Digi International Inc (DGII) 2005 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Digi International Fourth Quarter and Year End Earnings Results Conference Call. (Operator Instructions) I would now like to turn the conference over to Kris Krishnan, Chief Financial Officer, Digi International. Please go ahead, sir.

Good afternoon, and thank you for joining us today. Before we start, I need to go over a few details. First, if you do not have a copy of our earnings release, you may access it through our Press Release section of Digi website at www.dgii.com.

Second, I'd like to remind our listeners that our remarks may contain forward looking statements that involve risks and uncertainties. These forward looking statements are not a guarantee for the company's future performance. The important factors that may cause actual results to differ materially include, but are not limited to the following -- graphic changes in technologies that may displace products sold by Digi, the definitive industry which Digi operates, Digi's reliance on distributors, declining prices of networking products, and changes in the company's level of profitability.

Finally, certain other financial information disclosed on this call includes non-GAAP measures. The information required to be disclosed about these measures, including reconciliation, the most comparable GAAP measures are included in the earnings release or the form 8-K that we have filed before this call. The form 8-K can also be accessed through the SEC Filing Section of our Investor Relations website at www.dgii.com.

Now, I would like to introduce Mr. Joe Dunsmore, our Chairman, President and CEO.

Thank you, Kris, and welcome to the call everyone. Fiscal 2005 was a very challenging, yet fulfilling and successful year for Digi and its shareholders. The company finished fiscal Q4 on a strong note with revenue of 36.2 million to end fiscal 2005 at 125.2 million, which is 12.6% growth over 2004.

The fourth quarter was a very good quarter for Digi, accented by the following highlights: Revenue of 36.2 million is the highest quarterly revenue achieved at Digi in the last 23 quarters. Q4 in fiscal 2005 is our eleventh consecutive profitable quarter. Our earnings per diluted share of $0.15 represents a new peak in that trend and is an 18.6% increase over fourth quarter of fiscal 2004.

Operating expenses as a percent of revenue, excluding amortization expense, were 40.2% for the fourth quarter of fiscal 2005, inching ever closer to the sub-40% objective that we've driving towards. This is a 17 percentage point improvement in the last four years.

Operating income before amortization and nonrecurring items has improved continuously from -4.4% in fiscal 2002 all the way to 18.2% in fiscal 2005. This is a 22 percentage point improvement in the last four years.

EBIDTA, earnings before depreciation taxes and amortization, was 7.7 million for the quarter, or 21.2% of revenue. This is the highest EBIDTA Digi has posted in the past six years. EBIDTA, excluding nonrecurring items, has improved as a percentage of revenue from 0.4% in fiscal 2002 to 15.3% in fiscal 2003 to 18.7% in fiscal 2004 to 21.7% in fiscal 2005.

Our key objectives have remained consistent over the past several years, as we believe that this consistency and focus is evidenced by the strong financial trends I just discussed. Our key objectives remain the following -- accelerated revenue and EPS growth, new product introduction, maintain a strong balance sheet, growth through acquisition, and making device networking easy. We believe the company made good progress in all these areas over the past year.

The company succeeded in accelerating revenue and profitability year over year. Our year over year growth rate continues to accelerate from 1.4% growth in 2003, climbing to 8.1% growth rate in 2004, and now 12.6 in 2005. We were generally very satisfied with the revenue numbers posted across the Digi product lines in fiscal 2005. Our growth products, which include device servers, terminal servers, USB, cellular, and chips and software grew 21.2% year over year, offsetting a greater than anticipated decline from the mature products of 18.5%, which include Async network interface cards, RAS, and ISDN.

Revenue generated from acquisitions represented approximately 10% of the total fiscal 2005 revenue.

