Digi International Inc (DGII) 2018 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Digi International Third Fiscal Quarter 2018 Conference Call. (Operator Instructions) As a reminder, today's conference is being recorded. I would now like to turn the call over to Gokul Hemmady, Chief Financial Officer. Sir, you may begin.

Thank you, Mark. Good afternoon, and thank you for joining us today to discuss the third fiscal quarter of 2018 for Digi International.

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. Following our prepared remarks, we will take your questions.

We issued our earnings release shortly after the market closed. You may obtain a copy through the Financial Releases section of our Investor Relations website at 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 of our 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. 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. For additional information, please refer to the Forward-Looking Statements section in our earnings release today, the Risk Factors of our 2017 Form 10-K and subsequent reports on file with the SEC.

Finally, certain of the financial information disclosed on this call include 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 would like to turn the call over to Ron.

Thank you, Gokul, and welcome to everyone that has joined our call today.

Digi set a record for quarterly revenue during our third fiscal quarter, and I'm pleased that this performance is based on broad-based growth from both of our business segments: IoT Products & Services, and IoT Solutions.

Our strong performance builds on the momentum established in our second fiscal quarter. In addition to exceeding our guidance for revenue, adjusted EBITDA and EPS, we are positioned well to finish our fiscal year strong. Our performance in fiscal 2018 is especially fulfilling, coming off a challenging fiscal 2017.

Our IoT Products & Services business provides OEM and enterprise products and complementary enterprise software, professional services and support services. Our objective of sustainable, profitable growth was reinforced in the quarter.

Our key objectives include: number one, a stronger direct sales effort. We are seeing results from our key account and top opportunities initiatives with a significant increase in both bookings and contributions from opportunities over $100,000 in value. We have increased our win rate on large enterprise deals, and we still have more room to improve. Our signs of success give us the confidence in adding select resources in certain geographies where we can extend our success.

Secondly, improved channel programs. Our focused channel strategy is beginning to bear fruit. We are developing stronger and more committed relationships, which is increasing our channel and point of sale revenue.

Third, improved new product introduction. This continues to be one of our biggest opportunities for improvement. We are seeing revenues build on our newest embedded products, for instance. We are consolidating the technology stacks of our cellular router products and remote management enterprise software tools, which we expect will improve R&D efficiency.

Lastly, we announced 2 products: a cellular router, the WR64, developed for demanding applications requiring dual cellular and Wi-Fi radios; and the newest addition of our XP cellular lineup focused on IoT networks of LTE Cat-M and NB-IoT.

Fourth, streamlined operations. We now have just over 1,000 SKUs, and we expect to be at less than 1,000 before the end of our fiscal year, meeting our objective. We began the transition of manufacturing. However, supply chain constraints are causing some higher-than-expected inventory levels and pressing our reputation for high service levels. We expect to rebalance over the next few quarters.

We're also a bit behind on our single management system implementation. While this has not impeded our growth, we expect a completed implementation before the end of fiscal 2019 that will unlock productivity gains. Our model for IoT Products & Service is intact, and we have demonstrated the ability to grow the business and achieve strong double-digit adjusted EBITDA margins. It is important to note that our adjusted EBITDA included an additional $1 million of expense related to an accrual for the Accelerated acquisition due to their solid performance.

One item to note was lower-than-expected gross margins. Three factors impacted our performance. As I mentioned earlier, we are seeing some supply chain constraints, in particular, access to raw materials. The revenue mix was less favorable, and we did have higher-than-expected manufacturing, operating expenses as the transition has taken a bit more time than anticipated. We do expect gross margins to improve over the next few quarters, and we also expect our inventory levels to decrease as our manufacturing transition progresses.

The IoT Solutions business is focused on subscriber and recurring revenue growth. Branded as SmartSense, the integrated team refined their go-to-market messaging of remote management and pattern recognition to transform our customers' operations and decision-making. We added approximately 6,000 sites in the quarter, while extending our leadership status in the space. We exited our third fiscal quarter with a subscriber base of almost 48,000 sites, and we expect continued additions and low churn to help grow this number for the foreseeable future.

We are one of very few companies that have implemented multi-thousand site customers in our space, creating a competitive advantage and customer success. Our annualized recurring revenue now exceeds $15 million, and we expect this figure to grow in correlation with our subscriber base. We remain on track to hit the range of $25 million to $30 million in revenues for the fiscal 2018 period. The team has worked incredibly hard to integrate the 4 organizations' processes, and we have a plan to integrate our technology stacks to provide our customers with the best-in-breed solution.

