
| price | 71.43 |
| terminal value share | +62.8% |
| swing by input | Operating margin / ±3 pts / 18.03 / 28.68; Revenue growth (each year) / ±5 pts / 19.21 / 28.23; WACC / ±1 pt / 20.75 / 26.66; Tax rate / ±5 pts / 21.91 / 24.8 |
| range all methods | -12.73; 92.91 |
the DCF's point value against the share of it that is the terminal value and the value at each input moved by one step (growth ±5 pts, WACC ±1 pt, margin ±3 pts …); the range across every method the research ran
Source: 2026-11-08 (valuation research)
What would explain it innocently
- A stable, mature business with a narrow range of outcomes, where the point value is a fair summary
- The inputs that matter most are themselves well known (a regulated return, a long contract)
What to look for in the filing
- Which input you believe differs from the research's and why
- What the price implies for growth (the reverse DCF on the fair-value page)
What would show the trap does not apply
- The DCF's value is robust to the terminal growth and discount rate (the range's low end is still above the price)
- The company's cash flows over the next three years track the DCF's early years
Look again: next filing.
J06 A bank's low P/E and high profit = safe Not applicable
not a bank
J08 A REIT's low net income = the dividend is unsafe Not applicable
not a REIT
What the statuses mean
Triggered: the filings show the pattern; read the normal explanations and the missing evidence before concluding anything. To review: one quarter or a weak signal; a reader's judgement, not a pattern. Not triggered: the pattern is absent on these figures. Insufficient data: the filings read so far do not hold what the rule needs; this is not a clean bill. Not applicable: the rule is not meant for this kind of company (a bank's working capital, a loss-making quarter's EPS growth). Out of date: the latest filing is more than fifteen months old.
Severity is what the pattern could mean for cash, value or solvency; confidence is how reliable the inputs and the reading are. The two are kept apart.
Record a view
A reader's judgement, grounds, what would change it and the next review; kept in the browser (needs JavaScript).
Every rule and the companies it triggers on → Digi International: cash flow → Earnings quality score →
Each rule reads the company's own filings by a fixed formula and says what would explain the same figures innocently. A triggered rule is a question to verify, not a finding of manipulation, and not a view on the stock. Missing data is shown as missing, never as clear. Not investment advice.