As you know, a key to Digi achieving increased revenue growth is new product introduction, and making device networking easy has been our focus over the past several years. More precisely, it's our strategic intent to be the best in the world at commercial grade device networking. Some of you may be thinking "sounds good" but what does it really mean in layman's terms? Well, what we do is provide products that connect things to networks, not things in homes, but things in stores, factories, office buildings, banks, gas stations, oil rigs, and many other vertical environments. That's why we call it commercial grade.

We provide hardware chips, modules, and boxes with a ton of software value added to provide the differentiated products that our customers desire. For example, in self-checkout systems, Digi connects peripheral devices like scales, card readers, and printers. At intersections, Digi connects traffic signals so the flow of traffic can be more smoothly regulated. On highways, Digi connects variable message signs, enabling authorities to post messages about congestion, stolen vehicles, or even abducted children. In hospitals, Digi connects point of care testing devices so tests can be done bedside with immediate results. Digi also networks ventilators so doctors can remotely monitor and diagnose issues with patients' breathing. At power utilities, Digi networks meters, helping utilities monitor power flow and avoid overload situations. In factories, Digi networks machines controlling production lines for some of the nation's most popular consumer products. The list is virtually endless. We believe we're at the front end of a long-term growth trend to connect these things to networks in order to bring more intelligence to the device. Where the internet was initially about connecting people via personal computers, the next phase of the internet is about connecting things or devices.

Digi has dramatically changed its revenue mix over the past several years so that we have highly differentiated growth products that now make up a majority of our revenues. It's our products and core technologies that place us at the center of this very exciting, long-term growth opportunity.

Some of the exciting products that we introduced in fiscal 2005 that support our leadership position are as follows -- Early in the year, Digi introduced the NS9360, an ARM9-based chip, as a cost-effective solution that integrates a high level of functionality and is ideal for customers in industrial automation, building automation, medical automation, network displays, network terminals, and industrial and point-of-sale printers.

The company introduced the ConnectCore family of core modules, which are based on the NetSilicon brand of chips, and optimized to provide very quick time to market for our customers.

In fiscal second quarter, Digi introduced the first in a series of data over cellular products with the launch of the Digi Connect WAN GSN. We believe that Digi is bringing highly differentiated commercial grade products into the rapidly developing market opportunity. We have a very deep partnering relationship with Cingular with these products and are building relationships with Sprint, Verizon, and many other significant wireless carriers worldwide.

In fiscal Q3, the company introduced Digi Connect Port, the industry's first remote networking solution, utilizing display, serial, and USB over IP technology. The Connect Port is a network enabled video display hub that allows standard video displays and other devices to be anywhere on a local area network or other IP network without a locally attached host PC or thin client.

In fiscal Q4, the company introduced the Rabbit 4000 microprocessor. A chip that, like its predecessors, is designed specifically for embedded control communications and Ethernet connectivity and adds important new features. The new features will enhance the Rabbit core module offering and allow us to significantly broaden our core module customer base.

In addition to new product introduction, the company also had several other notable accomplishments during fiscal 2005. The company received 128 chip or module design wins in fiscal 2005, which will seal future growth of our embedded products.

Digi's globalization focus yielded dividends with Asia Pacific growth of 15% year over year, and European growth of 11% year over year.

Digi ended the year with a cash in marketable securities balance of 50.2 million, after spending 53.7 million on the acquisitions of Rabbit and FS Forth during fiscal 2005. The company, once again, ended the year with no bank debt. Our current ratio for fiscal 2005 is 4.4 to 1.

Acquisitions have been a key element of the Digi growth strategy over the past six years. We've leveraged acquisitions and organic development to augment our technology and product portfolio in the commercial grade device networking marketplace.

In 2005, we executed two very important transactions with the acquisition of Rabbit Semiconductor and FS Forth. These acquisitions, coupled with the ConnectCore products family introduction, signify a major strategic push into the network core module arena. The network core module opportunity is an important element of our commercial grade device networking strategy because the modules that we offer to customers provide a network platform with a core processor and lots of flexibility to allow them to add features and functionality.

