創力 (LTRX) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fiscal 2007 third-quarter Lantronix Inc. earnings conference call. My name is Melanie and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session at the end of this conference. (OPERATOR INSTRUCTIONS). As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Ms. [Kristen McNally], Investor Relations for Lantronix. Please proceed, ma'am.

Good afternoon, everyone, and welcome to today's conference call. Before we begin, I would like to highlight that an archive webcast of this call will be available on the Company's website at Lantronix.com and an audio playback will be available through May 17. The number to call for the replay is 888-286-8010 or 617-801-6888 for international callers with pass code 55181035.

Please be reminded that during the course of this conference call, management will make forward-looking statements in their prepared remarks and in response to your questions concerning, among other matters, the future adoption of device networking end-to-end products, potential top and bottom-line growth, expanded sales, marketing and R&D activities, the introduction of new products, continuing emphasis on unit growth, and the launch of new business lines. These forward-looking statements are based on Lantronix's current expectations and are subject to a number of risks and uncertainties. Actual results could differ materially as a result of several factors. For a more detailed discussion of these and other risks and uncertainties, see the Company's recent SEC filings, including its Form 10-K for the fiscal year ended June 30, 2006. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and the Company undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances.

I would now like to introduce members of the Lantronix management team. Marc Nussbaum, Chief Executive Officer and Reagan Sakai, Chief Financial Officer. We will begin the call with an overview of Lantronix financial and operating results followed by a Q&A session. Marc Nussbaum will now start the call. Mark?

Thank you, Kristen, and thank you. Welcome, everyone, to our earnings call covering the third quarter of fiscal year 2007 ended March 31st. Joining Reagan and me on today's call are Chris Preston, Senior Vice President of marketing; Brian Campbell, Senior Vice President of Operations; Bob Cross, Senior Vice President of R&D; and David Schafer, our Senior Vice President of Sales.

I will begin with a brief overview of results and then Reagan Sakai will follow with a financial review. I'll conclude our prepared remarks today with a product development overview and comments on our financial outlook. We will then open the call to questions.

While I am disappointed with total corporate revenue levels in fiscal Q3, which were approximately flat compared to fiscal Q3 of last year, our core business continued to grow for the 10th consecutive quarter in a row, contributing 87% of revenues in the period. The decline in our noncore business hit us harder than expected this quarter, declining 32% or $790,000 compared to Q3 of last year.

This was the largest year-over-year absolute dollar and percent decline in the noncore business in any single quarter over the past two years. Our noncore business is left over from the old Lantronix before we began our transition to a device networking company. We spend no R&D and no marketing resources on noncore products and their profits serve to help fund our investment level in the new core businesses of Device Enablement and Device Management. Since we are in the process of exiting these noncore products, investors should interpret the Company's progress by measuring performance of the core business as if it were stand alone.

The core business increased 9% compared to the same quarter last year and over the long term, increased 13% in the 12-month period ending March 31st, 2007 compared to the same period a year ago. This long-term growth rate of 13% does not meet our current objective of achieving greater than 20% annual growth in the core. We believe the markets we address will eventually deliver breakout levels of growth and that they will sustain this great over a long period of time. However, we're not waiting for the adoption rate to come to us. Over the past 12 months, we have made great progress executing programs on both the Device Enablement and Device Management sides of the business that will position the Company to achieve our growth target in the next fiscal year.

As I stated last quarter, our historical seasonal revenue trends has been a slow fiscal first quarter followed by a strong fiscal second quarter and then an approximately flat fiscal third quarter. Last year, revenues from fiscal Q2 to fiscal Q3 were approximately flat. However, this year, we experienced a sequential decline of $1.6 million or 11%.

Demand for our Device Management products was particularly weak this past quarter. Revenues in the Device Management lines decreased only $60,000 sequentially going into fiscal Q3 last year. This year, Device Management fell sequentially by $840,000 or 32%. We believe the sharp sequential drop is due to weak market demand within the data center market for IT management products as evidenced by our competitors' similar observations this past quarter. It is important to note that this 11% decline in Device Management revenues came immediately after a quarter in which the category had grown 30% year over year for the Company.

Today, we're about one-third of the way through fiscal Q4 and so for the usual seasonal pattern seems to be holding. In fiscal Q4, we anticipate both a sequential increase in revenues and healthy growth over fiscal Q4 of last year.

The Device Enablement business also delivered consecutive year-over-year growth, contributing 74% of total revenues for the quarter and increasing 14% over the same period last year. Looking over the long term, Device Enablement increased 16% for the trailing 12 months ended this past March compared to 15% the prior 12 months and 12% the 12 months before that.

