Digi International Inc (DGII) 2019 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Digi International First Fiscal Quarter 2019 Conference Call. (Operator Instructions) As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Gokul Hemmady, Chief Financial Officer. Sir, you may begin.

Thank you, Heather. Good afternoon, everyone, and thank you for joining us today to discuss the first fiscal quarter of 2019 for Digi International. Joining me on today's call is Ron Konezny, our President and CEO. Ron will provide his thoughts on our dear 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 close. 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 that 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 2018 Form 10-K and subsequent reports on file with the SEC.

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 throughout the SEC filing 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. We kicked off our fiscal 2019 with strong performances from both of our business segments, IoT Products & Services and IoT Solutions. Revenues and earnings exceeded our expectations. While we certainly have more work to do, we remain positive on our outlook for the remainder of the fiscal year. We are committed to our key strategic imperatives, and we are motivated by progress made toward our transformation from a communication hardware manufacturer to a premier software services and subscription provider.

Underpinning our transformation are key cultural tenets: laser focus on our customers, startup level of urgency, positive energy bringing solutions to problems, commitment to outcomes and results, and caring about our work and about each other. A physical and symbolic representation of the new Digi and these cultural values took flight earlier this month as we moved into our new corporate headquarters. Configured for collaboration, equipped with the latest productivity tools, highlighted by our decades of innovation and celebrating our customers and our employees, our new headquarters has been for entire organization. A hearty thank you to our team that helped make our new corporate home a reality, while still executing on their key responsibilities.

Our IoT Products & Services results were different by broad contributions across our product lines and geographies. We saw a significant increase in revenue associated with products introduced within the last 3 years. This NPI revenue is critical to enabling Digi's sustainable growth. XBee cellular, CC6UL, and our U115 cellular router helped lead the way. We also saw significant increase in our win rate with key accounts defined as over $100,000 in opportunity value. We've integrated the Accelerated product line into Digi's branding and product lineup of enterprise, industrial and transportation cellular routers. Although we increased our gross margin sequentially, we did fall a bit short of our goal. Strong NPI and key account revenues carry lower gross margins, impacting the overall result. Also, recent tariffs had a modest impact, as expected, of about 30 basis points. We are investing in both cost reductions and price optimization actions to continue our sequential gross margin improvement.

We are making significant investments in bundling some of our products with software and services to both enhance the value proposition and diversify our revenue profile. Our cellular router lineup will showcase these bundles, but they will also be available through our RF embedded and our select network new products. We remain committed to both growing this business and increasing its profitability.

Our SmartSense IoT Solutions business experienced continued growth year-over-year and made significant progress on both its organizational and technology platforms. We added nearly 3,000 sites with virtually no subscriber churn during the quarter. We did have one unique event take place, where one of our transportation leasing customers ended a direct relationship of nearly 3,000 trailers. We now sell our solution to each end-user directly. Accordingly, our soft -- site count was flat from last quarter. A portion of these had been converted to direct customers and they reflected our new site additions, and we continue to convert additional sites.

We grew total solutions revenue over 100% year-over-year and nearly matched our record performance from our fiscal fourth quarter of 2018. Approximately $1.5 million of this revenue was an add-on order from an existing customer.

We are making progress on our technology platform consolidation and are on track to achieve our first major milestone in fiscal Q3 of this year with the consolidation of our food service task management offering.

While our Solutions segment profitability improved for the quarter, we are focused on growing our customer base, our team and our investments in both technology and analytics.

At the corporate level, we continue to both simplify and strengthen the company's business model. We are committed to software services and subscription revenue in both of our business segments. We are progressing our implementation of one CRM ERP system for the entire company planned to be completed this year. We strengthened our balance sheet with cash increasing to over $76 million and we remain debt-free. After a pause from last year, we are exploring potential acquisitions to further accelerate our transformation.

Lastly, we are hosting our second annual global IoT event at the Intercontinental Hotel attached to the Minneapolis St. Paul airport on June 4 and 5 of this year. We'll be showcasing Digi offerings, our customers' success and our partner solutions.

As you may have seen our announcement earlier, our CFO, Gokul Hemmady, is transitioning to a new opportunity outside of Digi next week. We thank Gokul for his time and his contributions, and we wish him the best in his new opportunity.