We expect IoT Solutions to experience strong double-digit growth. And we will continue to invest in the business to support our customers and our growth rates. We reiterate our confidence that we can grow the IoT Solutions business to $50 million to $100 million in revenue over the next 3 to 5 years.

With my update on the business complete, I would like to take a moment to formally introduce Gokul Hemmady, Digi's new Chief Financial Officer. When we started our CFO search in April, we were looking for a leader with experience in several areas and disciplines. This included work with public companies, technology industries, recurring revenue models, international businesses, acquisition experience, successes in operator and pride in calling Minnesota home. We are fortunate that Gokul not only meets all of these criteria but is excited about that transformation and the mission we have at Digi. I'm thrilled to par with Gokul, who joined us in June, which has greatly eased the transition.

I will now turn the call over to Gokul for more detail on our financial performance.

Thank you, Ron. I'm delighted to be on board at Digi. I've been at Digi a little over a month. And every day that goes by, I get more excited about the team and the company I have joined. As Ron mentioned, I've spent nearly my entire career in the technology and telecom space.

Technology is fascinating to me as it helps connect people, places and things to opportunities. Over my career, particularly when I was based in the Twin Cities with ADC, I was familiar with Digi. I knew it as a solid company with impressive products and a strong balance sheet.

When I first met Ron, and he presented me with his vision on where he wanted to go with our 2 growth engines, I knew very quickly this was an opportunity I did not want to pass up. More importantly, I believed my background and experience with recurring revenue operations could make an immediate and significant impact to help translate vision to reality.

I have been impressed from day one with the Digi team I have met to date. The energy level and the passion to excel is visible within the organization as we begin to realize the benefits of all the hard work from the last several quarters to put Digi on a solid growth track.

I look forward to working with each of you in the investment community as we communicate our performance and strategy with consistency and transparency.

Now I will turn to the key highlights from our third quarter. First, we had a record quarter on revenues. Our revenue of $62.7 million was the highest total revenue for a quarter in our company's history. It grew sequentially from the second quarter at 15% and was well above our guidance range of $56 million to $60 million.

Second, we made very solid progress in growing our IoT Solutions business. We grew our subscriber count by 15% and revenues by 67% sequentially from $5 million to $8.3 million, while our adjusted EBITDA loss came down from -- substantially from $2.4 million in the second quarter to $0.8 million in the third. Our focus continues to be on growing the business, where we have a huge addressable market.

Third and finally, the efforts of the entire Digi team are visible in our adjusted EBITDA results. Adjusted EBITDA grew sequentially by 51% from $4.8 million in the second quarter to $7.3 million this quarter, which is above our guidance range of $6 million to $7 million. Our third quarter results include a $1 million charge for expenses associated with the Accelerated acquisition. Without this charge, our adjusted EBITDA would have been $8.3 million.

I will now move to some additional details of the third quarter consolidated performance. Geographically, North America revenue increased by 49.1% in the third quarter of 2018 compared to the year-ago quarter, largely resulting from incremental revenues from our Accelerated acquisition; growth of our SmartSense business, which includes incremental revenue from the acquisition of TempAlert; and improved performance from our existing product categories. EMEA revenue increased by 5.3% versus the prior year comparable quarter. Combined revenue in Asia and Latin America increased by 27.7% year-over-year.

Our overall gross margin percentage decreased to 46.8% compared to 49.2% in third quarter 2017. This was due to costs associated with our manufacturing transition, product and customer mix in both the Products and Services and Solutions segments, and increased amortization expenses primarily related to our recent acquisitions.

Operating expenses in third quarter 2018 increased by 25.3% compared to the year ago quarter. A majority of this increase is related to the acquisitions of Accelerated and TempAlert.

Net income for the quarter was $2.6 million or $0.09 per diluted share compared to net income of $1.3 million or $0.05 per diluted share in the third quarter of 2017. Adjusted EBITDA was $7.3 million or 11.7% of revenue compared to third quarter 2017 adjusted EBITDA of $5.6 million or 12.3% of revenue.

We have provided a full reconciliation table for non-GAAP items in our earnings release for your convenience. Again, included in our third quarter 2018 adjusted EBITDA is a $1 million expense related to our Accelerated acquisition.

Moving to the consolidated balance sheet, cash and investments, including long-term investments, totaled $54.7 million, a decrease of $60.3 million over the comparable balance at September 30, 2017. The decrease in cash was primarily related to the Accelerated and TempAlert acquisitions in fiscal 2018. We remain debt free.

