DGII Stock: How Digi Became a Player in the Internet of Things

With the help of several purchases, Digi International (DGII) aims to become a major player in the Industrial Internet of Things. DGII shareholders seem to be warming to this vision.

In 2021, DGII shares gained nearly 30% in value amid the coronavirus pandemic. And so far in 2022, DGII shares are up 62%, breaking through a stubborn bear market.

So now, the Minnesota-based company can put the state that was once home to computer industry icons like Control Data, Univac and Cray Research back on the high-tech map, along with California or Texas.


Founded in 1985, before the internet, the company went public in 1989. Previously, the company sold Digiboards, serial port expansion cards for PCs or to connect PCs to more peripherals.

During the dot.com boom of the late 1990s, DGII stock made modest gains as most technology companies prospered. Then investors forgot about Digi stock for two decades.

DGII Equity: Acquisition Spree Targets Recurring Income

Starting around 2015, the new Digi began acquiring the industrial Internet of Things—Internet-connected devices in factories, agriculture, telemedicine, retail stores, food service, and other applications. The company also expanded sales of mobile routers and console servers, mainly equipment that provides wireless Internet connectivity.

The acquisitions of Bluenica, FreshTemp, Smart Temps and TempAlert from 2015 to 2017 expanded Digi’s foodservice and pharmacy monitoring business. Customers include Subway, Arby’s, Albertson’s (ACI) a subsidiary of Safeway, CVS Health (CVS), Rite Aid (RAD) and Walgreens Boots Alliance (WBA).

In addition, the acquisition of Opengear, Haxiot, Ctek and Ventus Holdings since 2019 has made Digi an end-to-end solutions provider for the industrial Internet of Things. It sells data-gathering sensors, network routers and gateways, and software. Also, the Ventus deal made Digi a provider of managed IoT services.

Meanwhile, Digi has expanded into more markets – energy, transportation, medical devices, agriculture, ATM monitoring and retail. Customers are now included Chevron (CVX), Exxon (XOM), Union Pacific (UNP), CSX (CSX), Medtronic (MDT) and Boston Scientific (BSX).

“Diversity, I think, has proven to be a really nice asset for us,” Digi CEO Ronald Konezny said on the company’s September-quarter earnings call. He took over as CEO of Digi in 2014.

DGII Stock: A Big Order Back

He cited strong customer demand amid concerns that the U.S. economy could slip into recession. Additionally, he cited Digi’s order backlog of $300 million as of the end of fiscal 2022, versus $250 million at the end of fiscal 2022.

On the earnings call, Konezny touted Digi’s progress in meeting three targets for quarterly revenue, subscription-based annual recurring revenue and adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA.

In the June and September quarters, Digi achieved a goal – its quarterly revenue exceeded $100 million. It also ended fiscal 2022 with $94 million in annual recurring revenue, or ARR. Now, Digi is expected to cross $100 million in ARR starting FY2023.

The company now generates 24% of total revenue from ARR subscription services, up from 4% five years ago.

“Acquisitions have steadily driven growth and margins,” Stephens analyst Tommy Moll said when he began coverage of DGII stock in June.

Acquisition of Ventus key to margin growth

Digi acquired Ventus Holdings in 2021 for $347.4 million in cash. Ventus sells managed services for monitoring ATMs in retail stores and train stations, retail outlets and digital signage.

“With the Ventus acquisition helping to achieve a greater mix of recurring revenue and changing company culture, management is reshaping its sales force and go-to-market strategies to achieve a greater mix of recurring revenue,” said T. Michael Walkley, analyst at Cannacord Genuity. on a final note to customers.

“Digi has built a strong, sustainable, high-growth ARR business over the past few years,” Harsh Kumar, an analyst at Piper Sandler, said in a note.

Digi’s third goal is to generate more than $100 million in annual adjusted EBITDA. But it ended the 2022 fiscal year with $70 million.

Including Ventus, the company generates approximately 25% of revenue from high-margin, software-based IoT Solutions services.

Conservative Income Management?

Analysts expect the purchases to continue. Kumar met with the management in September.

“Management is intensely focused on ARR,” a DGII stock analyst said in a note. “The goal is to combine existing ARR growth with profitable growth organically and/or through acquisitions. Management has been very clear that future acquisitions must have a high ARR angle to be consistent with the initial outlook.”

In its fiscal fourth quarter, Digi reported adjusted earnings growth of 80% year over year to 45 cents per share. Also, revenue increased by 34% to $105.7 million. Its results beat analysts’ estimates of 41 cents per share on revenue of $100.4 million.

For fiscal 2023, Digi forecasts revenue growth of 10% amid ongoing supply chain constraints.

Edge Computing to Augment IoT

IoT deployments depended on wireless networks, either long-range cellular or local Wi-Fi. The rollout of 5G wireless networks is expected to boost IoT applications.

Also, Digi sees more demand for private business 5G networks, Konezny told DGII stock analysts.

In addition, 5G networks improve latency, the amount of time it takes for networks to respond. Analysts expect synergies between 5G networks and “edge computing,” a new generation of cloud computing.

Edge computing places data processing, storage, and networking close to sensors and other data origins. The goal is to process and analyze data locally in real-time, rather than sending it to remote data centers in the internet cloud.

Follow Reinhardt Krause on Twitter @reinhardtk_tech For updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.


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