Digi International Inc (DGII) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2011 Digi International earnings conference call. My name is Keisha, and I'll be your operator for today. At this time all participants are in listen-only mode. We will conduct the question-and-answer session toward the end of this conference. (Operator Instructions). I would now like to hand the call over to Mr. Steve Snyder, CFO. Please proceed.

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 the financial releases section of our investor relations website at www.digi.com.

Second, I'd like to remind our listeners that some of the statements that we make in this presentation may constitute forward-looking statements. These statements reflect management's expectations about future events and operating plans, and performance, and speak only as of today's date.

These forward-looking statements involve a number of risks and uncertainties. A list of the factors that could cause actual results to be materially different from those expressed or implied by any of these forward-looking statements is detailed under the heading "Forward-Looking Statements" in our earnings release today, and under the heading "Risk Factors" in our 2010 annual report on Form 10-K on file with the SEC. We undertake no obligation to update publicly or revise these forward-looking statements for any reason.

Finally, certain of the financial information disclosed in this call includes non-GAAP measures. The information required to be disclosed about these measures, including reconciliations to the most comparable GAAP measures, are included in the earnings release or in Form 8-K that we filed before this call. The Form 8-K can also be accessed through the SEC filing section of our investors relations website at www.digi.com.

Now I'd like to introduce Mr. Joe Dunsmore, Chairman, President and CEO.

Thank you, Steve, and welcome to the call, everyone. I'm extremely pleased with our results for the quarter. This is the 33rd consecutive quarter of profitability for Digi.

Revenue for the quarter of $49.7 million was up 10.3%, compared to the same quarter in the prior year, and 2.9% sequentially.

Wireless product revenue for fiscal Q2 was $19.2 million, increasing 21.7% compared to the same quarter in the prior year. Wireless product revenue in the second quarter represented 38.7% of our total revenue. Wireless product revenue is 40.2% of total revenue year-to-date. That income was $2.2 million, or $0.09 per diluted share for the quarter, compared to $1.7 million, or $.07 per diluted share, in the year ago comparable quarter, an increase of a half a million.

The revenue and profitability increases continue to be very positive trends. The profitability increase is especially significant since we are absorbing a noticeably higher compensation expense this year. 2011 we have set our bonus targets to pay out 100% of plan achievement, up from 50% payoff target in 2010.

Bookings were extremely strong in the quarter, up significantly over bookings in Q1. Digi has positioned itself squarely at the intersection of wireless M2M needs, cloud computing meets smart energy, as well as some other high-growth verticals. Our wireless drop-in networking solutions set of gateways and endpoint wireless products is now fully complemented by our iDigi device cloud and wireless design services to bring unprecedented value to our partners and customers.

As a result we continue to see largely customers in our targeted verticals accelerating their deployment of our wireless M2M solutions. Large customers are ramping revenue and we're seeing sales pipeline increases across these markets.

In the fleet management arena, we continue shipments to XATA, and we expect revenue to continue to grow nicely over the coming quarters. Our momentum in medical applications continued, especially with our major customers in the bedside connectivity and embedded medical device connectivity applications, providing increased visibility to their product ramp needs. In the embedded space, this includes providing wireless connectivity for devices such as infusion pumps, fetal heart rate monitors, patient monitoring devices to name a few.

Tank monitoring customers continue to ramp their deployments this quarter. We have active, large customers in water treatment, agriculture, petroleum, and we are seeing a market leader in water treatment continuing to aggressively deploy our cellular gateways. The smart grid opportunity continues to be the vertical of greatest focus and investment for Digi.

Digi is a strong natural partner for key players in the industry, building on our 25 years of tribal knowledge of providing industrial grade communications solutions for many verticals. We have established key partnering relationships in demand response, EMI, energy management systems, and alternative energy markets. I've spoken in the past about our partnering with a number of key players, including Comverge, Cooper Power, Eco Factor, iTron and others.

This quarter, in the demand response market, we extended our reach beyond Comverge and Cooper Power with the announcement of a partnership with Calico Energy Services, a market leader in the energy and demand management space. Calico's energy EIS platform is integrated with iDigi to provide a complete energy management solution coupled with residential and commercial load control.

At AMR-AMI, we deepened the relationship with iTron with the signing of a reseller agreement that enables their sales team to resell Digi smart energy products. We've also continued to work closely with others in the space, such as Elster, on smart energy opportunities in the US as well as abroad.

