Digi International Inc (DGII) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Digi International Inc. Q1 2017 earnings conference call. (Operator Instructions). I would now like to turn the call over to Mike Goergen, CFO. Please go ahead.

Thank you. Good afternoon and thank you for joining us today.

Joining me on today's call is Ron Konezny, our President and CEO. Ron will provide his thoughts on our business and I will follow with the highlights of our financial performance for the first quarter. Following our prepared remarks, we will take your questions until 6 PM Eastern.

We issued our earnings release shortly after the market closed. If you do not have a copy of our earnings release, you may obtain a copy through the financial releases section of our investor relations website at www.digi.com.

Some of the statements that we make during this call are considered forward looking and are subject to significant risk and uncertainties. These statements reflect our expectations about future operating and financial performance and speak only as of today's date. We undertake no obligation to update publicly or revise these forward-looking statements for any reason. We believe the expectations reflected in our forward-looking statements are reasonable, but give no assurance such expectations or any of our forward-looking statements will prove to be correct. Please refer to the forward-looking statement section in our earnings release today and under the heading risk factors in our 2016 annual report on Form 10-K and subsequent reports on file with the SEC for additional information.

Finally, certain of the financial information disclosed on 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. The earnings release is also an exhibit to a Form 8-K that can be accessed through the SEC filing section of our investor relations website.

Now, I would like to turn the call over to Ron.

Thank you, Mike, and greetings to everyone on the call today.

The results of our first fiscal quarter of 2017 demonstrate the improving resiliency of our model, as we delivered strong profits while achieving our revenue expectations. As we discussed with you last quarter, growth is our most important priority. We are confident that higher and more consistent levels of growth, combined with a strengthening cost model, will result in further operating leverage and higher levels of profitability.

In our call today, we will update you on our growth initiatives and provide an updated forecast for our fiscal 2017.

First, our sales organization. Mike Ueland, our new Senior Vice President of Global Sales, has hit the ground running. He is changing the culture of the sales organization to be more assertive, more creative, and targeting larger opportunities. We believe the success in our cellular business is just a glimpse of what Mike and the sales team will deliver near term.

He has also begun to implement sales changes in our organization, as we have combined the RF and embedded sales teams as they are selling to the same customer, largely embedded engineers, and we can better leverage the Digi product portfolio.

We are also increasing the size of our direct sales force, and we're working with our channel partners to make it easier to do business with Digi and support their efforts to go further into the sales process. Lastly, we have focused our direct selling efforts to larger and more strategic customer opportunities.

Secondly, in product management we continue to make strides with our initiatives in the product management area. First, we are now under 2,000 SKUs and see a clear line to less than 1,500 SKUs within a quarter. Our SKU optimization process is meticulous as we work closely with our sales team, our customers, our channel partners, and our supply chain team to ensure everything is smooth. As we evolve to carry fewer, but more widely appealing, products, we expect to gain efficiencies throughout the Company.

We are laser focused on prioritizing, executing, and expanding our new product introductions to also drive growth. We continue to believe that investing in R&D and introducing more advanced and secure products is critical to drive growth.

Lastly, product management is working closely with sales to support their large strategic customer initiatives to ensure that proper support and value propositions are delivered.

Third, new product introduction, we are seeing great results and strong leading indicators for new product introduction in our key product groupings. We started shipping the cellular LR54 Linux-based router in late first fiscal quarter, and we continue to progress the offering with software updates and future variants.

We sold more embedded ConnectCore 6UL, otherwise known as our CC6UL, development kits than expected, and we have over 20 design wins and a $40 million pipeline. We expect CC6UL module shipments to begin this second fiscal quarter.

Similarly, we have nearly $15 million in pipeline for RF's XBee cellular module and we expect shipments to begin this second quarter as well.

Fourth, our channel. We are working closely with our channel partners to go further in the sales process and ensure a successful set of new product introductions. We are taking their input to plan our roadmap and move quickly on new offerings and extensions of existing offerings. This is exhibited in our announcement of a Sprint-enabled WR31 product in our cellular business.

North American channel sales were up approximately 10% year over year and we're working aggressively to expand that success more broadly.

Fifth, in services. As you know, Digi cold chain is one of our fastest ramping businesses and we have quickly become a leader in the space. We recently executed two acquisitions within cold chain. FreshTemp was acquired in November 2016. This brought Jeff Rieger and his team, as well as their leading digital test management solution, to Digi.

