Digi International Inc (DGII) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Digi International Fourth Fiscal Quarter and Full Year 2017 Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host for today, Mike Goergen, Chief Financial Officer. You may begin.

Thank you, Sonia. 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 our fourth fiscal quarter of 2017.

Following our prepared comments, we will take your questions until 6:00 p.m. 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 risks 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 of such expectations or any of our forward-looking statements will prove to be correct. Please refer to the Forward-looking Statements section in our earnings release today and under the headings Risk Factors in our 2016 annual report on Form 10-K and subsequent reports on file with the SEC for additional information.

Finally, certain other 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 filings section of our Investor Relations website.

Now I'd like to turn the call over to Ron.

Thank you, Mike, and good afternoon to everyone on the call. I've organized comments for today's call to reflect on the past fiscal year and build a new framework for Digi's current fiscal year. We concluded our fiscal 2017 year on a positive note. Digi met expectations for the fourth fiscal quarter of 2017. We're pleased with the market adoption, recurring revenue growth and trajectory of our Smart Solutions business. In addition, we continue to streamline our products businesses with fewer SKUs, consolidated options, closer collaboration between products and services and a crisper market identity and presence.

Our fiscal 2017 year was exciting and challenging. We've completed 2 acquisitions in the form of Smart Solutions with a vertical focus on food service, health service and transportation logistics. Within our products business, we consolidated our European presence in Munich, reduced our SKU count to less than 1,400 and brought in new leadership in sales, product and technology.

We introduced and gained traction with our CC6UL and XBee Cellular offerings, and we showed great resolve to deliver strong margins and profitability, but we have higher aspirations for growth of our products businesses.

Entering the fiscal 2018, we have 2 distinct operating segments. M2M, or machine-to-machine, is comprised of products which include cellular network embedded in RF and services, which includes Wireless Design Services, Digi Remote Manager and Professional Services. Our second operating segment is Smart Solutions. This includes SafeTemps, SMART Temps, FreshTemp and the recently-acquired TempAlert business. These 4 acquisitions over the past 24 months are integrating nicely.

Our M2M business provides our distributors, OEMs and direct customers with key tools to create, deploy and manage their business and mission-critical IoT applications, largely in heavy commercial and industrial applications where security, reliability, scalability and manageability are critical. We have 4 key priorities to build sustainable and profitable growth. First is a stronger, direct-sales team, Mike Ueland, our Senior Vice President of Global sales has led efforts to attract new talent to the sales team, and we're seeing progress in converting large and more strategic customers.

Second is improved channel programs. Mike is also leading our efforts to improve the service and support we provide to our important channel partners, including co-selling initiatives.

Third is improved new products introduction. We've added Scott Nelson to lead product management, and Scott Wilken to lead our technology team. They will bring more effective prioritization, collaboration, and ultimately introduction and success of market-appearing products that solve our customers' problems. We're excited to have these widely respected leaders join our executive team.

And lastly, streamlined operations. We continue our drive and our goal of less than 1,000 SKUs in fiscal 2018. We're improving our systems and our processes to the implementation of NetSuite, and we're working hard to make Digi a more customer focused, responsive and an easier-to-do-business-with company. We are targeting M2M in total to grow 5% to 10% over time, while producing double-digit EBITDA margins. Our cellular product family will lead our growth path. We expect both embedded and RF to grow as well. Services are projected to grow at a faster double-digit growth rate. This combined growth will be partially offset by an anticipated decline in our network product family.

In fiscal 2018, we expect growth to build quarterly as design wins, new products and a more productive go-to-market approach set in. The Smart Solutions business is now squarely focused on growth. We have a leadership position and a large addressable market that has fragmented competition and low penetration. Our vision is to provide tax management, condition monitoring and analytical insight across the supply chain of food, medicine and other sensitive assets. Our customers are saving money, improving compliance and safely protecting their customers and their companies.

We are thrilled the TempAlert team has joined Digi to deepen and broaden our offerings. TempAlert's leading customer base includes CVS, Walmart, Apple, Coca-Cola and Costco. Digi has now over 100 professionals dedicated to the success of our combined customer base. TempAlert's cutting-edge technology will enhance Digi's combined offering. In addition, TempAlert brings a strong analytics team, which will add value across the Smart Solutions portfolio. We welcome Harry Schechter, President; Jeremy Macdonald, Chief Customer Officer and the entire TempAlert team.