Now I'd like to discuss the results of our IoT Products & Services segment. IoT Products & Services revenue in the third quarter fiscal -- third quarter -- fiscal quarter of 2018 was $54.4 million compared to $42.8 million in the same period a year ago, an increase of 27%. This included $8 million of incremental revenue from Accelerated, which we acquired in January 2018. The integration of this exciting cellular company continues to go well, and we are excited about the performance to date.

In addition, we experienced growth in all of our product and service categories. Our IoT Product and Services gross margin was 47.6% compared to 49.5% in the third quarter of 2017. This decrease was primarily a result of product and customer mix, incremental amortization associated with the Accelerated acquisition and short-term costs associated with our previously announced manufacturing transition.

IoT Product and Services operating expenses increased by 10.2% compared to the year-ago quarter. The increase was primarily due to incremental Accelerated operating expenses of $3 million in the current fiscal quarter. Also included in our operating expenses is a reduction in restructuring expenses of $2.3 million year-over-year, which is partially offset by an increase of $1.4 million in earn-out adjustments, of which $1 million is related to Accelerated.

IoT Products & Services operating income was $4.5 million compared to $1.8 million in the prior year quarter. IoT Products & Services adjusted EBITDA was $8 million compared to $6 million in the same period last year.

Now moving to our IoT Solutions segment, IoT Solutions revenue in the third fiscal quarter 2018 was $8.3 million compared to $2.9 million in the same period a year ago. This was primarily driven by continued growth and expansion of our SmartSense by Digi business, including incremental revenues related to the acquisition of TempAlert. We are now servicing nearly 48,000 sites, which is an increase from nearly 42,000 in the previous quarter.

Our IoT Solutions gross margin was 41.3% compared to 44.1% in the third quarter of 2017. Gross margin was lower compared to a year ago due to a higher mix of onetime product revenues. IoT Solutions operating expenses increased to $5.9 million compared to $2.4 million in the year-ago quarter. The increase was primarily due to incremental expenses associated with TempAlert. IoT Solutions operating loss was $2.5 million compared to $1.1 million in the prior year quarter. And IoT Solutions adjusted EBITDA loss was $0.7 million compared to a loss of $0.4 million in the same period last year.

Now I would like to provide our updated guidance, which includes the fourth and full year of fiscal 2018. For the fourth fiscal quarter of 2018, we expect total company revenue of $60 million to $64 million and net income per diluted share of $0.05 to $0.10. Adjusted EBITDA is projected to be between $6.5 million to $7.5 million. Included in our guidance is an additional charge of $1 million associated with the Accelerated acquisition.

For the full fiscal year 2018, we are raising our revenue guidance range to $223 million to $227 million. Our net income per diluted share is expected to be in the range of a loss of $0.04 to net income of $0.01. Adjusted EBITDA is now projected to be between $21 million and $22 million and includes a charge of $2 million associated with the Accelerated acquisition.

As I said at the beginning, I'm very excited to be here. It is an exciting time to be connected at Digi.

That now concludes our prepared remarks. And at this time, Ron and I are pleased to take questions. I'll turn it back over to the operator.

(Operator Instructions) And our first question comes from the line of Mike Walkley from Canaccord Genuity.

This is Josh for Mike. Congrats on the strong quarter. So just starting off, now that you've the SKU optimization program close to where you want it to be, how should we think about the long-term growth rate for IoT Product and Services revenue?

Yes, Jason (sic) [Josh], it's a really nice question. We expect the growth rate to be 5% to 10%. We're aiming for the higher end of that range, certainly, aspirationally. But we think that the mix is in that 5% to 10% that are -- the growth of our stronger products will more than outweigh the growth of the products that are more mature.

Okay. And then $8 million in Accelerated this quarter. I think it was $6.2 million last quarter. Can you talk about how that product -- those products are benefiting from the cross selling with having the combined Digi sales force?

Yes, I think the Accelerated acquisition has been very nice for us, and the integration of their team and the Digi team has gone very well. I think there's a lot more room for us to collaborate, but the teams are sharing leads where there's an opportunity that is more business continuity. Accelerated is really the product we lead with if it's machine-to-machine; more of a rugged, industrialized application, Digi is the lead product.

Importantly, on the technology side, there is a lot of technology sharing going on. And you'll see future products in our cellular router lineup really demonstrate a combination of shared technology on the device but also on the remote enterprise software as well.