Although these are all positive signs, we believe the current adoption of device networking is being driven primarily by interest from OEMs. True end user demand is a much less significant driver today. This mean that while adoption is slowly increasing, we have yet to experience the necessary underlying end-user demand to propel the market to very high volumes. This opportunity is in front of us and Lantronix has staked out a strong claim in this market as adoption does accelerate.

Clearly, device networking market adoption has fallen short of market analysts' forecasts nor has it met our own internal expectations thus far. Although the Company's long-term M2M organic growth is among the best in the industry, market adoption is not yet at a level that is high enough by itself to drive Lantronix to our growth goals.

Over the past year, we have taken aggressive steps to increase market adoption and to drive Lantronix to higher growth rates through four major strategic initiatives. The first initiative is to drive increased M2M adoption by making it easier for customers to deploy a total device networking solution. The second is to drive down the cost of device networking so it is applicable to higher volume end products. The third is to expand the Lantronix product portfolio to include new areas of incremental growth beyond our original focus of embedded enablement. And the fourth is to expand our sales reach and productivity. I will discuss our progress on some of the individual programs related to these initiatives and what we can expect moving forward in a few moments after Reagan has provided details on our financial results for fiscal Q3. Reagan?

Thank you, Mark, and good afternoon, everyone. Net revenues for the third quarter of fiscal 2007 were $13.3 million, an increase of 2% over last year's comparable fiscal quarter of $13.1 million and a sequential decrease of 11% compared with net revenues of $14.8 million for the second fiscal quarter. Device Enablement revenue increased 14% to $9.9 million or 74% of total net revenues compared to $8.7 million or 66% of total net revenues in Q3 of last year.

Device Management revenue decreased 10% to $1.7 million or 13% of total net revenues compared to $1.9 million or 15% of total net revenues in Q3 of last year. Noncore revenue decreased 32% to $1.7 million or 13% of total net revenues compared to $2.5 million or 19% of total net revenues in Q3 of last year.

In terms of geographic mix, sales in the Americas accounted for 62% of third fiscal quarter net revenues and international sales were approximately 38%. This compares to approximately 61% and 39%, respectively, for the third fiscal quarter of 2006.

Gross profit margin was 51.8% for the third fiscal quarter compared to 50.3% for the comparable period a year ago and 49.9% for the second fiscal quarter of this year. The year-over-year increase in gross profit margin was primarily the result of favorable product mix across all of our product lines.

Total operating expenses were $7.9 million for the third fiscal quarter of 2007. This compares to $6.2 million for the third fiscal quarter of 2006, which did include a litigation settlement recovery of $1.4 million.

Selling, general, and administrative expense was $6 million, approximately $50,000 less than SG&A a year ago. Selling, general and administrative expenses were negatively impacted by a $194,000 charge taken in connection with a consulting severance and release agreement that the Company entered into with its former CFO, Jim Kerrigan. In addition, selling, general and administrative expenses were negatively impacted by $160,000 in legal fees related to the defense of a former officer, Steve Cotton.

Research and development expense increased to $1.9 million from $1.6 million for the comparable period last year, in line with our planned increase in R&D investment this year to support new product development.

We reported a net loss of $1.1 million or $0.02 per basic and diluted share for the third fiscal quarter. This compares to net income of $399,000 or $0.01 per basic and diluted share for the comparable period last year, which included $1.4 million of income from the recovery of legal settlement expenses and net income of $87,000 or $0.00 per basic and diluted share for the second fiscal quarter of 2007.

At March 31st, 2007, we had cash, cash equivalents and marketable securities of $7.6 million compared to $7.8 million at December 31st, 2006 and $7.8 million at September 30th, 2006.

Net inventories were $9.8 million at March 31st as compared to $8.5 million at December 31st, 2006 and $9.2 million at September 30th, 2006. The increase in net inventories from the prior quarter was primarily attributable to lower than forecasted revenues and a buildup of external Device Enablement products in connection with a new product release and higher growth products.

Our DSOs were 20 days for the third fiscal quarter compared to 20 days for the second fiscal quarter. Our working capital was $5.3 million at March 31st, 2007.

Other than capital leases recorded on our consolidated balance sheets, we have no debt and we have no borrowings against our bank credit facility as of March 31st, 2007.