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

Thank you, Ron. I appreciate the comment. My decision to leave Digi was a challenging and difficult choice to make. An opportunity presented itself with a startup company in an emerging market located in Silicon Valley. Like Digi, this was a great opportunity, and I felt my experience and background would help make a difference quickly. What made my decision really tough is that Digi is positioned very well for the future. I remain very encouraged with the growth and progress the Digi team is making as it expands each of its business segments. I sincerely thank Ron and the entire Digi team for welcoming me, for the opportunity, and for my experiences here. I know that Digi is in great hands as I depart.

Now moving on to our financial update. We are pleased with our fiscal first quarter performance, which included 3 key financial highlights. First, our overall revenue performance of $62.3 million was strong and driven through increased contributions by both of our business segments. Our IoT Solutions business grew over 120% compared to the same period a year ago, and our IoT Products & Services business grew over 30%. Additionally, our revenue performance was above our guidance range of $56 million to $60 million and shows an encouraging start to fiscal year 2019.

Second, we delivered strong bottom line performance. Our net income per diluted share improved to $0.17 versus a net loss per diluted share of $0.17 in the year ago comparable quarter. Also, our adjusted EBITDA increased to $6.2 million, or 9.9% of fiscal first quarter revenue compared to $3 million or 6.6% a year ago. Included in the first quarter adjusted EBITDA figure is $250,000 of Accelerated earn-out expense. The adjusted EBITDA performance was above our guidance range of $4 million to $6 million.

And third, we ended the quarter with $76.5 million of cash, including marketable securities. This was an increase of 22%, or $13.7 million from fiscal fourth quarter, and driven largely by the sale of our previous headquarters for approximately $10 million.

I will now move to some additional details for the fiscal first quarter consolidated performance. Geographically, North America revenue increased by 57.9% in Q1 2019 compared to the year ago quarter, largely resulting from our Accelerated acquisition, growth of our SmartSense business, and improved performance from our existing product line. Without the impact from Accelerated, which was not acquired until January 2018, North America revenue increased by over 40%.

EMEA revenue was largely flat versus the prior year comparable quarter, while combined revenue in rest of the world increased by 7.5% year-over-year. Our first quarter 2019 total company gross margin percentage was 47.8%, down 100 basis points compared to the prior year gross margin of 48.8%. While down compared to the prior year quarter, our overall margin again improved sequentially 60 basis points from 47.2% in fiscal fourth quarter 2018.

Excluding the $4.4 million in gain on the sale of our previous headquarters, which is included as part of the G&A expense line in our income statement, our operating expenses in first quarter 2019 increased by 19.5% compared to the year ago quarter. Included in our first quarter 2019 operating expense is $2.8 million of incremental costs associated with our operations of Accelerated. Excluding these incremental costs, our operating expenses increased 7.8%. We continue to keep our expense leverage aligned with the needs of our business. Despite the higher operating cost, we improved this metric as a percentage of revenue. Excluding the gain on sale, operating expense as a percentage of revenue was 46% in the current fiscal quarter, down from 53% 1 year ago. We recorded an income tax expense of $1 million for the first quarter 2019 compared to an expense of $2.6 million in the first quarter a year ago. The current quarter income tax expense is primarily the result of our gain on sale of the previous headquarters, whereas expense in the prior year was attributed to the Tax Cuts and Jobs Act legislation and our adoption of ASU 2016-09.

Net income for the quarter was $4.7 million or $0.17 per diluted share, compared to a net loss of $4.5 million or negative $0.17 per diluted share in first quarter 2018. The gain on sale of the previous headquarters contributed $0.12 per diluted share on a net of tax basis.

Now I would like to discuss the results of our IoT Products & Services segment. IoT Products & Services revenue increased 30.4% in the first fiscal quarter of 2019 to $53.3 million compared to $40.9 million in the same period a year ago. Excluding incremental Accelerated revenue of $5.2 million, our existing Products & Services business grew 18% from the prior-year quarter.

Our IoT Products & Services gross margin was 47.6% compared to 49.5% in fiscal first quarter 2018. Our gross margin was primarily impacted by product and customer mix, incremental amortization from the Accelerated acquisition, offset by a reduction in costs associated with our manufacturing transition. Excluding the $4.4 million gain on the sale of our previous headquarters, IoT Products & Services operating income was $3 million or 5.6%, compared to $1.3 million or 3.1% in the prior-year quarter.