Okay. Great. And then just one question on the solutions business. 6,000 net adds in the quarter is really strong obviously. Are there any specific vertical markets that you were successful with in the quarter? Or was it pretty broad-based strength across all the verticals?

Yes, it's a good question. We continue to see strength in transportation and health. There is a tremendous opportunity in food that we're anxious to unlock. But the health and transportation verticals are the ones that are really contributing more so.

And our next question comes from line of Greg Burns of Sidoti & Company.

What exactly are these $1 million charges for Accelerated? Are they just earn-outs? And were they considered in your guidance that you gave last quarter? Or are they something that was unexpected that hit this quarter and is looking like it's going to hit next quarter? And then when we look at the full year EBITDA guidance, you narrowed it down to the bottom end of the range; is that a function of these payments to Accelerated and some of these onetime inefficiencies in/around the manufacturing and some other things that you called out?

Yes, good question. So the terms of the Accelerated acquisition had an upfront payment of $17 million, and then in both calendar 2018 and calendar 2019, there's an opportunity for them to earn $3 million in each of those calendar periods.

At the beginning of our relationship after the close, we did an estimate of what we thought that earn-out opportunity would be and how much they'd capture of it, and they've obviously done better than we initially expected. And so what we calculated initially was not put in their guidance. And that's why we're making such an important note of those figures, because they were not anticipated to be captured at the beginning of the acquisition. But their performance has clearly been higher than expected, and we've had to increase the reserve for that earn-out.

Okay. And then can you just talk about the full year EBITDA guidance? Are these earn-outs the reason kind of you're narrowing it to the lower end or the kind of the onetime items like with -- or are the inefficiencies around the manufacturing and some of these other items you called out also impacting that full year guidance?

Yes. So there's $2 million that weren't originally in the guidance for the year. So that's certainly an impact. The -- and then the other impact is what's just appearing in gross margin, which is a lower-than-expected gross margin as compared to what we had contemplated beginning of the year. And it's -- there is a couple of dynamics.

One is the manufacturing transition is taking longer, and so that's impacting our operating expense associated with our cost of goods. The other aspect is the supply chain for electronics is under tremendous pressure. It started in the memory areas when a couple large providers did unexpected last-time buys, and that had a ripple effect as far as into certain capacitors or even in some cases resistors, so there's been some hoarding going on. And so our ability to get our allocations has been under pressure and has forced higher transportation costs as well as in some cases, higher component costs. So the combination of those 2 have really had the biggest impact on gross margin being off this quarter about 200 or more basis points and giving us reason to be cautious even in the current quarter.

Okay. And could you give us -- this quarter, very strong performance in the Solutions business. What was the mix of hardware versus recurring in this quarter? Was this a function of the -- was the strong performance a function of that big pharma customer you announced last quarter? And if so, kind of how long? What's the, I guess, time frame on completing that rollout?

Yes. So we had -- over 50% of the Solutions revenue was driven by onetime implementation, whether it's professional services or the equipment itself. And so that also had an impact on the overall gross margins. We're still seeing and have confidence in really high gross margins on the recurring side. We do expect a significant amount of net adds this current quarter as well. There is a portion of it that's driven by a large national retail chain, but we're also having success in transportation and in healthcare as well. So we expect to see improvement in margin, but that we'll still see probably in excess of 50% of our revenue be onetime in nature, even in the current quarter.

Okay. So are -- is there like a bulge in revenue here from these kind of rollouts that are more hardware, upfront hardware dependent as opposed to maybe looking forward?

Yes. We're...

Will we get a slower run rate of growth at some point after these large rollouts?

It's a really good question. We're hopeful that we can continue to have strong additions. Now, how we offer our product, we give our customers the choice of more of a managed service, where they're paying low or no money upfront and have more of the obligation on the recurring. But there are many customers that want to have some of that obligation fulfilled upfront in the form of a capital expense and then have a lower recurring. So we're going to let the market decide.

The market is still maturing. So we feel that it's the right thing to do to give the customers the choice rather than to force-fit them in one model. But we do anticipate that in general, larger customers are going to want to have some of that implementation in the form of a onetime CapEx and then associated with that is the recurring.

And our next question comes from line of Scott Searle of ROTH Capital.

Gokul, congratulations, and welcome aboard. Just to quickly follow up on the gross margin front, it sounds like just some headwinds in terms of the manufacturing transition from Eden Prairie but your supply chain as well. It sounds like that exists or it will continue into the September quarter.

When do you see that starting to alleviate? And how should we think about gross margins as we get into December, into calendar 2019? What's your expectation as we start to get out a little bit?