As with our products business, we are focused on ensuring our customers are capturing value from Digi's offerings and have the support and continued innovation they rightfully expect. Our customer success teams are focused on both implementing new customers as well as ensuring our existing customers are meeting or exceeding our mutual goals. We are vertically focused in our go-to-market across food, health, transportation and industrial applications. This ensures we understand our customers' business challenges and are bringing well-designed easy-to-use and compliance solutions to their businesses. We will be integrating best-in-class offerings, processes and teams across the 4 acquisitions to leverage each business' strengths.

We are focused on building our customer and subscriber base. We believe Smart Solutions can grow to over $50 million to $100 million of revenue over the next 3 to 5 years, fueled by strong double-digit growth. The work completed and changes made during fiscal 2017 have created the foundation that we can build on for a success in fiscal 2018.

We continue to explore additional acquisitions that could accelerate our product and solutions businesses. We take pride in our strong balance sheet as it enables our acquisition strategy and provides confidence in our staying power and vitality.

Now I will turn it over to Mike for a comprehensive update of our fiscal 2017 financial performance and guidance for both our first fiscal quarter of 2018 and for the fiscal 2018 period. Mike?

Thank you, Ron. We had 4 key financial highlights during the quarter. One, we are pleased our revenue performed as expected for the quarter and met the mid-range of our guidance. 3 of our 4 product categories grew sequentially, and we had another strong quarter from our Smart Solutions business. Two, income from continuing operations per diluted share was $0.16, which beat the high end of our fiscal fourth quarter guidance. Three, we are expanding our reporting end guidance to include adjusted EBITDA. As I mentioned earlier, full non-GAAP reconciliations are included in that earnings release. And four, as Ron mentioned and we highlighted in our earnings release, we closed on the TempAlert acquisition, which is our fourth strategic acquisition to grow our Smart Solutions business. TempAlert adds significant scale to our platform and adds deep expertise in the healthcare, industrial and food service markets.

I'll now move to some additional details of the fiscal fourth quarter performance, starting with revenue. We generated $45.1 million of total revenue, which approximated the midpoint of our guided range of $44 million to $47 million. Revenue decreased by 10.6% compared to the same quarter last year. Cellular grew sequentially from the third quarter, but was down 11.4% year-over-year. We still feel cellular's positioned well with our pipeline, planned new product introductions and a new challenge to drive this category. Our module business categories of RF and embedded also both sequentially improved, but declined versus a year-ago quarter by $3.2 million, primarily in embedded. The embedded category is experiencing a decline in our Rabbit system on module, which is in its mature phase.

We have new products launched in 2017 for both RF and embedded. We expect design wins this year to lead the pipeline and opportunities for growth in fiscal 2018. The new products include our ConnectCore 6UL as well as our cellular XBee modules. Network continued its decline with a 24.2% decrease year-over-year. The decline in network has been steeper than expected and primarily driven by softness in terminal and device server revenue. We outlined during our fiscal Q3 call some targeted investments recently made to slow the pace of decline. The targeted investments include both NPI and sales. Our service and solutions revenue continued its strong growth fueled primarily from our solutions business. We grew revenues more than $2.3 million year-over-year and reached nearly 14,000 sites during the quarter. The TempAlert acquisition will add nearly 21,000 sites to our portfolio, which more than doubles our site count to approximately 35,000.

Geographically, North America revenue decreased by 15.3% in fiscal Q4 2017, largely resulting from lower sales of network and embedded products compared to the same quarter in the prior fiscal year. EMEA revenue decreased by 8.2% versus the prior year comparable quarter. However, we are happy to see EMEA rebound from fiscal Q3 2017 given the restructuring that took place last quarter. Results were up 6.2% from fiscal third quarter to fiscal fourth quarter of 2017.

Combined revenue in Asia and Latin America also improved year-over-year, increasing by over 10.7%. Our overall gross margin was 47.3% compared to 48.8% in fiscal Q4 2016, a decrease of 150 basis points. Gross profit decreased by 13.3% in fiscal Q4 2017 versus the year-ago quarter, due primarily to lower top line revenue performance is shifting product mix.