In the energy management system arena, in Europe, Green Energy Options announced at the eWorld Energy and Water Exhibition that they're planning to develop a real time web-based energy management system for the European utility market. The new system is based on the iDigi device cloud and Digi X grid offering.

In the rapidly evolving electrocart infrastructure market, Digi announced a relationship with one of the market leaders. Better Place is using Digi's transport high-speed cellular router to connect electric vehicle docking stations to the Better Place electric car network around the world. This enhances energy demand management by allowing utilities to minimize charging requirements during peak electricity consumption hours.

So, an important point to reemphasize is the positioning that Digi has established at the intersection of wireless M2M cloud computing and smart energy. The iDigi device cloud element of this positioning in the market is very important. We are increasingly finding that our partners and prospective partners see tremendous value in integrating their applications on the iDigi device cloud to make deployment; provisioning; software upgrading; monitoring; and secure real time endpoint, device, machine, or sensor communication easy and scalable. Steve will provide improved guidance in his comments in a few minutes.

The ramp for the second half is supported by several large deals, as well as an expected continued strengthening of small- and medium-sized deals through the channel.

So to summarize, first, Digi posted its 33rd consecutive quarter of profitability. Second, we grew revenue and GAAP EPS year-over-year. Third, we have significant growth momentum with our wireless products, especially in our targeted verticals. And fourth, we improved our guidance and remain bullish about our long-term future.

Now I'll hand it back to Steve for his prepared marks.

Thank you, Joe. Revenue for the second fiscal quarter of 2011 was $49.7 million, an increase of $4.6 million, or 10.3%, over second fiscal quarter revenue a year ago.

Other highlights for the second fiscal quarter of 2011, all in comparison to the second fiscal quarter of 2010, are as follows. Revenue in North America was $29.7 millioncompared to $26.5 million a year ago, an increase of $3.2 million or 12.1%.

Revenue in EMEA, which is Europe, Middle East, and Africa, was $12.0 million compared to $12.3 million a year ago, a decrease of $0.3 million or 2.6%. Revenue in the Asia countries was $6.8 million compared to $5.3 million a year ago, an increase of $1.5 million or 28.7%. Revenue in Latin America was $1.2 million compared to $1.0 million a year ago, an increase of $0.2 million or 24.6%.

Revenue from embedded products was $22.4 million in the second fiscal quarter of 2011 compared to $20.2 million a year ago, an increase of $2.2 million or 10.9%. Revenue from non embedded products was $27.3 million compared to $24.9 million a year ago, an increase of $2.4 million or 9.8%.

Wireless revenue increased by $3.4 million in the second fiscal quarter of 2011 compared to the same quarter in the prior year, or 21.7%. Wireless revenue was $19.2 million, or 38.7% of total revenue in the second fiscal quarter of 2011 compared to $15.8 million, or 35% of total revenue a year ago.

The gross margin was 51.6% compared to 50.5% in the second quarter a year ago. The gross margin was higher in the current quarter than in the same period a year ago, primarily due to favorable product mix, reduced product costs, and less amortization of purchased and core technology due to certain intangibles becoming fully amortized. We expect the gross margins will be in a range of 51.0% to 51.5% for the full fiscal year 2011.

Total operating expenses were $22.0 million, or 44.2% of revenue, compared to $20.6 million, or 45.6% of revenue in the second quarter a year ago. The increase in operating expenses in the current quarter compared to the prior year comparable quarter is primarily due to the increased investment in the iDigi platform and the full reinstatement for fiscal 2011 of the incentive compensation program, which had only been partially reinstated in fiscal 2010.

Operating expenses in the second quarter of fiscal 2010 benefited by $0.4 million due to reduction of the restructuring reserve because expenses associated with the plan were less than expected. We expect that total operating expenses will be approximately 42% to 44% of revenue for the full fiscal year 2011.

Digi recorded $0.2 million of other expense, net, in the second quarter of 2011 compared to $0.3 million of other income, net, in the same quarter of the prior year. This is primarily the result of foreign currency losses in fiscal 2011 on US dollar balances held by our foreign subsidiaries.