We quickly had our first significant customer win from the FreshTemp acquisition with the signing of Love's Travel Stops, one of the most respected convenience store operators in the retail industry.

Just after our fiscal quarter ended in January 2017, we acquired SMART Temps, a leading provider of automated temperature management and task management solutions in the food, hospitality, and health industries. John Miller and his team have embraced the Digi team and we are excited to work together. Their success in pharmacies, hospitals, clinics, foodservice, hospitality, and education markets expands the addressable market for Digi cold chain.

We recently announced customer wins with the Dallas Independent School District and AMC Theatres. Digi now has over 10,000 sites that we are servicing, with leading customers in each of our applications.

In addition, wireless design services continues to make positive progress, helping companies create and introduce new IoT solutions, as well as working with our cold chain business on new product introductions.

Lastly, in corporate development our strong operating performance, combined with our strong capital position, enables us to pursue additional inorganic growth opportunities. We have been focused on building our Digi cold chain business and we are looking for more opportunities to build on our leadership position. As I mentioned last quarter, sustainable growth initiatives can take a bit longer to implement and produce measurable results. We are confident that our path to consistently higher levels of growth is within reach, based on our initiatives, leading indicators, and results.

Now I will turn it over to Mike for a comprehensive update of our financial performance. Mike?

Thank you, Ron.

As Ron mentioned, we are off to a good start to the year. We were pleased with our Q1 results, which were within the guidance we provided on our last call. This is important, since the first quarter is typically our lowest revenue-generating quarter of the year. This year, we expect this to be the case again.

From a profit generation perspective, we continue to prove the scalability of our business. During the quarter, we further built upon the more athletic business model Ron and I put in place when we came aboard.

Profitability also benefited by currency fluctuations, as the dollar continued to strengthen against other world currencies we do business with, in particular the yen, euro, and the British pound. And we realized benefit on our US dollars held abroad.

From the P&L perspective, we generated $45.2 million of total revenue, which, as I indicated, fell within our guided range of $45 million to $48 million. Revenue decreased by $5.1 million, or 10.1%, compared to the same quarter last year. Included in revenue performance for the year was a foreign currency translation decrease of $300,000 when compared to the same period in the prior fiscal year and, again, was primarily caused by the weakening of the British pound and euro against the US dollar.

We were pleased to see the cellular business return to growth and increase by 13% compared to the year-ago quarter and by 10% sequentially from last quarter. We expect that cellular revenue will be supported in future quarters by the recent new product line introductions, including the LR54.

We did experience weaker revenue performance than a year ago in our RF and embedded categories. As we expected with calendar year-end reporting, many of our channel partners optimize inventory balances in our fiscal Quarter 1, which negatively impacted these categories. We are starting to build meaningful pipeline with the new product introductions that Ron mentioned, including the CC6UL and our cellular XBee.

Our network category performed as planned. As I have mentioned previously, this category is typically purchased only in replacement cycles for our customers and not necessarily when technology is upgraded. We do expect our network category to decline in the high single to low double digits for the foreseeable future.

Service revenue was flat in Q1 2017 versus the year-ago quarter. Incremental revenue from Digi cold chain solutions, which began with the bluenica acquisition a year ago, offset a modest decline in our wireless design services revenue versus the year-ago quarter. We are starting to see that business stabilize with more consistent topline performance.

Gross profit decreased by $2.9 million, or 11.9%, in Q1 2017 versus the year-ago quarter, due primarily to lower topline revenue performance. Our overall gross margin was 47.5%, compared to 48.5% in Q1 2016, a decrease of 100 basis points. This was driven primarily by our product gross margins.

Our Q1 2017 hardware product gross margin was 48%, compared to 48.8% in Q1 2016, decreasing largely from sales mix as our network product category declined as an overall percent of our product revenue. Service gross margin for Q1 2017 was 35.9%, compared to 40.8% in the year-ago quarter. We expect margins in the service category to be between 35% and 40% for the balance of the fiscal year.

Operating expenses in Q1 2017 decreased by $2 million, or 9.7%, compared to the year-ago quarter. The decrease is primarily due to compensated -- compensation-related expense savings and realizing the reduced costs associated with the restructuring of our German office location, which was completed in April 2016, as well as our wireless design services relocation from a year ago. We incurred a restructuring charge of $700,000 in Q1 of last year from these activities.