Moving to our IoT Solutions segment. IoT Solutions revenue in the first fiscal quarter 2019 was $9 million compared to $4.1 million in the same period a year ago. We continue to service approximately 54,000 sites as of December 31, 2018, which is up from 38,000 at the year ago quarter and flat sequentially. Our IoT Solutions gross margin was 49% compared to 42% in first quarter 2018.

As we continue to grow our recurring base, our margins will continue to improve over time.

IoT Solutions' operating expenses was $6.3 million compared to $5 million in the prior-year first quarter. The increase was primarily due to incremental expenses associated with TempAlert, which only had 2 months of activity in the fourth quarter of 2018 since it was acquired on October 23.

IoT Solutions' operating loss was $1.8 million compared to a $3.3 million operating loss in the prior-year quarter.

Finally, a few additional balance sheet items to mention. One, we continue to be debt-free. Two, our cash increase was also aided by improved collections of our accounts receivable during the quarter. And three, we made additional inventory purchases within the quarter, some strategic, and some, with longer lead times that impacted our balance, which ended at $47 million. While we are not pleased with our ending position, we continue to refine our purchasing strategy as we transition our manufacturing efforts, and we expect this balance to decrease over time.

Now I would like to provide our second quarter and full year 2019 guidance ranges. For the second fiscal quarter of 2019, we expect total company revenue of $59 million to $63 million. We expect net income per diluted share to be $0.01 to $0.05, and adjusted EBITDA is projected to be in the range of $4.5 million to $6.5 million. For the full year 2019, we are not updating our annual revenue and adjusted EBITDA guidance ranges of $245 million to $255 million and $24 million to $28 million, respectively. Our net income per diluted share is now expected to be in the range of $0.30 to $0.45, which includes the impact from the gain on sale, partially offset by a slightly higher tax rate assumption.

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

(Operator Instructions) Your first question comes from Jaeson Schmidt with Lake Street Capital.

Wondering if you could comment how customer feedback has been so far now that you've started to bundle software and services with some of your products?

We're having some really good selective feedback, especially with key accounts. We have some customers that either are time-constrained or skill-restrained, and they're looking for us to provide more than just the product. And so with key accounts, we're really excited about some early traction. And as we institutionalize the offering even more, we expect to see broader take rates.

Okay. That's helpful. And looking at the IoT Solutions business, I know sites remains relatively flat sequentially. But how should we think about that ramping throughout this year?

As you saw from this quarter, we had about the site count we expected in terms of additions. We obviously weren't planning on this transportation leasing company transitioning to a new model. But we do expect to continue to add subscribers, and we feel very good about our projections for solutions throughout the year. We are -- as we've mentioned in the past, we do see quite a variance in terms of both ARPU as well as the upfront ASPs, depending upon the customer. This past quarter, we saw increased contributions from food service, and we had still got good contributions from healthcare. We had less contributions from the transportation side. The transportation side tends to have lower financial contributions. So although, we didn't see as much, it didn't have as much of an impact on our financials.

Okay. And the last one for me, and I'll jump back in the queue, just given the macro backdrop, have you seen any significant change in visibility across any of your product lines?

Visibility on our Products & Services group has never been a real strong point for us. We've got -- we continue to work on that with larger accounts and more strategic relationships that involve just more than just products into services and software. From that perspective, our visibility is stronger because we weren't doing those things in the past. But macroeconomic conditions haven't had as much of an influence on that.

Your next question comes from Anthony Stoss with Craig-Hallum.

Ron, if you wouldn't mind, let me hear your thought or what you're hearing from your customers in the cellular router side regarding 5G if you think that will accelerate your growth within that group and how that might affect gross margins? And then secondly, love to hear little bit more detail and color after you established a beachhead in a lot of these pharmacies on the IoT side, are you gaining traction moving to the front of the house? And any kind of color you can provide on kind of the pipeline on IoT right now in backlogs?