Our fiscal Q4 2017 product gross margin was 47.6% compared to 50.2% in fiscal Q4 of 2016. This decrease was a result of the decline in network products and lower volume in other categories.

Services and solutions gross margin for fiscal Q4 2017 was 44.8% compared to 10.8% in the year-ago quarter. This includes intangible amortization expense of $400,000 and $200,000, respectively. This is in line with our expected margin in the service category of 40% to 45%.

Operating expenses in fiscal Q4 2017 decreased by 12.2% compared to the year-ago quarter. The operating expense decline included a benefit of $3 million compared to a benefit of $700,000 in the fourth quarter of 2016 related to adjustments to contingent consideration related to our bluenica and FreshTemp acquisitions. Although certain growth milestones were not met we remain bullish on this business and their growing pipeline.

Additionally, incentive-based compensation expense decreased by $1.8 million for the fourth quarter of fiscal 2017 compared to the same period a year ago, partially offset by incremental operating expense for the SMART Temps' acquisition of $1.5 million. Operating expense for the fourth quarter of 2017 also included acquisition and severance expense of approximately $700,000.

We recorded an income tax benefit of $100,000 for the quarter compared to income tax expense of $1.1 million for the fourth quarter a year ago. Our overall effective tax rate is impacted by the mix of income between tax and jurisdictions many of which have lower statutory tax rates than the U.S. We had an overall effective tax rate of approximately 11% for the full fiscal year 2017.

Income from continuing operations for the quarter was $4.3 million or $0.16 per diluted share compared to $3.8 million or $0.15 per diluted share in the fiscal fourth quarter of 2016.

As mentioned earlier, the $0.16 beat the high end of our fiscal fourth quarter guidance. EBITDA from continuing operations was $5.5 million or 12.2% of revenue compared to $5.9 million or 11.8% of revenue for fiscal Q4 2016. We've provided a full reconciliation table non-GAAP items in our earnings release for your convenience.

In fiscal 2018, we will be recording adjusted EBITDA, as we believe it is an effective measure to evaluate the performance of our business, especially when comparing our performance to other IoT and technology companies. We will be adding back stock-based compensation, restructure and acquisition-related expenses.

Moving to the balance sheet. Cash and investments, including long-term investments, totaled $115 million, a decrease of $22.7 million over the comparable balance at September 30, 2016. The decrease in cash was primarily a result of the SMART Temps and FreshTemp acquisitions for a total expenditure of approximately $30.1 million, net of cash acquired of $500,000.

Subsequent to year-end, we paid $45 million plus customary working capital adjustments and debt like items or net $41 million in cash for the TempAlert acquisition.

Our balance sheet continues to be very strong with a current ratio of 9.7:1 at September 30, 2017, compared to 8.2:1 at September 30, 2016.

Now I'd like to provide our updated guidance, which includes the first quarter and the full year of fiscal 2018. We expect to see product revenue grow sequentially throughout the year and has been -- and as has been typical for Digi, fiscal Q1 is our softest quarter, but we expect increasing from this space. We are including estimates for TempAlert in our guidance. We do not expect TempAlert to be accretive. For the first fiscal quarter of 2018, we estimate total company revenue in the range of $44 million to $47 million and adjusted EBITDA projected to be between $2 million and $4 million.

Net income per diluted share from continuing operations to be in a range of $0.06 loss to $0.02 loss, included in this EPS guidance are TempAlert transaction expenses of $1.5 million or $0.04 per share.

For the full fiscal year, we are projecting revenue to be in a range of $200 million to $212 million and adjusted EBITDA projected to be between $20 million and $24 million.

Net income per diluted share to be in a range of $0.19 to $0.28.

Again, included in this full year guidance are TempAlert transaction expenses of $1.5 million or $0.04 per share.

Despite our product revenue challenges in 2017, we are forecasting a return to modest growth in 2018 for our M2M segment. Growth should be led by our cellular category, followed by embedded and then RF. Network will continue its decline. Overall, top line increases by 14% led by our solutions group, which is expected to be in a range from $25 million to $30 million in FY '18 and end with annualized recurring revenue north of $20 million.