As I mentioned previously, we benefited from favorable currency gains on our US dollars held abroad in Q1 2017 as the dollar continued to strengthen. This resulted in favorable currency gains of approximately $600,000.

We recorded an effective tax rate of 24.5% for the quarter, compared with an effective tax rate of 10.9% for the first quarter a year ago, including tax benefits specific to the quarter. In Q1 of 2016, we recorded a tax benefit of approximately $700,000, largely related to the permanent reinstatement of the federal research and development tax credit.

Our overall effective tax rate results from the mix of income between taxing jurisdictions, many of which have lower statutory tax rates than the US. For planning purposes, we project an overall effective tax rate of approximately 28% to 30% for the full fiscal year 2017.

Income from continuing operations for the quarter was $2.4 million, or $0.09 per diluted share, compared to $3.1 million, or $0.12 per diluted share, in Q1 2016.

As a reminder, we divested our Etherios subsidiary in Q1 2016 and recorded income from discontinued operations after income taxes of $3.3 million, or $0.13 per diluted share, most of which resulted from the gain on sale.

EBITDA from continuing operations was $4 million, or 8.8% of revenue, compared to $4.6 million, or 9.1% of revenue, for Q1 2016. We anticipate that we will remain on track to deliver our 10% EBITDA margin goal for the fiscal year. We have provided a full reconciliation table for non-GAAP items in our earnings release for your convenience.

Moving to the balance sheet, cash and investments, including long-term investments, totaled $136.4 million, a decrease of $1.3 million over the comparable balance at September 30, 2016. The decrease in cash was primarily a result of the FreshTemp acquisition and other M&A activity, fiscal-year 2016 incentive compensation payments, and our first earnout payments for bluenica. As a reminder, we have a $15 million stock buyback plan in place that expires May 1, 2017. To date, we have not utilized this plan.

Our balance sheet continues to be very strong, with a current ratio of 10.8 to 1 at December 31, 2016, compared to 8.2 to 1 at September 30, 2016. We continued to improve our working capital position by reducing our inventory and receivables from September 30, 2016. We remain debt free.

Before I move to our updated guidance, I would like to take a moment to talk about our cold chain solutions business. First, we will be reporting these revenues in our services category, as well as now being included in our updated guidance. We expect our existing and recent acquisition in our cold chain portfolio to generate between $10 million and $15 million in revenue over the next 12 months. We love the attributes of this solutions-based business, with its sticky recurring revenue, strong growth rates, and better predictability.

We further believe as these businesses become a larger percentage of our topline revenue we will also benefit from increased valuation multiples for our overall Company.

Second, to date we have invested approximately $35 million in cash, the majority of which you will see in the second quarter as part of the SMART Temps acquisition.

Now, I would like to provide our updated guidance, which includes the second quarter and the full year of fiscal 2017. For the second fiscal quarter of 2017, we expect revenue to be in a range of $47 million to $50 million. We expect net income per diluted share from continuing operations to be in a range of $0.06 to $0.09. For the full fiscal year, we now expect revenue to be in a range of $201 million to $211 million. We expect net income per diluted share from continuing operations to be in a range of $0.40 to $0.48.

That completes our prepared remarks. At this time, Ron and I are pleased to open the call for your questions. Operator?

(Operator Instructions). Greg Burns, Sidoti & Company.

I just wanted to dig in on the strength in cellular this quarter. Was there anything in particular driving that, any particular projects that came in that you weren't expecting? And how should we think about the cellular business for the balance of the year, given the new products that were recently launched?

Greg, good to hear your voice. This is Ron. So, first, it was broad based. It wasn't one large customer that drove the success in our cellular business.

We did start seeing the impact, Greg, of our LR54 router new product introduction that began shipment, so that contributed to some extent. But, again, it was a pretty widely distributed quarter. I will let Mike comment on expectations for cellular moving forward.

Yes, Greg, I think similar to prior calls, we don't really guide on a product category basis, so I would like to stick with that, stick with that theme.

We do expect really cellular to continue to perform well, but I want to refrain from guiding specifically on the product categories. I think what you have seen is they can fluctuate from quarter to quarter, but we expect strong performance.

Okay, thanks. And can you talk about how your strategy with cold chain is evolving? With the recent acquisitions of FreshTemp and SMART Temps, you're expanding verticals and bringing in some new technologies. But could you just give us a broad overview of what your strategy is in that market and how you're looking at building a platform to really address the growth you see there?