We're really anticipating a more deliberate pace to it that's not a step-level, if you will, but that'll improve. None of us have probably the crystal ball to say what's going to happen within the supply chain as things rebalance, but history would say that things will rebalance. But we're being, I guess, very deliberate in having gross margin improve on a more gradual basis than, say, a step-level basis.

Got you. And looking at the guidance into September of $60 million to $64 million, could you give us a guide or an idea sequentially about how you see both on the hardware product side performing in terms of some of the traditional categories that you talked about in routers, embedded, et cetera? And then also in regard to the Solutions side of the equation, I think talking about the $25 million to $30 million still being the target for this year implies you're kind of flat to up sequentially.

Maybe give us some framework for how you're thinking about and seeing things swing in that range for Solutions as we go into September? What are going to be the driving factors there to move it -- either keep it flat or move it up?

Yes, I think, Scott, you picked up on this really nicely when you kind of take that $25 million to $30 million bracket and you backfill based on what's been accomplished so far. You're looking at kind of a flat to maybe modestly up quarter for Solutions.

It's going to be driven, quite frankly, a lot by our ability for our customers to absorb the rollouts. We're anticipating success there, but some of these larger implementations can run into some timing issues with access to facilities, training and resources, et cetera. But I think you've got the brackets there in terms of the Solutions and then, of course, backfilling what that means for IoT Products and Services.

We do think that Accelerated will continue to have a nice contribution. We don't think the contribution is going to be quite as strong as what we experienced in fiscal Q3. But we'll make up for that, if you will, with performance with Digi's core IoT Products & Services.

And one last question on Solutions. I guess it's probably a little dangerous and misleading to look at things on -- necessarily on a per site basis depending on what the hardware mix looks like versus managed services. But could you give us an idea of what the pipeline looks like? Is there some way to give us at least qualitatively, if not quantitatively, how big that pipeline looks like in terms of the number of sites, number of RFPs out there? Otherwise some color on that front? And is there a big financial difference in terms of the different verticals and ultimate implementation, whether we're talking about transportation, pharma or otherwise?

Yes. This is -- let me remind people, this is a $3.5 billion TAM. So there's a large opportunity. The vast majority, well over 95% of that TAM, is recording this information manually, typically using old-fashioned pen and paper. And so we're evangelizing in many cases the advantages of automated monitoring, pattern recognition, better decision-making. And so the human element is the factor that is the one that we've got to convert more so than the technology and does this work, if you will, and other benefits.

And so as we think about the pipeline, the level of interest continues to grow. I mean, we've got enough pipeline to more than satisfy our needs and represents more than the number of installations that we even have.

The pace at which the market goes from interest and piloting to conversion to rollout is varying. And you're seeing us having some more success with transportation. Transportation tends to have the lower side of the ARPU with trailers and trucks. The ARPUs are stronger with warehouses and distribution facilities.

And then we're also seeing some real success in healthcare, where there is tremendous benefit. They're higher-value goods, the penalties are more severe for noncompliance. So you're seeing us have success with hospitals and pharmacies and clinics.

The food side of the equation, cash management becomes a real critical part of the value proposition. And you're affecting store operations and you're -- it's a more complex implementation. So you're seeing food be more deliberate in their evaluation and implementation. But if you look at the large opportunities in front of us, we're real excited that we can grow this business confidently to $50 million to $100 million just with the pipeline that we've got in front of us.

And our next question comes from line of Jaeson Schmidt from Lake Street Capital.

Ron, wondering if you could comment, if you think anything out of the ordinary from a pricing standpoint on the product side.

No, we haven't seen anything crazy. There's always strong competition, especially in the cellular router business, where there's a lot of growth and that attracts more competitors. But at the same time, there's new and exciting use cases and implementations that people are looking for in addition to higher and higher take rates of the enterprise software that gets associated with the product, which increases the overall value of the solution for the customer but also increases the amount of opportunity that we can extract.

So -- but other than that, because of the supply chain challenges, the biggest issues we have, quite frankly, are more servicing and lead times. Customers have been used to and acclimated to getting product within weeks and because of supply chain challenges, that's not always the case. And so we're having to educate customers to get out ahead of their demand and try to get more visibility into their forecast and in some cases, get blanket POs in place, in order to secure their product and their lead times.

Okay. That's helpful. And then wondering if you could comment on your view on the inventory and the distribution channel on the product side?

Yes. So our inventory is at an all-time high since I've been here. It's $41 million. But the channel inventory is $17 million. So it's in a relative basis never been lower in terms of ratio. And also, we're at a comfortable level from where we've been at in the past.