Net income increased by $0.5 million, or 32.7%, in the second quarter of 2011 compared to the same quarter in the prior year. Debt income was $2.2 million, or $0.09 per diluted share, compared to net income of $1.7 million, or $0.07 per diluted share, in the same quarter a year ago.

Digi's effective tax rate was 35.7% compared to an effective tax rate of 34.0% in the year ago comparable quarter. For the remaining two quarters, we expect the effective tax rate to be in a range from 34% to 36.5%. This drives an expectation for the tax rate for the full fiscal year to be in a range of 32% to 34%.

EBITDA for the quarter was $5.9 million, or 11.9% of revenue. For the first six months of fiscal 2011, Digi reported $98.1 million compared to $88.0 million for the first six months of fiscal 2010, an increase of $10.1 million or 11.4%.

Other comparisons for the first six months of fiscal 2011, all in comparison to the first six months of fiscal 2010, include the following.

Revenue from embedded products was $43.5 million compared to $38.2 in the comparable period of 2010, an increase of $5.3 million or 13.7%. Revenue from non embedded products was $54.6 million compared to $49.8 million in the same period a year ago, an increase of $4.8 million or 9.6%.

Wireless revenue increased by $8.5 million, or 27.5%, compared to the first six months of fiscal 2010. Wireless revenue was $39.4 million, or 40.2% of total revenue, compared to $30.9 million during the first six months of fiscal 2010, or 35.1% of total revenue.

Net sales in the first six months of fiscal 2011 were unfavorably impacted by foreign currency translation of $400,000 when compared to the same period in the prior fiscal year. That income increased by $1.7 million, or 57.9%, for the first half of fiscal 2011 compared to the same period a year ago.

For the first six months of fiscal 2011, Digi reported net income of $4.6 million, or $0.18 per diluted share, compared to net income for the same period of the prior year of $2.9 million, or $0.12 per diluted share.

Non-GAAP net income increased by $1.3 million, or 48.1%, for the first six months of fiscal 2011 compared to the same period a year ago. Non-GAAP net income was $3.9 million, or $0.15 per diluted share, compared to $2.6 million, or $0.11 per diluted share, in the prior year.

Net income for the first six months of fiscal 2011 benefited by $600,000, or $0.02 per diluted share, resulting from a reversal of tax reserve for various jurisdictions, tax matters, and the enactment of legislation extending the research and development credit that allowed Digi to record tax credits earned during the last three quarters of fiscal 2010 in the first fiscal quarter of 2011.

Net income benefited by $200,000 net of taxes, or $0.01 per share, during the first half of fiscal 2010 as a result of the reduction of the restructuring reserve. Diluted weighted average shares outstanding at the end of the quarter were 25,692,432 compared to the previous quarter of 25,445,139, an increase of 247,293 shares.

Turning to the balance sheet and cash flow statements, our combined cash and cash equivalents and marketable securities balances, including long-term marketable securities, were $95.5 million as of March 31, 2011, increasing by $4.3 million from the end of the prior quarter, and by $8.3 million from the end of the prior fiscal year.

Net cash provided by operating activities for the quarter was $2.8 million. Our current ratio is 6.8 to 1, compared to a current ratio of 6.5 to 1, at the end of the prior quarter. Our DSO is at 37 days compared to 38 days in the previous quarter.

Relative to the disaster in Japan, first our best wishes are with all those personally impacted by the disaster. In response to inquiries we have received, I'd like to make some comments as to how the disaster impacts our business.

Revenue from Japan is included in our APEC numbers, which for Q2 2011 totaled $6.8 million, or 13.5% of our total revenue. Specifically for Japan, we have no indication that our revenue will be significantly disrupted.

As it relates to our supply chain to date, we've not received any indication that our ability to supply product will be compromised as a result of the disaster. As we look upstream in the supply chain, to the extent we perceive risk in the availability of a component or material, we are taking steps to mitigate the risk, including placing firm orders for periods longer than we typically would. We're continuing to monitor the evolution of the situation to mitigate potential impacts to our revenue and supply chain.

Now I'd like to provide some guidance for the third fiscal quarter and full fiscal year 2011. Digi projects revenue for the third fiscal quarter of 2011 to be in a range of $51 million to $56 million, a net income per diluted share in a range of $0.11 to $0.16.

For the full fiscal year 2011, Digi projects revenue in a range of $200 million to $212 million, which is an increase of $5 million at the lower end of the range from the guidance previously provided. We expect the most likely full-year revenue to be approximately $206 million.