The primary value proposition for our device customers is that it allows them to get to market quickly with a network enabled device. We believe that this value proposition will gain momentum over time because more and more device manufacturers that need to network their devices know very little about networking. We believe that this will be a high growth market opportunity for Digi over the next several years, and that Rabbit adds a significant brand to the Digi portfolio.

Now, I'd like to take a few moments to discuss our 2006 plan and guidance.

First, we're expecting to migrate from our segment reporting structure in fiscal 2006 from two reporting segments to one. We anticipate transitioning to a single segment reporting structure as a result of the high degree of integration that we've achieved in the business. We are now leveraging common technology platforms across all of our growth product lines and will further improve efficiencies by moving to a single functional organization structure. We believe that this structure will further enhance our ability to reach our 25% or better operating income target, including amortization and stock-based compensation impact over the next three to four years. We will continue to provide indications of how our growth and mature products are performing, as we've done in the past.

For the full fiscal year, we expect revenue to grow over fiscal 2005 20 to 28%, which will continue our trend of accelerated revenue growth. We expect continued strong momentum from our growth products to more than offset the mature decline, and we expect Rabbit to meet or beat expectations that we set at the time of acquisition.

We expect earnings per diluted share to be in the range of $0.60 to $0.70, or a growth of 15.4 to 35% over fiscal 2005 earnings per diluted share, excluding the impact of the $0.24 favorable tax settlement in 2005 and the impact of stock-based compensation and going forward in fiscal 2006.

We estimate today that stock-based compensation expense will impact our financial statements by approximately $0.07 per diluted share for the full fiscal year 2006.

We estimate reported earnings per share in a range of $0.53 to $0.63 per diluted share, which is inclusive of stock-based compensation expense, a new requirement for Digi effective for fiscal 2006.

Finally, I would like to extend a warm welcome to Bill Priesmeyer, who was elected yesterday as a director and will join Digi's Board of Directors. Bill's broad management experience and his financial experience in particular will bring additional depth to our board, and I look forward to his future contributions.

In summary, I am proud of the accomplishments of the Digi team in fiscal 2005. We took on significant challenges during the year and have managed to post a very strong year. I look forward to continuing the positive momentum and having fun executing with the Digi team in fiscal 2006.

Thank you, Joe. Our revenue for the quarter was 36.2 million, an increase of 6.9 million, or 23.7% over fourth quarter revenue a year ago.

Digi acquired Rabbit Semiconductor on May 26, 2005, and recorded revenue for Rabbit in the fourth quarter of 7.7 million. Revenues from the growth product lines have significant growth from a year ago fourth quarter that partially offset the decline in revenue associated with the mature network interface card business.

Combined revenue for the quarter of 36.2 million approached the upper end of management guidance of 34 to 37. Revenue for the 12-month ended September 30, 2005, was 125.2 million, compared to 111.2 million, an increase of 12.6%.

Fourth quarter revenue from device networking products, which includes NetSilicon branded products, Rabbit products, and device server product lines was 17 million, an increase of 16.6 million, or 63.5% over the year ago quarter.

Revenue from connectivity solution products was 19.2 million in the fourth quarter of fiscal 2005 compared to 18.9 million in the fourth quarter of fiscal 2004, an increase of 1.8%.

For the full fiscal year, device networking product revenue was 49.7 million, greater than the same period a year ago by 12 million, or an increase of 31.9%.

Digi recorded acquisition to date revenue from Rabbit of 10.6 million. Revenue from device networking products, excluding Rabbit, was 39.1 million, or an increase of 38.% over the comparable period a year ago.

Revenue from connectivity solution products was 75.5 million during the full fiscal year of 2005 compared to 73.5 million in a comparable period a year ago.

Gross profit margin for the quarter was 58.5% compared to 61.1 in the fourth quarter fiscal 2004. For the full year of 2005, gross profit margin was 60.5% compared to 60.9% during the same period in the prior year. As expected, gross profit margin decreased in the fourth fiscal quarter of 2005 compared to the same quarter a year ago, primarily as a result of the sales of Rabbit's products with lower gross profit margins.