Yes, let's see -- thanks, Tony. Let's see if I can get all these down. The first on 5G. 5G is going to take a little while. There's a quite a hype out there, and the wireless carriers lead that hype of the advent of 5G. The first 5G smartphones will be available this year. They're likely to be more expensive than any consumer would like, and the network availability will not be as strong. So 5G will have an impact, but it'll be more gradual for our business and really not start until at least next year, fiscal '20. We do not participate in the 5G that's for fixed wireless for Internet access, for consumers or businesses that has come on a little bit earlier than the 5G that's affecting smart devices and cellular routers. But you're going to see that impact starting in '20 and then ramping from there. The second is in terms of broadening existing relationships. As I noted in my comments, we were pleased to have one of our customers expand their relationship. That -- and was providing more monitoring capabilities for their pharmacy. We still have the ability to -- for that particular customer, to extend our business into the front of the house, into the food and convenience store area. So that provides great opportunity. It doesn't always show up in site count because we're not counting that as an additional site, even though we're broadening the number of things we do for that customer and it being one of our largest customers, we're very pleased with their confidence that they placed in Digi. The last piece, the solutions pipeline. We are very positive on the pipeline. We've got some very large enterprise deals in the pipeline. We're also pleased, as I mentioned, in the first question that we're seeing more activity in the food side. Food represents half of our TAM, and between grocers and restaurants and other food service providers, we're seeing increased visibility as -- for these types of projects as mobile ordering and food delivery investments are starting to stabilize and they're focusing more squarely on food safety and on cost optimization.

Your next question comes from Mike Walkley with Canaccord Genuity.

Ron, just on the strong Q2 results, can you kind of rank order some of the areas that created the most upside relative to your guidance? And did you see any maybe large projects pull in during the quarter, leading to maybe a little more cautious next-quarter guidance relative to the strong quarter you're coming off of?

Yes. It's a fair question. We were pleased with the results from both of our business segments. Both segments exceeded our expectations, so that was quite positive. As I noted, there was about $1.5 million of revenue that was a very, very positive impact on our solutions business in the quarter from the existing client. And so that had a very favorable impact on last quarter's results. And in terms of this quarter, we're looking to execute at a similar level to what we've done the previous quarter. The guidance in both revenue and profitability are sort of in line with the results that are similar to what we're seeing -- what we saw in the first fiscal quarter. But without a doubt, there was some impact on last quarter, particularly on the solutions side, where we got that large additional order.

Great. And just following up on the Solutions business, some nice customer wins announced in there, and then expanding your business with one of the largest retailers. Can you just talk about growing success of your business, getting these brands, and how that's leading for reference design for future customers? And do you think you have the right sales force to execute on potentially growing the pipeline?

Yes, good questions, Mike. The emphasis, as we've covered, is really growth. And so we're making, investments both on the technology side as well as on the customer-facing side of our business, both sales and marketing as well as customer success. And I can't emphasize how important that customer success group is. This business is about getting and keeping customers, and it's an and, it's not an or. And so we can't just have an investment in sales without a requisite investment on the service and success side. We're also still converting customers from largely paper-based processes to digitized, cloud-based, actively-monitored systems. And so every customer win is really important that they have great success, and we're getting a lot of inbounds from customers that say something nice about us when we're not in the room. And that's how we're going to grow this business, is customers having success and then be willing to share that with their network and their colleagues.

One follow on for me. Just -- you talked about opportunities once you're in some of these larger sites to cross-sell to front of the store, et cetera. Is there any way you can maybe look at your customer base and see how penetrated they are? And could you -- from your current business, is the opportunity just from your own base still materially higher than your current run rate in the business, or is it more about driving new customers?

Yes. It's really both. We have -- we do have significantly add-on opportunities. We haven't sized that dollar-wise. But whether it's fully rolling out an existing customer or converting a pilot into a larger rollout, as well as in some cases, completing a broader footprint within a site. So they don't always show up in the site numbers, but they're showing up in the revenue numbers. So we haven't sized it, but we're as excited about continuing to do additional work with existing customers, as we are about gaining new customers. And we're investing in analytics, which is a real key element for us to further distinguish our leadership position beyond monitoring, alerting and recording is into the analysis of how customers can make better decisions. And so we're committed to building out analytics as a service as well, and that's future opportunity to further partner with our customers.

Your next question comes from Greg Burns with Sidoti & Company.

What was the split of solutions revenue between recurring and hardware?