Okay. And then last one for me, and I'll jump back in the queue, I know you just outlined some of the challenges and successes in the transportation, healthcare and food market. And given some of the challenges in the food market on the Solutions side, should we think that market is a big part of the story in calendar '19? Or will transportation and healthcare really be -- continue to be the drivers?

We're committed. We think that we can attract a significant number of food customers throughout calendar '19. We've got a number of large engagements that have begun deploying. In some cases, food, especially QSR, restaurants has a franchise model. So that can introduce friction in terms of how fast and how large an implementation can get. But with the constant drumbeat of recalls and foodborne illnesses and the amount of press, there has never been more interest in companies getting a hold of their operations, getting a hold of their product safety and making sure that they've done what they can to deliver safe and effective service and products to their customers.

So we think there'll be continued interest, and the trends are favoring remote monitoring and pattern recognition.

(Operator Instructions) Our next question comes from the line of David Gearhart from First Analysis.

So first, I wanted to ask about the network product portfolio. I know you're not breaking out the revenue that way, but your commentary was that you saw growth across all your categories. I just wondered, did that include the legacy networking products that have been in decline, and if you could provide some color on what you're seeing with that product category.

Thanks, David. Yes, we did see some growth. It was more modest compared to other product lines, but there was some modest growth that we saw in network, not outsized as has happened in some other reporting periods.

Okay. And then in terms of Professional Services, $2.7 million for the quarter, it seems like it's a multi-quarter high. Just wondering if you can comment on what you're seeing there, and if that looks like it's a sustainable run rate or just given this business is lumpy that we shouldn't kind of forecast that out going forward.

David, thanks for pointing that out. We do expect services to continue double-digit growth rates. There's 2 big elements. There is a Professional Services element; our Wireless Design Services group has really performed well, both in this quarter but also in trending. What's nice is they're being associated with Digi products more and more as well. And so there ends up being an effect that's beyond just the Professional Services revenue but helps our customers adopt Digi products.

The other big portion of that is our enterprise software, and we are seeing higher take rates associated, in particular, with our cellular router business. That includes revenue from both our Accelerated and Digi cellular product lines. Quite frankly, Accelerated's take rates on enterprise software are higher than Digi's take rates, but they're having a positive influence on Digi's ability to connect and get that recurring device management and enterprise software revenue. So we do expect that revenue category to continue to grow.

Okay. And then lastly, back to the large pharma opportunity that -- or win that you announced last quarter, you haven't provided a name. I'm curious if you're able to speak who that customer is or provide some indication besides your scope as well as expansion opportunities with different products or even geographies.

Yes, that -- I would more than -- I'd be more than happy to provide the name if I could. I can't for confidentiality reasons. What I can say is that we did have a -- we began implementation last quarter. It does continue into this quarter. We feel like we will be substantially complete with that implementation by the end of our fiscal year. And it is a multi-thousand unit deployment, as I mentioned earlier.

Our ability to execute on those large, widely distributed types of implementations are really -- it has really become a competitive advantage. It's not just the product and the offering, it's not the price, it's is not just the remote support, but our ability to train and to implement cost-effectively is a real advantage for us.

And then just because it's a pharmacy, large pharmacy chain, I'm assuming drugs, medication, temperature monitoring, but you also could do front of the store, with some of the food cases and whatnot. So are there expansion opportunities within these accounts? Or is this pretty much one and done once it's deployed? That's going to be the recurring you get, and you'll have to revisit an RFP on other sides of the shop later?

No, David, that's a very keen question. We think there is great opportunity, actually both within the pharmacy as well as in the front of the store. In the pharmacy, it's mainly a temperature application. But as some pharmacies do compounding, differential pressure is a key attribute as well as humidity sensors. So there's additional sensor opportunities.

And of course, front of the store, they've got a gateway installed. They can leverage that gateway and have more incremental expense associated with covering their store rather than an entirely new implementation. And of course, you're confident in the implementation, you're confident in the training, the users' acceptance of the system. So we feel like we're well positioned, while assuming -- not taking anything for granted.

And I'm showing no further questions at this time. I would now like to turn the call back to Ron Konezny for closing remarks.

Thank you, Mark. On behalf of the entire Digi team, we appreciate your support and belief in our mission. Digi is demonstrating some of our potential, and we aim to build on our results. We have a large opportunity in the IoT marketplace allowing us to focus on execution. Thank you for your continued support and trust in Digi, and we look forward to our next update.

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