Operating expenses for the quarter were 15.2 million compared to 14.1 million in the fourth quarter fiscal 2004. Operating expenses included a full quarter of expense, or 2.6 million related to the Rabbit operation. Our operating expenses as a percent of revenue, excluding the amortization expense, improved to 40.2% from 43.6% in the fourth quarter of fiscal 2004.

On a year-to-date basis our operating expenses were $58.7 million compared to $56 million for the full year of 2004. Operating income as a percent of net sales for the quarter was 13.7%. Intangible amortization was 4.6% of net sales which resulted in operating income of 18.3% before intangible amortization.

Our target operating income before amortization as a percent of net sales was 18%. Operating income as a percent of net sales for the fourth quarter of fiscal 2004 was 13%. Intangible amortization was 4.5% of net sales which resulted in operating income before intangible amortization of 17.5%.

Net income for the fourth quarter fiscal 2005 was $3.4 million or $0.15 per diluted share compared to $2.9 million or $0.13 per diluted share in the fourth quarter of fiscal 2004. Earnings per diluted share for the fourth quarter were well within the range of management guidance of $0.12 to $0.17, inclusive of the guidance provided for Rabbit. Rabbit generated $0.03 per share while management's previously announced guidance anticipated a contribution of $0.01 to $0.02 per share for Rabbit in the fiscal fourth quarter of 2005.

The topping(ph) during the quarter of 2005 generated $7.7 million EBITDA which is the largest EBITDA generated in the last six years. For the full fiscal year of 2005 net income was $17.7 million or $0.76 per diluted share compared to a net income of $8.7 million or $0.39 per diluted share for the full fiscal year of 2004.

During the second quarter of fiscal 2005, as a result of a settlement with the Internal Revenue Service in the audit of prior fiscal years, Digi recorded a reversal of $5.7 million of previously established tax reserves, equating to $0.24 per diluted share, positive impact.

Excluding the impact of the favorable tax settlement and the in-process R&D charges associated with the Rabbit acquisition Digi's earnings per diluted share for the full year of 2005 would have been $0.52 or an increase of 33.3% over the full fiscal year of 2004, comparable diluted earnings per share.

The effective tax rate for the full fiscal year of 2005 was 1.8%. The effective tax rate before the impact of the favorable tax settlement was 33.4% compared to an effective tax rate of 28.7% for the full fiscal year of 2004.

The increase in effective tax rate is as a result of increased pre tax income and in-process R&D development charge of $300,000 which is non-deductible. The effective tax rate for the fourth quarter of fiscal 2005 was 34.1%.

Diluted weighted average share outstanding at the end of the quarter was 22,662,193 shares compared to a previous quarter of 22,615,814, an increase of 46,379 shares.

Turning to balance sheet and cash flow statements, our combined cash, cash equivalents and marketable securities were $50.2 million. Net cash improved by $1.5 million over the prior quarter including the pay off of a short-term loan of $5 million. Cash provided by operating activities was $6.8 million in the fourth quarter of fiscal 2005.

Accounts receivable at December 30, 2005 was $16.9 million compared to $15.8 at the end of the prior quarter. The increase in receivables is primarily due to increased revenue in the fourth quarter. Our DSO for the fourth fiscal quarter of 2005 was 33 days compared to 34 days in the previous quarter. Our inventory levels as of September 30, 2005 were at $18.5 million compared to $17.6 million at the end of the prior quarter.

Now I would like to take a few moments to provide you with some guidance for the first quarter of fiscal 2006. We expect revenue to be in the range of $34 to $37 million. And we expect our first fiscal quarter 2006, earnings per diluted share in the range of $0.12 to $0.17 cents. Our guidance for 2006 first quarter excludes the impact of the adoption of FAS-123R.