Margins will improve slightly to 50% as we continue to optimize our manufacturing cost and the solutions mix gross. Operating expenses will show a year-over-year increase as we reinvest in sales, solutions and revenue-bearing resources and services. Adjusted EBITDA margin should be in the double-digits for the year. We continue to plan for our effective tax rate to be around 28%.

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

(Operator Instructions) Our first question comes from Greg Burns of Sidoti & Company.

I was hoping to maybe to get a little bit more color on TempAlerts (sic) [TempAlert] in terms of how much of revenue contribution is considered in the guidance for TempAlerts (sic) TempAlert for the first quarter and the full year and then maybe if you could just give us some color on recent growth from TempAlerts (sic) TempAlert , how fast it's growing, margin profile of the business or any other kind of financial metrics you could help us out with on this?

Greg, this is Mike. So I think we're going to guide to the solutions portfolio in total and so that's the $25 million to $30 million that we provided in my prepared remarks. In terms of how we think about this business growing, we really think it's a north of 20% CAGR. Ron alluded to in his comments, a $50 million to $100 million expectations over the next 3 to 5 years, and so I think you have to throw that CAGR on there, you'll get a good feel for where we'll be running in the short term, but thinking about the business is $30 million for FY '18, growing at 20-plus percent organically.

Okay. But you can't give us -- like what was the trailing 12-month revenue?

Yes, I think we're just going to -- we're going to punt on that, Greg. We're really just going to focus on the portfolio as it's combined today. Yes, certainly, Greg, we guided last year -- calendar year to $10 million to $15 million in solutions, excluding TempAlert. So you can get a feel for -- it's doubled our subscriber base and kind of get a relative feel for the TempAlert contribution.

Okay. All right. So the -- in terms of the issues you've been having with this cellular, they're getting the L series up to speed. Where are we standing in terms of getting that product to where it needs to be?

Yes. If you recall, we actually -- earlier in fiscal 2017, we diverted some of our resources to producing additional variance of our WR series, and so those variants are being introduced to the market over the next few quarters and the work on the Linux-based system continues and we're making very good progress there and back on track and feel like we'll have an equivalent feature set in Linux in this fiscal year and the first half of this fiscal year. So we're doing really both initiatives, we're in cellular which is gaining confidence for us and the ability for cellular to grow from '17 to '18.

Okay. And then lastly, I guess, you mentioned the M2M business to be still in that double-digit margin target. On a consolidated basis now, how should we think about the company with M2M end solutions?

Yes. So I think -- even on a consolidated basis, we're really looking for a double-digit adjusted EBITDA. So we're changing that metric a little bit, right? So we'll have to kind of progress around this as we march through '18. The solutions business, on a combined basis will not be accretive for the short term, but I don't think it's really going to -- really deteriorate our expectations for performing at that level.

And our next question comes from David Gearhart of First Analysis.

My first question, I wanted to look at the solutions business before you layer in TempAlert. If you look at the fiscal Q3, $5.1 million and a declining quarter-over-quarter, just wondering what the causes are because I think we were at $3 million in services revenue from the solutions business in Q3 and it looks like the press release said it was around $2.1 million, so wondering what's going on there just with net locations up on the quarter?

Yes, I can take that one, David. This is Mike. I think, you're right to think about that solutions business anywhere from $2.5 million to $3 million on a run-rate basis. We also -- as we think about the different revenue streams in our business there still is a good portion of that which is up front hardware deployments and so on a recurring revenue basis that business grew, obviously, both year-over-year, but it also grew sequentially from really what we are interested in which is recurring revenue. It was -- the $2.1 million I referenced in the prepared comments was a total services number of $5.5 million relative to fiscal Q4 2016. So $2.1 million was year-over-year growth, and I think it was down, maybe, $500,000 sequentially but I think if you think about that, it really is kind of that up-front deployments. You are going to see some fluctuations in that business until the recurring revenue gets to scale.

So I should think about it as $2.5 million coming from the services piece that's both hardware and recurring and that's where it's adding at, not the $2.1 million, that's just the growth year-over-year?

