Digi International, poised for a conference this week that will include 400 stakeholders and fresh off record first-half results in fiscal 2019, may have achieved the transformation CEO Ron Konezny envisioned when he took over in 2015.

Konezny led a job-shedding restructuring of Digi, which still makes and sells routers and other devices that connect solar arrays and agricultural and industrial equipment to the internet. However Digi is getting much faster growth from sales of software solutions and services that help end-user companies monitor performance and replace parts before they expire or act up. 

“With Digi’s improved ‘Internet of Things’ focus and execution to drive a simplified product offering with stronger revenue growth and adjusted [operating profit] margins … combined with a healthy net cash position … the shares represent an attractive opportunity,” Canaccord Genuity analyst T. Michael Walkley told investors in a May note.

Canaccord projects the stock, trading around $12 today, could hit $21 per share within 12 months.

Anthony Stoss at Craig Hallum, the Minneapolis-based investment bank, said he is encouraged by a “sign of traction” resulting from product initiatives and increased sales at Digi, which he believes could be worth $17 a share.

Konezny took Digi from $7.50 per share to nearly $14 per share during his first two years on the job. The turnaround has taken longer than once expected.

The price topped $14 per share again briefly in February, before sliding under $12 in recent weeks amid the tech sell-off and general market decline.

All Konezny, a veteran tech-industry executive, can do is keep driving improved results.

During the first six months of fiscal 2019, Digi posted net income of $6 million, or 21 cents per share, compared to a loss of $4.6 million last year. Half the earnings came from an after-tax gain on sale of its old headquarters in Minnetonka.

Revenue in the first half of fiscal 2019 rose by 29% to $128.1 million.

“Our results reflect the investments we made to simplify our business and drive success with customers, distribution partners and new products,” Konezny said. “We remain focused on building on these results to complete a record 2019.”

Konezny streamlined device offerings, outsourced more manufacturing and drove faster-growing revenue from selling software and services to repeat customers, achieving much of what he said he wanted to accomplish.

The company also has been under pressure since resisting a cash offer of $13.82 a share, or about $380 million, from the larger Belden Inc. of St. Louis in late 2016. Since then, Digi has generally seen annual revenue and profit growth.

Digi accelerated the drive into wireless modules that can be used to hook up almost anything to the internet, pushing into markets known in the tech industry as machine-to-machine communication and the internet of things.

Digi streamlined its portfolio, outsourcing more than 80% of manufacturing for what was once largely a maker of routers and other parts. Digi also cut employment by about 10% last year to 550 jobs.

“We are still hardware-enabled but selling more software as a solution to customers in energy, such as solar; utilities; transportation and ‘smart cities,’ ” Konezny said in an interview. “We’re getting much more revenue out of newer products.

“We’re also winning key accounts of more than $100,000 in deal size. Our win rate was less than 10% in 2015. For the first six months of this fiscal year it’s 30%. I want to win over 50%.”

Digi, more than an equipment seller, increasingly generates repeat income, not just in monitoring energy output and performance, but selling the software system and monitoring the continuous data and upgrades to the system.

Konezny, 50, was a founder of Minnetonka-based PeopleNet in 1996, a fleet management software firm that he grew to 250 people before selling to industry consolidator Trimble Navigation of California in 2011. Konezny left Trimble in 2014 after deciding not to move to California. He succeeded a 14-year CEO at Digi after an acquisition that didn’t work.

Konezny was paid about $1.2 million in salary and stock awards in 2017 to run a business that ranks among Minnesota’s 50 largest public companies.

Craig Hallum estimates that Digi will post improved operating earnings of $26 million in fiscal 2019 on increased revenue of $257 million.

Digi moved to more contemporary leased space in Hopkins late last year after the sale of its antiquated headquarters building and land for $10 million to a housing developer.

“We gained some cash and, more importantly, our old building was not optimal for a 21st-century tech company,” Konezny said. “We now have collaborative space, better technology … We’ve got everything. It helps attract really talented people. A million-dollar view of downtown.”

 

Neal St. Anthony has been a Star Tribune business columnist and reporter since 1984. He can be contacted at nstanthony@startribune.com.