As we announced on our last conference call, Digi's required to adapt the Statement of Financial Accounting Standards, 123R, Share-Based Payment, effective October 01, 2005. Digi estimates today that the stock based compensation expense will impact the financial statement for the first quarter by approximately $0.02 per diluted share. Digi estimates reported earnings per diluted share for the first quarter of fiscal 2006, including the impact of stock based compensation, to be in the range of $0.10 to $0.15.

Now, I would like to open the call to questions. Operator?

(Operator Instructions.) Our first question comes from the line of William Becklean, with Oppenheimer. Please proceed with your question.

Hello, Joe, Chris.

Hello Bill.

Could you talk a little bit about the device networking business as long as it's broken out for the last time. If you look at the $17 million and you take off $7.7 million contribution from Rabbit you're back under $10 million. And that's kind of--if you back and look historically it's been over $10 million, slightly, since September quarter of '04. And I presume that the differential there is the loss of that (Lick) business to the Japanese copier business.

And I guess the question is, two questions about this division and that is, number one how long is it going to take to sort of make up for that decline? And I presume that that will -- and how long will that continue to be an impact, a drag on the business?

And number two, if you look at the break out of the business which we won't see again, it is I presume, at this level continuing to operate at a slight loss. At what point do you expect that to actually come to a breakeven operation?

Okay. Well you got it right on the mix. The reason why the non-Rabbit piece of the device networking business is where it is, is we've seen a significant decline last quarter with the mix. And what we told you guys, what we've added is that we were expecting to continue to see a significant decline in that part of the business. And we expected that to have an impact for the next year or two. So we factored that precipitous decline into, obviously, into the overall guidance that we gave for next year.

In terms of the device networking business, that business, that segment, continued to make good progress. I don't have the numbers in front of me, but if I recall correctly it came very close to an operating break even this quarter. I think we came within about 100, $150,000 of operating break even this quarter. So it's actually a very good transition point just from that perspective. It continues to make good progress.

Can I follow on a little bit, you gave a number, I think I heard you say 128 design wins over the course of the year?

Yes.

And that brings you to what sort of a total level, now, that you're working against for design wins?

Well Bill, I don't have the exact total number in front of me right now. It continued to progress, I don't want to guess at it so I'll have to bring that back to you next quarter. But it's obviously growing and it's a strong number.

Have any of those turned into high volume, continuous shipments to any customers?

Yes they have. We've seen a number of them turn into high volume shipments. The challenge is that within the device networking business, and overall, is that we've had such a strong impact on the Nick(ph) business that we need even more significant up turn on new customers to offset that.

So can you just give us an order of magnitude of what a -- of a significant piece of business would be for a design win when it actually gets out and rolling? What do you consider to be annual revenues from a significant order, 2, 3, $5 million, what might it look like?

We think anything over 10,000 per year is pretty significant.

10,000 units?

Yes.

Okay. Thanks then.

Our next question comes from the line of Clint Orenson with (inaudible - cross talk). Please proceed with your question.

Hey Joe and Chris. Rabbit, you indicated obviously for the quarter 7.7 million, I think accretive about $0.03. Can you give any kind of sort of forward guidance, or just comfortable, is that kind of a reasonable run rate, do we expect that growth out of Rabitt? Is it a -- sort of a 32 million piece of business next year, and kind of consistent bottom line contribution, are there savings coming? A little guidance there maybe.

Yes, our guidance on the Rabbit piece of business is the same that we gave when we did the acquisition. We're not getting any more aggressive with that. I think what we said was something in the neighborhood of $31, $32 million in revenue and accretive, I think we said $0.04 to $0.06 or something like that.

So we're not modifying that view. It's still very positive, obviously we had a very good quarter with Rabbit and we're very positive about that going forward.

Okay. And you indicated for the year, I think you broke down kind of the mature versus the growth products. Growth up 21, mature down 18.5, can you kind of, for the upcoming year, give us a little bit of a split as to what kind of growth you expect from the growth products and how much of a decline from the mature products and as we stand now, what, where is that division? How much of the business is mature versus growth, kind of in your guesstimate?