Yes, thanks for asking, Greg. First, we did a lot of research and studying and talked to a lot of folks throughout a wide variety of applications and industries.

And what really attracted us to what we call Digi cold chain was a large addressable market; a lot of customer fragmentation, so a lot of opportunities; an opportunity to really help those verticals reduce costs, to improve safety, to protect their customers and their brand; and to have a more efficient food supply chain and health supply chain.

And we didn't see a tremendous amount of competition, so we saw a real interesting opportunity that in some ways reminds us of telematics in the earlier days.

We also saw a customer base that generally was comfortable with relying on third parties for these types of solutions. If you think about retail, food, and pharmacy, if you think about trucking and warehousing, hospitality, they are very comfortable with ROI-based solutions that are built by leading customers and companies that provide great service.

So, we saw the attributes, and we think the addressable market is several billion in size just within North America. And so, as we went about this journey here, bluenica really got us into automated time and temperature. FreshTemp really brought digital task management. If you think about taking temperatures, that happens to be a very frequent task that you can automate. But many enterprises want to ensure that procedures, tasks, are followed uniformly throughout the organization. So digital task management, as opposed to manual recording information in a logbook or a red book, is far superior and more efficient.

And then, lastly, the SMART Temps acquisition really broadened the appeal of Digi cold chain beyond food, which SMART Temps is a leader in as well, but really SMART Temps got us into education, got us into hospitals, clinics, pharmacies, hospitality. And so, we are committed to a go to market that is vertically centric. We have our resources that are calling on specific applications. But then the technology ends up being the best in class for that application, which we got some great collaboration between the three groups, and our guiding post is making sure the customer has success.

So, we're excited. We see a great opportunity. We are seeing great growth rates, and having talked to many of our existing customers and prospects, it is just delivering real value.

Okay, and I guess you gave a little bit of color on the revenue potential you see over the next 12 months. Is there any point when you're going to start to disclose some more KPIs around that business, whether it is customers, ARPU, anything to that nature?

Yes, absolutely, Greg. I think as we think about the important measures for that business, what we would like to start talking about would be number of sites, average revenue per sites, churn metrics will be very important, and then you will start hearing us talk more about recurring revenue and annualized recurring revenue.

So, obviously, we have got two brand-new acquisitions here over the last 90 days, and as we get those businesses more integrated and just understand the ebbs and flows of those businesses, I think you'll see us share some of those stats.

All right, thanks.

(Operator Instructions). Mike Walkley, Canaccord.

Thank you, and thanks for the color on the cold chain monitoring businesses.

As you look to your overall full-year guidance, can you maybe talk us through the core businesses and how you see embedded and RF and some of those businesses? For the full year, do you expect those to be growth businesses year over year or do you see them steadily recovering throughout the year, given those two businesses were a little bit below my expectations for the quarter?

Yes, we think, again, we have got some lumpiness in our three main product categories. We do think network will soften as compared to last year. We do expect growth in all three of those other product categories.

As Mike mentioned, we had softer-than-expected channel pull and that left us a little upside throughout the balance of the year. But we expect growth in three of our four product categories.

Okay, great. That's helpful, thanks. And then, Mike, just on the mix of the business, with the update for the services business start to grow in a 35% to 40% gross margin, should we expect as that business grows a little faster that gross margins are coming down a bit for the year? That's implied in your guidance to 47%, 46% for the year. Is that where we are thinking about it?

Yes, so I think if you look at the existing services business, which is predominantly the wireless design services, coming into the quarter, that 35% to 40% gross profit is the right way to model that business. As we add both organically and with the new acquisitions, we would expect that gross profit margin to actually improve over time, so I gave you how we view the current business, which is really, again, dominated by that consulting services.

So I'm not sure if I answered your question. We certainly expect that segment to grow, right? We gave you that $10 million to $15 million over the next four quarters, and margin on that business, that $10 million to $15 million is on top of that 40%.

Okay, got it, that's helpful. And then, finally, last question and I will pass it on. You mentioned in your prepared remarks that as this business grows and you have more recurring revenue, you thought that would improve the overall multiple of the business. Can you maybe just discuss how you view the value of the business and if there is any update on the Belden offer and discussions there?