So it was about 1/3, 2/3 . I would say 40%?

40%. About 40%. 40% is our recurring...

And the exit monthly recurring revenue run rate for the quarter?

It's about -- monthly, it's about $1.1 million, $1.2 million, I think. So annual ARR is about 13-plus.

Okay. And you mentioned you're seeing strong growth from new products. I guess, first, how do you define new products? And what's your position now? I know you had maybe some issues with the -- on the product development front. I think, Accelerated is helping out with that. But can you just talk about where you are in terms of new product development and maybe what's in the roadmap for this year?

Yes. So we define new product as any revenue associated with a product that's introduced within the last 3 years. There's a little of mix -- the box product side of their network, they tend to have revenue that accretes more quickly because these are solutions that can be deployed. Embedded products typically take a while because the design win, they haven't converted into revenue. So things like XBee cellular take a little bit more time than say a U115 router. We are improving our NPI process. We have more work to do both as an organization, but also making sure that we're picking the right products. We're excited about the potential of NPI because we think it will be about a 50% increase off of last year's base, and we're off to a good start that's in track -- on track with that projection. And so that's the ultimate evidence of how well we're doing in new products. New products release this year will not have as much an impact because of the amount of time we have in the year for us to convert that to revenue. But we're making investments across our entire portfolio. We have new routers coming out. We have additions to our XBee product line within RF. We have select products coming out with the network. And we're partnering with NXP on the next generation of i.MX processors, the i.MX 8, for a potential new product introduction there. So we are maintaining a well-balanced portfolio of NPI.

Okay, great. And just lastly in terms of the profitability of the Solutions business and how you're looking to run that business. I think it was a $5 million drag on EBITDA last year, a little bit of improvement in terms of profitability in the first quarter. But just generally, what's your view on that business? How do you look to operate it? Do you foresee losses narrowing this year? Or are we going to continue to operate this at a loss to grow the business?

Yes. Good question, Greg. We're trying to be real athletic about it. We're committed to the investments we've made. We feel positive about the growth opportunities. If for some reason, our growth opportunities and the outlook change, we would certainly tighten the screws on additional investments. But we're not at that point. We think growth is the primary objective. Although we report operating income in our financial statements on an adjusted EBITDA perspective as well as operating income, we're seeing dramatic improvements in the profitability, which is a fewer losses or lower losses. But our clear objective is growth. We want to grow this business and we will be making investments necessary to continue that growth as long as the opportunity persists.

Your next question comes from Scott Searle with Roth Capital.

Gokul, I wanted to just wish you all the best in your future endeavors. And as Mike said, at least, you'll have some warmer weather as well. Just to get a couple of quick clarifications. I want to make sure I understood, the gain on the headquarters ended up being a contra G&A entry. Is that correct? And then also, you indicated in terms of the guidance on the tax rate, this higher tax rate, just want to get an idea what that was, and then I have a couple of follow-ups.

Sure. So yes, it is a G&A, that $4.4 million in gain. And if you look at the first quarter tax rate, we've accrued about $1 million in taxes. It's largely from the gain on the sale of the headquarters building, and none of that tax expense is really cash-related. So there's no cash expense on that tag. In addition to that, about maybe 10% of that -- 10% to 15% of that $1 million is related to the fact that we had better performance in Q1 and we've accrued about, I would say excluding the gain from the headquarters, we've accrued a rate of somewhere between 5% and 10%. And so we are also taking that into account as we've updated our guidance for the full year. As we go along, we'll continue to look at how this shapes up. But right now, our forecast is that -- it's about that kind of 10% range.

So 10% is what we should be modeling going forward?

Yes, yes.

Okay. And just to clarify, I thought I heard, in terms of the overview on the product front, adjusted for Accelerated was about 18% growth. I was wondering if you could provide a little bit more color in terms of some of the product categories underneath it, RF embedded, network in terms of just kind of sequentially how they were. And really, what the expectation is for the current fiscal year for gateway and router products, which have been the star, along with Accelerated, growing pretty well. Is this 20% grower going forward for the rest of this year? I mean, how are you kind of thinking about that product category?