Yes, it's a ballpark kind of a view, but something in the 60% kind of growth and 40% on the mature side. Looking forward I think generally speaking, we're not giving guidance, but the numbers that we're seeing this year are probably kind of similar to what we would expect going forward. At least in the ballpark we expect, we continue to expect very strong growth on the growth side of the equation.

Expect to continue to see strong growth out of USB device server and terminal server expect to see incremental growth opportunity with cellular. And certainly we expect the core module business to pop in there and to see good things out of Rabbit and the rest of the core module business.

On the decline side, on ASIC, what we've said in the past I wouldn't modify, that generally a 5 to 15% kind of year-over-year decline range is probably the range that we would see with that part of the business. And we would see a lot more precipitous decline out of the Nick part of the business, but that's a much smaller piece of that mature side of the business.

Okay. So I'm hearing that the performance we saw for this year is not out of align with kind of the expectations for next year?

(inaudible - cross talk) and there's growth impetus in there that we didn't really have this year. I've said in the past that we're going to a 12-month sales cycle starting back in February on the cellular products. So there's a growth impetus next year with cellular that we didn't have this year. There's a growth impetus from the connect port display product that we didn't have this year. So those are incremental opportunities and certainly we expect a lot out of the core module business.

So we're really optimistic on the growth side and we expect, obviously, as we see more precipitous decline on the mature side and are able to counter it, like we did this quarter. Effectively counter it on the growth side of the equation that mix gets better and better. It just keeps churning and keeps getting better and better and stronger and stronger over time.

Okay. That takes care of me. Thank you.

Thanks Clint.

Our next question comes from the line of Jeff Evanson with Dougherty & Company. Please proceed with your question.

Hello Jeff. First, a couple of questions for you on the guidance I guess. I want to talk about some of the base assumptions you have in those numbers. Are you still planning on a 34% tax rate for next year?

No, the tax rate will drop next year again because we will have a full year of Rabbit and there's some benefits, tax benefits that we will have for full year, like R&D tax credit and extra territorial for export sales. So we anticipate, for the full year, our tax rate to be in the range of 32.5 to 33.

Okay. Share count, roughly about the same level here?

Well I would anticipate growth in the share count going forward, so again we had a significant growth this year. I would anticipate somewhere in the 24, '5, range.

Okay. And then amortization of about $2 million?

Amortization runs about approximately $1.7 million a quarter, so that will be about $6.8 million, thereabouts.

Okay. And are you anticipating any acquisitions in that guidance?

In the guidance number, no. No not in the guidance.

Okay. Good, so I want to ask you now about your OpEx goal you laid out here of 25%. By my calculation that ratio, this quarter, is 18.4%. Is that roughly correct?

Correct, that's right, we are right up -- excluding amortization expense that's where we're at and we're targeting over the next few years to get to 25%.

Okay. Could you talk a little bit about how you see getting there, over the next few years?

I think it's driven by top line growth and managing our -- increasing our margins slightly and controlling our expenses as we go forward. As we can leverage more, as the growth of our sales revenue on the top line growth.

So leverage of the operating expenses.

As top line grows faster, yes.

Jeff, I think that's going to be the key driver is--we've driven a lot of efficiencies, significant efficiencies over the -- I talked about the trends earlier in the call. We've driven, on our expense revenue, from 59% down to almost 40% and we've driven significant efficiencies. And we expect to continue to be able to do some of that. But the biggest lever to drive to our long-term targets is going to be top line revenue growth.

Okay. And then Joe, you talked about some of the end markets that you're addressing. Could you talk about maybe in the next fiscal year where you see -- which end markets you see some better opportunities in?

Well we see continued -- I think you're asking from a vertical perspective and --

That's correct, yes.