We think as the cold chain business gets larger and we start really shining a brighter light on the subscription revenue, we are certainly understanding that we need to demonstrate not only a certain size, but also the ability to call the ball on how that business progresses.

But we do think that business will, unlike our, say, product business that tends to be more of a multiple of EBITDA, we think that the recurring revenue business will be more a multiple of that recurring revenue. And we may start to get credit for the higher growth rates, the higher gross margins associated with that, the visibility and the predictability of that revenue, in combination with a large addressable market where we are becoming a real strong leader.

Regarding your second question, we really can't provide any additional information than what has been publicly disclosed to date on the Belden situation. We certainly can't speculate on what third parties may or may not do, but -- so there is no additional information at this time.

Okay, thank you very much.

Tavis McCourt, Raymond James.

Thanks for taking my questions. First, a clarification. Was it $10 million to $15 million of trailing 12-month revenues or go-forward 12-month revenues you mentioned for the cold chain solution? I just want to confirm that was all your cold chain business. You weren't just referring to the acquisitions that you just closed? Is that correct?

That's correct. It is $10 million to $15 million really starting from, call it, Jan 1 forward. So think about it as calendar 2017, $10 million to $15 million, and it includes the existing, as well as the new acquisitions.

Got you, and then I guess follow-up in that regard, talk to us a little bit about your strategy for organic growth versus acquisition. Obviously, one of the challenges there, you want to scale it up quickly, but obviously the revenue multiples on these things tend to be pretty high, at least the growing ones. So, how do you scale it up quickly without depleting all of your cash reserves in the form of acquisitions, and are there a reasonable amount of acquisition targets out there in this niche? Thanks.

Yes, those are good questions. First of all, we feel very good about our organic growth. We have got a great team. Both bluenica and FreshTemp were relatively small acquisitions. SMART Temps was certainly a larger acquisition with a great installed base and a great go-to-market team. And we think that Digi can really help SMART Temps, as does SMART Temps feel that Digi can help them.

We are taking steps very quickly to focus them on going to market and take over some functions that they are glad to hand to us, such as IT and legal, and also take over their supply chain and improve their cost situation on their products and hopefully improve the service levels and the product offerings.

So we feel very good about organic opportunities. The SMART Temps team has a tremendously large pipeline and we think we can help them close a greater percentage than possibly they would be able to close on their own.

And regarding acquisitions, there are a lot of targets out there. They are smaller companies. There are a few companies that are merging, and we are looking at opportunities to continue to build and we are trying to be very careful about making sure that we have the right chemistry on the team that we have in place and anybody we bring into the fold. So we are being very, very selective.

David Gearhart, First Analysis.

Thank you for taking my questions. My first question, I wanted to ask a little bit about what you are targeting, what you think you can get the business to as a percentage of revenue for the recurring services piece? You have made three acquisitions up to this point, and just trying to get a sense of how -- where you think you can get it in maybe three to five years' time through the combination of organic and M&A, just to get a guidepost so we can model it out.

Yes, it's a great question. We really have stated internally that we -- in shorter order, we want to really get that cold chain close to 20% of our overall revenue composition. That enables us, we think, to really get credit for that business and its growth rate. A nearer-term objective is much closer to 10%, short of any additional acquisitions.

Listen, we are targeting that the cold chain business goes much farther than that, that we can build it into a much, much larger business. There is a $3 billion addressable market out there. There is no dominant provider. We have the opportunity to assert some leadership here, and we intend to do so.

And then in terms of the SMART Temps acquisition, you said $10 million to $15 million for the combined cold chain businesses, and the lion's share of that sounds like it is SMART Temps. Was there any revenue that was written off in purchase accounting with deferred that is not going to come through, that that number is somewhat compressed? Just want to get a clarification on that.

And is it predominantly a services piece versus hardware, because I know the SMART Temps business was selling hardware units, so I wonder if the hardware piece for that is still in the services business or is it allocated to another product line how you report?

Hey, David, it's Mike. So, let me pick those apart for you. So we haven't gone through purchase accounting, but they did have in excess of $1 million of deferred revenue that we'll get to keep a portion of.

I think we will lose probably a good deal of that from a margin perspective. So that will go away in purchase accounting. We have already backed that out of our assumptions. The hardware for all of the cold chain businesses will be reported within that services group. We do want to keep the cold chain reporting together, so there will be a portion of hardware and monitoring and certification and implementation in that services category.