Digi anticipates that annual net income per diluted share will be in a range of $0.40 to $0.52, which is an increase of $0.12 at the lower end of the range from the guidance previously provided. The projected annual net income per diluted share of $0.40 to $0.52 represents an increase of 11.1% to 44.4% over net income per diluted share for fiscal 2010.

Now I'd like to open the call to questions. Operator?

(Operator Instructions). Your first question comes from the line of Tavis McCourt with Morgan Keegan. Please proceed.

Hi, guys. This is Matt McKee on behalf of Tavis.

Hi, Matt.

How you doing? Great quarter. A couple questions. I got the wireless number, but what was the wire line revenue for the quarter?

We'll calculate that right now.

Okay. And gross margin seems to be up a little bit as compared to prior quarters. Is that product mix or what's pushing that?

It's really a combination of product mix, some customer mix, some product cost reductions, and, as I mentioned, the reduction in amortization of purchase technology also comes into play on a year-over-year basis.

All right, great. And you mentioned the healthcare vertical quite a bit. Is there certain products that you're seeing traction in more than others or --

We're seeing it both from our wireless products as well as wire line. This quarter, on the wire line side, we saw on the bedside connectivity space some pretty good activity. We had one very large customer that did much more than we expected. So we saw a positive impact there on the wire line side. We also saw real positive trends on the wire line side for medical. So, on both sides we saw really strong performance this quarter.

Okay, great. And EMEA, is that just more macroeconomic factors that are pushing revenues lower, or is there something you're specifically seeing there?

No, EMEA did okay. We expect EMEA to continue to do well. We have a little bit of lumpiness, as I've stated before in previous calls, that affect us. So I don't expect that to be a trend over at EMEA.

Okay. Great. Thanks a lot. Great quarter.

The next question comes from the line of Matthew Kempler with Sidoti & Company. Please proceed.

Hey, good evening. It sounds like medical and fleet are partially leading demand right now. I'm wondering if you can just give us some perspective on how the key verticals are developing this year in any way differently than what you might have thought, or is any participants moving around, or if everything's really falling in line.

So, if I gave the impression that medical and fleet were leading demand, that's probably the wrong impression. I'd say that smart energy, medical, fleet and tank are all performing well. As I said in the last call, Matt, medical is a vertical that we've been focused on probably the longest, probably about five years. We're seeing that continue to grow and continue to develop. We're seeing smart energy with very high growth rates. We've focused on that for two to three years. We're seeing that developing very well, not just on a partnership level, but on a revenue ramp perspective and customer perspective. So that's doing really well.

Fleet is much earlier in its evolution, and we're just starting to see that ramp up, but it's ramping up very nicely. And tank, we've been focused on that for the last two to three years, and we have some customers that have started ramping, one major one ramping significantly. We've got a number lined up behind that, so we see a lot of great momentum there. So, I'd say across the board, what we're seeing is general strength across the board in our business. We're seeing increased visibility in our business to large deals, which provides us with a lot of confidence about increasing the guidance and a lot of confidence about the second half of the year.

Okay. Just following up on that, you mentioned that bookings in the quarter were extremely strong, up significantly versus even the last quarter. Maybe you can give us some perspective on that in terms of -- I don't know if you're comfortable talking about a book-to-bill or how you could characterize your visibility into the rest of the year.

We don't provide that, Matt. What I will reemphasize is that bookings were extremely strong, and up significantly. I'd also say that this gives us much better visibility into the second half, and very good confidence about the business in the second half, which has caused us to increase guidance. In terms of getting into specific numbers, I'm not going to do that.

Okay. All right. And then maybe lastly, from a product development standpoint, could you give us a little preview of what are the areas you're focused on right now from development? Are there new products coming to market that we should expect that are targeting new markets, or are you really looking to strengthen existing product footprints that you already have?

We're very focused on wireless solutions in the targeted verticals. And the core, we think the core of that wireless solutions approach is iDigi. So we're increasing investment in iDigi. IDigi is the device cloud. We think that's a key driver for our business to the extent that we continue to drive penetration of iDigi. That drives sales of our wireless gateways, it drives sales of our wireless design services, it drives sales of our endpoint products, and it creates a very deep relationship with our customers and partners.