-- well we see continued, strong opportunity in the point of sale arena, retail vertical. We see continued strong opportunity in industrial automation, in building controls. I would say that probably a higher growth opportunity in terms of just percentage growth in that vertical in those segments is probably medical.

I'd say that that one has -- we've seen a lot of activity and that one seems to be a pretty high growth opportunity over and above what we've seen in some of these other vertical segments. And then the other one that's a real high growth opportunity for us is with our data over cellular products. Focusing on providing diverse wireless backup for storage, branch offices, kinds of locations. Partnering with Cingular and the other carriers to drive that.

They're very incented to drive from just voice services to data services. So this is becoming an important initiative for them. And then as the cellular standards evolve to 3G, to e-video and next-generation standards for both CDMA and GSM, what we're going to see is higher bandwidth capabilities and the requirement --more and more of a requirement for the primary connection being wireless. So that will become an opportunity.

And another application area that's real interesting for us going forward is the connect port display -- video over display which plays primarily into, right now, retail point of sale and actually banking. So those are some of the areas.

Great. Thank you very much.

Thank you Jeff.

(Operator Instructions) Our next question comes from the line of Jay Meier with MJSK Equity Research. Please proceed with your question.

Thanks. Nice quarter guys.

Hey Jay.

Quick question Kris on gross margin targets. We saw a Rabbit kind of drag the mix down a little bit. How would you expect that to -- overall to continue going forward?

Well I think when we made the Rabbit acquisition we did indicate that on a gross margins should be in the range of 58.3% to 59.3% thereabouts - 1 percentage point difference there. So we'll continue to be in that range.

Overall or for Rabbit?

Overall. Because overall we had 58.5 this quarter and we had Rabbit for the full year.

As you move forward would you expect that to accelerate -- I mean and stay at least modestly? What kind of gross margin targets could we expect as you start to hit bigger economies of scale?

Well we hope to improve it as we go forward but that would be our range as we go forward in the next 12 months to target it somewhere in the 58.5 to 59%.

Okay. All right and Joe -- I know you're planning on making additional acquisitions but can you give any thoughts - I mean are you on the hot - gotten you on the hot list these days and other that you're really looking, at I mean in terms of technologies or anything like that? Can you give us any insights as to what you're seeing out on the acquisition landscape?

As I said before Jay it's a pretty fragmented global marketplace in this space. We see as I said before significant growth opportunity of fragmented market so that presents a lot of opportunities to look at things and I am always looking at opportunities and over the past six years we have done six acquisitions and we continue to look for acquisitions that are going to primarily help us to continue to accelerate that revenue line and preferably will be accretive and obviously add to the core competencies and business. A lot of exciting technology areas that we're looking at. Certainly wireless is a very interesting opportunity and there's various types of wireless types of technologies and a lot of different companies in the space. Remote device management's another interesting area. There's a lot of them. I don't like to focus in too much on calls like this to talk specifically about all the areas or any of the companies obviously for competitive reasons but there's a lot of interesting things that we're always looking at.

I understand. Sounds good. Thanks.

Thank you.

Mr. Dunsmore there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Great I'd like to summarize with a few key points. The revenue was $36.2 million. Best in 23 quarters. Q4 was our 11th consecutive profitable quarter -- 18.6% better than last year. EBITDA of 7.7 million, 21.2% of revenues. Highest level in six years of Digi.

And our guidance for 2005 is for continued accelerate growth which builds off of the last few years, driving from 1.4% to 8.1% to 12.6% and now guidance of 20 to 28% growth. So we're really excited about the underlying fundamentals of this business and the momentum that we're building and look forward to talking to you again in three months.

Thank you.

Ladies and gentlemen a rebroadcast of today's conference will be available beginning today November 3rd at 7:00 p.m. Eastern time through November 10th at 7:00 p.m. Eastern time. To access the rebroadcast please dial 800-633-8284 or dial 402-977-9140 and enter reservation number 21264539. Ladies and gentlemen that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.