With the help of a few acquisitions, International Digi (DGII) aims to be a major player in the Industrial Internet of Things. It seems that DGII equity investors are preparing for this vision.
In 2021, the DGII stock gained around 30% amid the coronavirus pandemic. And so far in 2022, DGII stock is up 62%, thwarting a stubborn bear market.
So now, the Minnesota-based company might just be able to put the state — once home to IT industry icons like Control Data, Univac, and Cray Research — back on the high-tech map with California or the Texas.
Founded in 1985, before the birth of the Internet, the company went public in 1989. At first, the company sold Digiboards, serial port expansion cards for personal computers or for connecting PCs to more peripherals.
During the dot.com boom of the late 1990s, DGII stock made some modest gains while most tech companies prospered. Then investors forgot about Digi stocks for about two decades.
DGII Stock: Acquisition Spree targets recurring revenue
Beginning around 2015, a new Digi began making acquisitions targeting the Industrial Internet of Things – web-connected devices in factories, agriculture, telemedicine, retail stores, food and beverage services. other apps. The company also expanded into selling cellular routers and console servers, essentially hardware that provided wireless connectivity to the Internet.
The acquisitions of Bluenica, FreshTemp, Smart Temps and TempAlert from 2015 to 2017 expanded Digi’s business into foodservice and pharmacy monitoring. Clients include Subway, Arby’s, Albertson (ACI) Safeway subsidiary, SVC Health (CVS), Ritual Aid (RAD) and Walgreens Boot Alliance (WBA).
Additionally, the acquisitions of Opengear, Haxiot, Ctek, and Ventus Holdings since 2019 have transformed Digi into an end-to-end solution provider for the Industrial Internet of Things. It sells data collection sensors, network routers and gateways, and software. Additionally, the Ventus deal made Digi a managed IoT service provider.
Meanwhile, Digi has expanded into other markets – energy, transportation, medical devices, agriculture, ATM monitoring and retail. Customers now include Chevron (CLC), Exxon (XOM), Union Pacific (UNP), CSX (CSX), Medtronic (MDT) and Scientific Boston (BSX).
“I think diversity has proven to be a really great asset for us,” Digi Chief Executive Ronald Konezny said during the company’s September quarter earnings call. He took over the management of Digi in 2014.
DGII stock: large order book
He cited strong customer demand amid fears the US economy could slide into recession. Additionally, he noted that Digi had an order backlog of $300 million as of September 30, the end of its fiscal year 2022, compared to $250 million at the end of fiscal year 2021.
During the earnings call, Konezny also touted Digi’s progress in meeting three targets regarding quarterly revenue, annual recurring revenue based on subscriptions, and adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA. .
During the June and September quarters, Digi achieved one goal: to exceed $100 million in quarterly revenue. Additionally, it ended fiscal 2022 with $94 million in annual recurring revenue, or ARR. Now, Digi is expected to exceed $100 million in ARR from fiscal year 2023.
The company now derives 24% of its total revenue from ARR subscription services, up from 4% five years earlier.
“Acquisitions have consistently improved growth and margins,” Stephens analyst Tommy Moll said in initiating DGII stock coverage 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 acquisition of Ventus helping to generate a greater mix of recurring revenue and changing the culture of the company, management is transforming its sales force and go-to-market strategies to generate a greater mix of revenue recurring,” said Cannacord Genuity analyst T. Michael Walkley. in a recent note to customers.
At Piper Sandler, analyst Harsh Kumar said in a note, “Digi has built a strong, sustainable and high-growth ARR business over the past few years.”
Digi’s third goal is to capture more than $100 million in annual adjusted EBITDA. But he ended the 2022 fiscal year with $70 million.
Including Ventus, the company derives about 25% of its revenue from high-margin software-based IoT solution services.
Conservative income orientations?
Analysts expect the add-on acquisitions to continue. Kumar met with management in September.
“Management is intensely focused on ARR,” the DGII equity analyst said in his note. “The goal is to combine existing ARR growth with profitable growth organically and/or through acquisitions. Management has made it clear that future acquisitions must have a high ARR angle to qualify for a first look .”
In its fiscal fourth quarter, Digi reported adjusted earnings growth of 80% year over year to 45 cents per share. Additionally, revenue soared 34% to $105.7 million. Its results beat analysts’ estimates of 41 cents in earnings per share on revenue of $100.4 million.
For fiscal 2023, Digi expects revenue growth of 10% amid continued supply chain constraints.
Edge Computing to boost the IoT
IoT deployments depend on wireless networks, whether long-distance cellular or local Wi-Fi. The deployment of 5G wireless networks is expected to give a boost to IoT applications.
Additionally, Digi is seeing increased demand for 5G networks from private companies, Konezny told stock analysts DGII.
Additionally, 5G networks improve latency, the amount of latency it takes for networks to respond. Analysts expect synergy between 5G networks and “edge computing”, the next generation of cloud computing.
Edge computing deploys data processing, storage, and networking near sensors and where other data originates. 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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