Yes, $2.1 million is growth year-over-year. And I would think of that on a -- just on a exiting the year, which is news $2.5 million all in on solutions.

Okay. And then in terms of TempAlert, can you give us some sense of the mix between hardware and services, is that roughly 50-50 or is there different models being in play, where it's upfront hardware versus fully-bundled customers' choice, what does that look like?

Yes, that's a good question. We -- I think with the addition to Digi, we provide some flexibility, David, for the Smart Solutions portfolio. There are some customers that actually prefer an upfront investment and maybe a lower recurring fee. There are some customers that want really an all-recurring fee. And so we tend to want to do what the customer is looking for versus necessarily forcing our model on them. We also see, again, average recurring revenue per month change depending upon the application and it's roughly correlated to the size of the asset or the facility. You'd see lower ARPUs on a trailer or a pharmacy, a higher ARPU is certainly in a grocery store and a warehouse. So it does fluctuate depending upon the application. As we grow, you'll start to see those ARPUs really start to smooth out in their aggregate as that consolidated base grows.

Okay. And then there are two more quick ones from me. Since you mentioned mobile, I have tended to think of SMART Temps and the existing coaching solutions you have is mainly fixed location versus mobile. And looking at TempAlert, it looks like there is a decent mobile solution there. Just wondering if you can give us some sense of what the split is on a mixed basis between fixed-location coaching versus mobile, just given that there is really strong competitors on the mobile side and do think that gives you some advantage having fixed and mobile providing full visibility from production to distribution to final sell-through, if that can maybe help you win a little bit on the mobile side?

That's a good question, David. We -- the TempAlert subscriber base is definitely biased towards a more of a fixed location. If you look at our customer base of CVS, Walmart, Costco, those are largely fixed locations. Those same customers have been asking TempAlert for mobile solutions as well, and the solutions that we have, in particular, in SafeTemps are really nice compliments. And so we do think, David, being able to go to these -- strategic customers are asking us to do more with a broader portfolio to give them more complete supply chain visibility, not just in store but inbound shipments or outbound product going in a tote or in another vehicle, is going to be a winning approach. It will certainly take time for customers to adopt the solution but we feel there is great up-selling opportunities.

One more quick one from me. I know that -- I thought it was interesting seeing the TempAlert has CVS as a customer and from what I've heard TempAlert has not been doing the pharmaceutical, the drug side of it and SMART Temps is really strong in that area, has a customer in Rite Aid. Do think that will help your cross-sell initiatives with your existing portfolio into TempAlert space and maybe gain some opportunity there?

We absolutely do. And TempAlert has had a lot of success in convenience store and pharmacy and they really have started gaining traction in food and industrial gases, in particular. So there is a lot of synergies between what TempAlert does in the Digi Smart Solutions portfolio. The other big piece, which we mentioned is, TempAlert has got a really strong analytics capability, much more advanced than what the Digi Smart Solutions portfolio had prior to the acquisition. And so that's another really important dynamic. TempAlert has got some really nice resources and applications that have been studying this data and can become much more predictive and insightful on performance of equipment of store operations and other metrics.

Our next question comes from Jaeson Schmidt of Lake Street Capital Markets.

But just one -- looking at the Smart Solutions business, I know previously you mentioned targeting kind of in that $10 million to $15 million in the revenue for this calendar year. Are you still on track to that range, excluding this recent acquisition?

Yes, we are.

Okay. And then are you seeing anything out of the ordinary from a pricing standpoint in any of your product lines?

No. The pricing hasn't been as much the issue as -- the key for us to grow at faster rates than even the 20% plus that Mike mentioned is really market adoption. Most customers are performing these tasks manually. They're writing stuff down on paper. They're -- they might be logging it to a USB drive, and so there's a lot of education and a lot of piloting that you need to do to get customers comfortable with the solution that they can operate it and get the ROI that we jointly expect. We think that Digi Smart Solutions with deployments like Rite Aid, CVS, Walmart, Love’s Travel Stops, Tim Hortons, we are one of the very few companies that have had deployments, although we're 1,000 sites across multiple companies. And so larger enterprises are looking for companies like Digi to give them the assurance that they can be successful, not just implementing the solution but attending the ROI in the business case and of course, the compliance and safety that they're out for.