And so we're putting a lot of energy into iDigi and driving continued enhancement of that platform focused on these vertical markets. In addition to that, within the verticals themselves, we are, I think, very good at listening to customers, understanding their requirements, and we have a pretty significant investment in our wireless gateway product line. Continuing to expand and enhance that product line is a key element of our strategy in each one of the verticals that we're focused on.

Okay. Thank you very much.

Your next question comes from the line of Dick Ryan with Dougherty. Please proceed.

Sure, good afternoon guys. Joe, can you talk a little bit on geographic regions, what you might see for the remainder of second half as you're talking about ramping momentum, where you might see the growth coming from, if that's changing from first half?

I would expect to see continued -- good momentum in North America. I'd expect to see moderate growth rates in Europe. And I would expect to see out of Asia-Pacific and Latin America very strong growth, above the average growth rate. We're seeing strong opportunity in Asia-Pacific, in India, in China. Those are our big focus areas from a business development perspective. Beyond Europe, in Latin America, Brazil is a market that's really showing a lot of promise for us. We're seeing revenue ramp Latin America, and we expect that to continue. And I expect Europe to be a good moderate growth rate, reinforced for the second half of the year.

Okay. In your annualized guidance, what assumptions are you making for wireless contribution? I think it was just north of 40% in Q1, slipped a little bit. What are you thinking of wireless contribution for Q3 and Q4?

Well, we've got pretty good visibility right now for next quarter in terms of where we think it's going to end up. We think we're going to be back up in the probably 42% to 43% ballpark next quarter. And I would expect that we'd probably be in that same ballpark in fourth quarter. So we would expect it to be slightly above what we saw in first quarter.

Okay. On the cash position and buy-back, Steve, how much cash is held overseas versus domestically here and what are your thoughts on buy-back?

We have about $19 million overseas, and we're looking to reduce that over time here and get as much of that back domestically as we can, as cheaply as we can. Relative to a buy-back, right now we don't have anything to announce in terms of plans for a buy-back.

Okay.

As we've said before, Dick, the biggest focus with cash is to continue to look at acquisition possibilities, especially looking at the smart grid smart energy space.

Okay. And as you look at your R&D efforts, Joe, you talked about that earlier, but are acquisitions, is that part of that story or are you developing some of that capability internally?

Well, we're certainly -- we spend quite a bit on R&D, it's above 15%. We're doing a lot of -- a lot of the focus is organic. A lot of development now focused on iDigi and, like I said, the gateway products, some of the endpoint products, big focus on wireless. The vast majority of the focus on wireless. That's where we're focusing the R&D effort. We'll continue to drive healthy investment in R&D; as we see the organic, top-line organic growth rates improve, which is what we expect, I would expect that E to R to improve also. So as I said before, I would expect over time that that would -- while we will increase, continue to increase our investment in R&D over time, we expect the E to R to come down from fifteen and change down around 12%.

Okay, great. Good quarter, thanks guys.

Okay, thanks

(Operator Instructions). Your next question comes from the line of Dan Caposo with Invicta. Please proceed.

Yes, good afternoon. Thank you for taking my question. I have a couple -- first, without getting into specifics, dealing with the different verticals you've referenced, the tank monitoring, smart grid, fleet management and medical, can you give for us kind of a ranking in terms of revenue contribution for this quarter just as a reference point?

Yeah. I'd say -- I'll give you a sense for it. Medical, from a size perspective, is the largest. In terms of growth rate, I don't have the numbers in front of me. The problem we have on a vertical basis, because half of our business is two-tier distribution and we don't get 100% sales out from that second tier, especially internationally, the numbers aren't precise. So, internally, we don't even have precise numbers by vertical. But safe to say that medical is the largest and, in terms of the highest growth rate, probably smart energy.

Okay, great. Thank you. That's helpful. And then just on the large deals that you referenced that gives you visibility into the second half, how do you define the large deal? And which verticals would they be in?

So, good point. How do you define a large deal? Typically, it's in the millions of dollars per year.

Okay.

And we're seeing large deals across all those key verticals.

So then I can assume there's more than one deal for several million dollars that you booked this quarter?

Well, what I'm talking about is annualized, right? So, on an annual basis there's multiple deals that are in the millions.

Okay, great. Thank you.

Yep.

