St. Anthony: The hard part is ahead for Digi International's rookie CEO

CEO Ron Konezny of Digi International has executed a job-shedding restructuring at the digital-connections company, sold off a sales-integration team that was the brainchild of his predecessor, posted a profitable year on record revenue, and spent about half of the last year on the road spreading the gospel with customers and employees.

The stock price has risen from about $7 per share to $12.50 per share since Konezny was hired last December.

And that was the easy part.

"Digi and I still have a lot to prove," Konezny acknowledged in an interview last week.

Konezny, 47, was hired last December to succeed 15-year CEO Joe Dunsmore, who led his own turnaround of the then-moribund company that started out making "Digi boards," electronic systems that let different computers communicate with each other.

Dunsmore, a one-time U.S. Robotics employee, got Digi into the Internet and wireless with company-growing products that connected computers to remote equipment, such as wind turbines, commercial vehicles and ATMs.

But Digi's board went south on Dunsmore in 2014, a couple of years after he acquired Etherios Inc., a Chicago reseller and consulting firm affiliated with Salesforce.com. Dunsmore's bet was that Etherios could help him build a business around monitoring equipment remotely and maintaining stuff before it broke down.

Digi would no longer just be a supplier and servicer of hardware. It would be in the middle of the "Internet of Things" business revolution.

"A lot went into that company over 24 months of pilot projects and zero revenue," Konezny said. "We got zero return on a ton of money. And we were taking money from things we did well."

Konezny sold Etherios in late October for $9 million over two years to West Monroe Partners, a business-and-technology consultancy.

Konezny said it was a good deal for both parties that allows Digi to focus on its base business of "machine-to-machine" (M2M) and Internet of Things connectivity solutions for thousands of customers. They range from Honeywell sensors to AgriDry to the North Indiana Commuter Transportation District to Rocky Mountain Energy, which uses Digi Connect Tank, a cellular-enabled remote access tank-level sensor, to ensure diesel tanks have plenty of fuel.

"Joe had an inspiring vision for this company," said Rick Moulton, an owner and portfolio manager at Riverbridge Partners, the Minneapolis money manager and longtime major Digi stock owner. "He envisioned 'DGII' representing much more than simply machine-to-machine communication. These plans never fully materialized. Perhaps DGII was simply too small to fully execute. Perhaps some of the initiatives were not executed well. … Whatever the reason, Joe's vision proved too much for the company and ultimately exhausted the patience of the board.

"Since his arrival, Ron has focused the company. He has unwound some of Joe's initiatives and has worked to redirect some of their teams. Wall Street has been loving this discipline. Ron has met and even exceeded expectations."

Under Konezny, the market value of Digi has risen from $200 million to $315 million.

"Over the near term, Ron is busy with these focus-related initiatives," Moulton said. "Ultimately, he will need to articulate and execute on his own vision if DGII is to take its next step."

Digi had a good fiscal 2015 in which revenue grew 10.5 percent to $212 million and operating earnings rose 6 percent to $12.9 million.

Konezny's mandate from the board is to grow organically by selling more product to long-term and new customers, and, if economical, make acquisitions in what is still a very fragmented industry. The Minnetonka-based company has plenty of cash on hand.

"We are challenging ourselves to do more," Konezny said. "We want double-digit profitability [in operating earnings]. We're still a little short of that."

Konezny, who has cut the ranks from 650 to 515 people thanks to the restructuring, attrition and the Etherios sale, has asked employees to be more "athletic," his word for productive.

Management is moving to simplify product lines so that Digi isn't shipping just several units that are customized for every customer, but shipping more standardized units that can be customized by the customer upon receipt using Digi software tools.

Konezny has grown a successful business before.

He 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 stayed on to serve as vice president of global transportation and logistics, which employs 1,500 employee. He left Trimble in 2014 after deciding against a move to California for family reasons.

Konezny earned a base salary in his first fiscal year with Digi of $450,000, and was eligible for a cash bonus of up to 100 percent of his base salary. He also got a signing bonus last year of $400,000, according to the most recent proxy statement.

Dunsmore's total compensation for year-ended Sept. 30, 2014, was $701,902. He got a year's pay, $436,000, in severance, plus a prorated portion of his last bonus.

Patrick Kennedy contributed to this column

Neal St. Anthony • 612-673-7144