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Networking enabled: Ron Konezny, CEO of Digi International

Ron Konezny, CEO of industrial Internet of Things (IoT) tech firm Digi International speaks with Acuris Capital Intelligence about how the pandemic drove growth for the company, its deal strategy and its push toward recurring revenue

Interview by Thomas Zadvydas

Q: What market trends will drive growth for Digi International?

I think the big driver, and COVID-19 accelerated this in a crazy way, was the idea of automation, digital transformation and the zero-touch economy. The pandemic really created a sense of urgency around these efforts and a lot of companies are investing. They can monitor things remotely and only go out there when there’s an equipment problem.

We think that trend is going to continue. We feel like we can grow the company at double-digit rates. Over the last three years, we grew the company over 15%. Recurring revenue, we grew at 30%, twice the pace of our top line.

We ended up doing better than we thought we would [during COVID-19]. Some of our customers saw tremendous improvements in their businesses. We were able to be a part of essential services.

Q: Do you have strategic initiatives planned over the next 36 months?

To provide reliable, leading-edge hardware, but complemented by software. We want to hit US$100 million in profitability, which we measure in EBITDA, and we want to hit US$100 million in recurring revenue. It’s the sign of relationship revenue from a product standpoint, not just shipping a device and waiting for a call. The relationship with customers [will become] very sticky.

Q: What is Digi’s acquisition strategy?

Our acquisition strategy has complemented our organic growth strategy. We’ve done eight acquisitions. All of them have been hardware-enabled recurring revenue models. One of our big objectives is to transform Digi into more of a hardware-enabled services provider. We got out of manufacturing, we focused on fewer products, we bolstered our cloud offering. I’m addicted to recurring revenue models, in particular models where there is some hardware.

Q: Digi acquired OpenGear in November 2019, and then Haxiot and Ctek in 2020. Are you going to continue dealmaking over the next 12 to 24 months? 

We feel like we have the capital to pursue deals that could be [valued] as high as a few hundred million. It depends on how profitable the company is, how fast growing it is from a revenue perspective. We’d generally evaluate it as a multiple of EBITDA. We raised money to pursue larger opportunities that will have a bigger impact on results. There are a ton of opportunities out there.

Q: Do you want to see a certain number of deals completed over the next one to two years?

If I had a crystal ball, I’d like to have one larger deal. We’d have to spend time integrating systems, HR, business processes. I’d much rather do a bigger one then a bunch of small ones.

A bit of background: Digi International is a leading provider of industrial IoT products and solutions supporting industries from retail and banking to medical, transportation and remote industrial. Ron Konezny joined Digi International in December 2014, as president and CEO. Before Digi, he was VP of the global transportation and logistics division of Trimble Navigation Limited, a provider of navigation equipment and related solutions. 

This interview has been edited for clarity and length.