Your next question comes from the line of Jim with Discover Investment Research. Please proceed.

Good afternoon, gentleman. Can I get the wireless revenue one more time?

$19.2 million for the quarter.

$19.2. Since that was down sequentially, did that help -- I'm assuming that helped gross margins a little bit.

There was some mixed element there that did contribute to gross margin, yes.

Okay. The only reason I ask that is because going forward, you talk about the large deals. I imagine some of those large deals are for wireless products, correct?

That's correct.

So we probably -- the gross margin number is great, but I guess I'm trying to temper a little bit of that gross margin going down the road here with the fact that, if wireless has more of an impact, the way it sounds it going to, the margins might go back down a little bit. Is that safe to assume?

I don't know if that's safe to assume. If you look at what we've done over the last eight quarters, we've driven wireless up significantly as a percentage of the total over the last eight quarters and during that same time period, we've driven our gross margins up from 48% and change to 51.6%. So in addition to the mix elements, we have a huge focus on cost reduction and manufacturing efficiencies within the business. So we're going to continue to fight that battle. So far we've been improving and winning that battle, but we'll continue to fight that battle and continue to drive gross margins. There will be five force market pressures out there that I think you're alluding to that could mitigate that a bit, but history has been pretty positive.

Excellent. I like that reply. Going forward, I think, Joe, you mentioned before that, as you get into these deals, it's tough -- it's tough to be displaced, and I imagine you'll have more pricing power if that happens, is that correct?

Yeah. So, if you think of it from an industry structure and five force perspective, you've got it. What we're doing that helps us to drive the (inaudible) win, to win the deal and to drive gross margin, is what we've done over the last few years. A pivot from a point product orientation that's wire line oriented to a wireless solutions orientation, where instead of providing one product, we're providing a full solution. Part of that solution is the device cloud, which provides a lot of value. So we think that over the long term, one of the things that allows us to fight that battle from an industry structure perspective is the solutions nature of where we're going, and the device cloud, and the value that that provides. That combined with a rigorous focus on product cost reduction and manufacturing efficiencies are the key things that we'll use to fight the margin battle.

All right. Thanks for that color. The sales marketing numbers, percent of revenue was down nicely as well. I just wanted to hear your comments about that, Joe, going forward, or Steve, and if we can -- if we can expect that kind of leverage to continue or if something -- or if you plan on doing more promoting -- promotional efforts or trade shows in the second half of the year. Can you talk a little bit about that?

Yeah. So we would expect, as we drive better top-line organic growth, that we're going to have good leverage that we'll be able to apply to improved EBITDA margins over time. And certainly we believe that will happen in the short run. On the sales and marketing line, as we drive growth obviously there's a variable top expense with that, but I still think we'll get some leverage there. We'll get leverage across the board with R&D and G&A going forward. And then on the R&D and G&A side, I think what we'll be able to do is, especially with R&D, I think we'll be able to increase investments while reducing our (inaudible) over time. I've said in previous calls the goal is to drive from where we are, which is right around, this quarter, right around 12%, just under 12% EBITDA. The immediate goal is to drive back up into the 15% to 20% EBITDA range. We think we can do that within the next -- I'd say within the next year we can do that. Maybe sooner. And then beyond that, the long-term goal is to drive EBITDA to 20% or better.

Good, good. And one final question. Can you talk a little bit about your partnership with Freescale? I'm kind of new to this story, I'm just curious how long that's been going on, and what kind of products you guys are planning together. So, thank you.

So that's fairly recent partnership, public partnership. It's very complementary to our overall strategy. They've got arm-based processors that are optimized for networking capabilities with the ability for us to really drive that core processor as a part of our core module strategy, and really migrating that strategy to key operating system strategies like Linux and Android over time. So we feel like that's a really good partnership for us, it's very natural migration for us from our own arm-based processors to partnering with Freescale.

And that was the final question. I would like now to hand the call back over to Mr. John Donsmore (sic), CEO, for any closing comments.

I'd just like to summarize saying that we're focused on three high-growth fields right now. Start with wireless M2M, we've passed the tipping point on that, that market is really starting to heat up and grow. Add the device cloud for easy and lower-cost deployment of these networks, and apply it to the smart grid and these other verticals, and I think we've got a great opportunity. Happy Easter, and I look forward to talking to you guys in three months.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect your lines. Good day.