Yes. We -- the good news in last quarter is we had contributions from each of our product family. Cellular routers led the way, and they will -- we plan on that continuing to be the case. Network's slightly outperformed to our expectations, but we wouldn't expect network to necessarily continue to sustain. Now network is becoming a lower, smaller portion of our overall revenue contribution. So declines that may happen in network don't have the same impact they had a year or 2 or 3 years ago. So network's down less than 20% of our overall revenue for the quarter. So but again, good news that we had strong, sequential improvement throughout the business, cellular routers leading the way and will continue. Our embedded products, RF and embedded solutions or embedded compute are tending to track towards market conditions in that kind of 5% to 10% range. Cellular routers in excess of 10%, in excess, in many cases, of 15%. And then network, we would expect to have a modest decline of 5% to 10%.

Got you. And lastly, I know you've hit on this a couple of different ways, but on the solutions front, I was wondering if you could quantify what that pipeline or funnel looks like at the current time. I know it's been growing. There's been a lot of inbounds. You provided some color in terms of the customer base and some of the verticals. But is there a number that you could put out in what the sales cycle is looking like in the current competitive landscape?

Yes. Good question, Scott, and a fair question. We're trying to be real careful about metrics we put out and making sure that we put out metrics that are not only meaningful, but things that we understand and would continue to report on. So we don't have any specific metrics to share with you. But we feel very good about the interest level, about the conversion rates of the pilots and how that's projecting for the balance of the year. We still don't see any competition in our particular offering that has changed the dynamics. We think we're the leader albeit in an emerging market, and we're really looking to further extend that leadership and capitalize on the fast start here.

(Operator Instructions) Your next question comes from David Gearhart with First Analysis.

I first wanted to ask about component shortages. All the hardware providers in the industry have been impacted by various components and this inability to actually build product and meet some demand, pushing out or hurting revenue. Just wondering if you're seeing much of an impact to your business and things would be much stronger absent those impacts. Just wanted to get some color on where component shortages and issues are affecting on the Digi side?

David, that's very astute question. We've been dealing with supply chain issues throughout calendar '18 and prior to that '17. Our inventory balance, in part, shows how we have extended ourselves on some of those components in an effort to compress lead times. We are working with our customers, wherever possible, to educate them of some of the challenges in the marketplace. We have seen it sequentially improve a bit, so it's not as challenging as it had been in the past. Still not ideal. But we're using this opportunity to really work with our sales team and our customers to get longer POs in place and better commitments that can help us plan inventory and meet their needs. But there still are supply chain challenges out there. I think the biggest impact for us now is more on the inventory side than it is on specific deliveries. But in some cases, it certainly affected our ability to deliver the product.

Okay. And then lastly for me, services had increased on the professional services side 2 quarters in a row, and then this quarter, it was down. And I think you commented last quarter that it should stay at roughly the run rate of Q4 but were down this quarter. Is it just a function of the time in the year? Would you expect that to pick up? Just a little color on that side?

Yes, it's a good question. It's a smaller part of the overall texture, but still an important one. And we do think that we'll see a little lumpiness there, but that you'll see it really start to stabilize and improve here. We've got some exciting work we're doing. And some of the work is timing and holidays and vacations and such from last quarter. But we're still very positive on that business.

And your next question is a follow-up from Greg Burns with Sidoti & Company.

Just wanted to ask about the commentary about looking again at acquisitions this year. Could you just give us an idea of exactly what you might be looking for and what parts of the business?

So, yes. So we had taken a pause from our 5 acquisitions. The most recent was Accelerated about a year ago. And really to get the SmartSense team organized and get Accelerated onboarded. And we think with last quarter's results, it shows that we made some progress there. And so we're looking at acquisitions. We're looking at companies that can help us transform our business from being more hardware-centric to services software and subscription. So whether it's in the Products & Services group or the Solutions group, those are our key attributes. And we're very active, and we're looking at things. We don't have any specific comments on particular acquisitions other than those attributes.

And I'm showing no further questions at this time. I'd like to turn the call back over to Ron Konezny, President and Chief Executive Officer, for closing remarks.

Thank you, Heather. On behalf of the entire Digi team, we appreciate your support and belief in our transformation. Digi is focused on software, services and subscription, offers to build value across both of our business segments. We're confident in our strategy. We're committed to building shareholder value. Thank you for your trust, 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 all may disconnect. Everyone have a wonderful day.