Jay, this is Mike. I'll just piggyback on that. So in the M2M segment, specifically the product piece, we did see some margin degradation that was 150 basis points year-over-year. We would really would point to the network decline, network has the highest margins before product families. And then volume kind of hurt us a little bit as well, but we looked at added sale prices and all that is holding up pretty well. So it just kind of echo around (inaudible) there's really not anything going on from a pricing perspective that's impacting margins. It's more mix than anything else.

Okay. That's helpful. And then just last one from me, how should we think about CapEx for this fiscal year?

You know we just aren't that capital intensive. So I would just say I would suggest you use that $3 million to $4 million in CapEx, but I think it'd be pretty close.

(Operator Instructions) Our next question comes from Mike Walkley of Canaccord Genuity.

Just embedded in your full-year guidance, just hoping you could, maybe, walk us through gross margin? Should they improve throughout the year as the hardware business grows sequentially and with the TempAlert acquisition, is your services solution target gross margin still kind of in a 40% to 45% range or does that change that gross margin at all?

Yes. So this is Mike. We, I think, gave you a target of overall gross profit margin that gets closer to 50%. So you can see we are expecting an improvement. And the improvement, I think, is kind of coming from a couple of different areas and you mentioned some of them. So we are trying to really optimize some of our manufacturing cost, and so we're expecting some margin improvements there. Volume, certainly, will help us. We'll get some of that back just with the mix on the network components and continue to do decline. But that solutions and services business, we'll be -- it's $25 million to $30 million for solutions, and throw maybe another $9 million or $10 million on there for services. So yes, we are expecting some margin improvement, really through all of those components. And the 40% to 45% gross profit we're kind of calling out on service I think it actually is kind of an improvement from what we were signaling as recently as our Q3 call. So -- but yes, we're targeting 50% gross profit margins at a consolidated basis for FY '18.

Okay, great. That's helpful. And then, Ron, just as you look at the year, lots of changes going on with your sales and chief technology and product teams. Can you talk maybe about how this new team is in place to drive growth and what gives you the confidence for this nice sequential growth throughout the year?

Yes, I think it's a really good question. The thing that we've been really working hard towards is improve collaboration, better alignment and improve transparency between sales, R&D and product management. And Scott Wilken and Scott Nelson, 2 really well-respected technology and product management IoT leaders, have worked together in the past and had -- it's a great success. So there is a lot of confidence if those 2 have worked well together and will continue to work well. And then Mike having been here now about a year has really started setting in. He's had a chance to bring in new talent, and as you imagine the sales side, it takes time to attract new resources to get them indoctrinated in Digi's product portfolio and culture, and we're really starting to see results of that. And then the collaboration between the 3 is really critical to making sure we've identified the right products, we've brought them to market and train the sales people and we're executing against our game plan. We certainly had a lot of these things in place in fiscal '17. We're not quite getting as good results as we would have hoped at the beginning of the year. And so having these people in place for fiscal '18 really helps us execute better on a plan that we largely thought was a good one but needed improved execution.

Last question for me. Just a quick clarification on the model. With general and administrative down from a sequential, is that just kind of lower year-end bonus accruals or is that kind of a new run rate we should think about on G&A?

No. I think there is a bridge that we kind of provided you with, Mike. So I think, G&A was roughly $17 million for the quarter. I think you can add back to that the $3 million contingent consideration and then back off of that kind of that severance and the acquisition expense. And I think that would get you pretty close. So we did a math for you, I think year-over-year it would be total OpEx of $19.8 million to $19.2 million or something like that, but I think if you think about it, overall, right? If you think overall OpEx from $17 million to maybe $19.2 million is probably a good number. And then you got to add into that the expenses that we would expect to see from TempAlert.

And ladies and gentlemen, this does conclude our question-and-answer session. I would now like to turn the call back over to Ron Konezny, President and Chief Executive Officer for any further remarks.

Thank you very much. On behalf of the entire Digi team, thank you for your continued support and interest in our company. We concluded our fiscal 2017 period in a great position to deliver improved results in fiscal 2018. The addition of the TempAlert creates a market leadership for our Smart Solutions business. We look forward to our next update. Good evening.

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