And just with that, sorry to interrupt, are any of the cold chain businesses running a different model in terms of doing a fully bundled solution where the hardware is bundled for the subscription, or is it predominantly one-time upfront sales?

Yes, so our existing business is really predominantly all SaaS, so there is a small implementation fee and then the balance is all recurring monitoring services. Bluenica -- I'm sorry, SMART Temps has got a slightly different model, so they have got -- you can call it a CapEx model, where they sell the hardware outfront and then enjoy the monitoring services after that.

I think there are certain verticals for SMART Temps where that CapEx model works really, really well, but I think there is opportunities to take them more to a similar model where we take that capital requirement out of play for the customers. I think that is -- to Ron's point, that is an example where I think with Digi's balance sheet that makes that just a little bit easier to accomplish.

So I think over time you will see SMART Temps probably offer both models, but the existing business is almost entirely SaaS based.

And one more for me, I wonder if you can help handicap a little bit the opportunity specifically with SMART Temps. I know that they had Rite Aid as a customer, 4,600 stores with a number of freezers in that business. And with Walgreens trying to purchase Rite Aid, just wondering if you can provide some color on what you think maybe that opportunity or other opportunities that are of similar size can present to Digi.

Yes, it is a really good question, and we certainly can't comment on what Walgreens will do and how the FTC will rule on the Walgreens/Rite Aid situation.

But what really has helped attract us to SMART Temps is they are one of the few companies that really rolled out enterprisewide projects. Like you said, Rite Aid has got over 4,500 locations and has been very, very pleased with the SMART Temps solution, as well as their service. So we think that puts SMART Temps in a really good position to win additional enterprise contracts, and we've got a number of those that the SMART Temps team has in the pipeline.

And so, our expectations are that we are able to execute on those and we are being, I would say, very prudent in how we are forecasting this to make sure we're off to a good start here. But there is a ton of upside from the numbers that we have provided, but we want to make sure we are integrating SMART Temps and FreshTemp with the existing Digi cold chain team and we are establishing that reputation of hitting our mark.

Okay, thanks a lot. That's it for me.

(Operator Instructions). Jaeson Schmidt, Lake Street Capital.

Thanks for taking my questions. Wondering if you could comment on what you are seeing from inventory situation at the distributors.

So I made a comment specifically about the channel and the inventory, and most of these guys are calendar year-ends. So, I am going to contradict myself because in aggregate the inventory actually went up. It went up by about $1 million, but the majority of that really was with a program we did with one of our larger distributors, all of -- we call them the big eight. All of the other seven really were down quarter on quarter. So we're up $1 million, but primarily due to one channel partner.

Okay.

So I don't know if I told you, so it is roughly $13 million.

Okay, perfect. And then, just shifting back to the cold chain opportunity, do you guys think you have all the technology and products in house to be able to adequately build out your niche in that market or -- I know M&A will be part of the strategy, it sounds like, going forward. But just curious if you could comment on the current product portfolio you guys currently have.

Yes, we have a really capable set to service the verticals that we mentioned, warehousing, trucking, retail, food, the health and life sciences areas of hospitals, clinics, and pharmacies, as well as hospitality opportunities and educational opportunities.

I think the area where -- and we have plenty of market. It is a $3 billion opportunity. The area that we don't participate in at the moment is what we would call maybe industrial automation and industrial applications. We don't have the technology developed today, although that could be an extension of what we have in place. But we have the right teams and the right technologies to attack those markets.

Okay. Thanks a lot, guys.

Greg Burns, Sidoti & Company.

I just wanted to make sure I understood fully the comment around the $35 million spent in total on the cold chain, so that would be, I guess, it looks like, around $5 million or so on bluenica, and FreshTemp and SMART Temps would be the balance and that balance is hitting in the second quarter. Is that correct?

Yes, that's right, Greg.

Okay. Okay, just wanted to clarify that. Thanks.

I am showing no further questions. I would now like to turn the call back over to Ron Konezny for any further remarks.

Thank you. On behalf of the entire Digi team, we thank you for your continued support and interest in our Company. We are off to an exciting start to the year and we look forward to demonstrating our building momentum throughout the year. I am pleased with the progress we have made on our strategy and I am excited about our future. Have a good evening.

Ladies and gentlemen, thank you for participating in today's conference. You may all disconnect. Everyone, have a great day.