On January 10, 2007, the settlement of our securities litigation became final and effective. We subsequently reduced our accrued settlement liability and settlement recovery by $13.9 million in connection with this settlement. As of March 31st, we had a remaining accrued settlement liability of $1.1 million. We expect to issue warrants to purchase Lantronix common stock with a fair value of $1.1 million to the past plaintiffs as final consideration for the remaining settlement liability. These warrants will have a contractual life of four years and the exercise price will be set at $3.00 above the average trading price during the 45-day trading period prior to the date of issuance.

With that, I will now turn the call back to Mark.

Thank you, Reagan. To be clear, we believe -- in fact, practically everyone that understands M2M believes -- that the market will eventually explode. As a pioneering industry, some volatility quarter to quarter and difficulty in predicting startup growth rates are to be expected during this early adoption phase. That said, we're not satisfied with current market adoption. We are impatient to deliver our goal of sustained core annual growth of greater than 20%.

As I mentioned earlier, we embarked on four major initiatives designed to drive top-line revenues. Over the past year, we have executed these programs and you have seen the results as demonstrated in our recent product announcements. Lantronix has a history of firsts that are highly significant to the industry and we have continued to build on that track record over the past year. The single largest barrier to adoption of M2M device networking is the complexity and cost of deploying and maintaining a large-scale device network and integrating data from the remote devices with back-end corporate business processes. There is a significant risk to OEMs and service organizations that try to build complete systems in-house or perhaps go outside and attempt to use smaller, less capable system developers.

To eliminate this project risk and held drive adoption, this week, we announced our entry into the Remote Product Services or RPS market with the introduction of the ManageLinx Device Management family of products. ManageLinx is the first offering in the new hardware and software product line that makes creating scalable and secure end-to-end device networking systems easier than ever.

Remote Product Services is a newly emerging application for a broad variety of vertical product sectors, such as industrial automation, medical, and energy. Remote Product Services enabled manufactures to remotely capture and analyze asset condition, identify root causes of failure and trigger corrective action. Such action could range from proactive technician and/or part dispatch to conducting remote repairs and upgrades.

Our announcement has particular significance to the industry, as this is the first integrated appliance-based system offering a device-centric suite of systems and services for integrators to build upon, including advanced device discovery, secure remote subnet access, remote configuration and update, monitoring, and third-party application hosting.

According to the Aberdeen Group, 70% of the best-in-class service organizations they surveyed are using Remote Product Services and have reported improvements such as 38% increase in customer retention, 23% increase in asset uptime, and 30% reduction in technician dispatches. Aberdeen expects RPS technology to continue to gain momentum at a double-digit growth rate.

In addition to the ManageLinx family, we also introduced another line of products on the device management side of our business. The SecureLinx Spider is a cable-friendly single port KVM to IP converter. Spider is connected to a PC or server and compresses the video and sends it over the Internet so that a remote user can control the PC from any standard Web browser from anywhere in the world as if they were physically there. The Spider is small enough to be held in one hand and the system can be expanded to include hundreds of remote Spiders, creating a sort of spider web.

Based on customer feedback and our experience in the enterprise data center market, we discovered that there is an underserved demand for management of Windows servers and other devices within branch offices, small businesses, and laboratory environments. By introducing the SecureLinx Spider family, we have launched a new product category within the industry, which we call distributed KVM. Because this market is distinct from the consolidated data center server management market, this is a new incremental opportunity for the Company. Think of all the businesses that have small remote sites that need to be accessed, such as rental car agencies, fast food franchises, etc. We also plan to introduce additional new products for this market in the summertime frame.

Back in 2003, we invented the embedded webserver module category with our introduction of XPort, the industry's leading solution for quick time to market device enablement. Sales of evaluation kits for our embedded products continue to be strong with over 400 kits shipped last quarter.

In February, we introduced XPort Direct, an M2M embedded Ethernet Gateway module at a breakthrough price point. This announcement is significant to the industry because it opens M2M networking to a much broader audience of higher potential volume applications.

Just after the close of the third quarter, we introduced MatchPort, a brand-new family of interchangeable, [team] compatible embedded modules to complement our XPort, WiPort, and XPort Direct offerings. The first product in this family is the MatchPort b/g, our third generation, full featured secure, embedded wireless networking device server module. Our Wireless products contributed about 10% to revenues and indications point to significant growth throughout fiscal 2008.

Over the past year, we expanded our investments beyond embedded modules and into external products for the industrial market segments of industrial automation, building automation, energy and transportation. We introduced four new products inside of new distribution partners in the industrial segment.

Late February, we added a fifth product to this new family, the IntelliBox. IntelliBox is the industry's first fully programmable external device server that automates the task of managing remote equipment. The technology embedded within this product opens another new set of applications for the Company. IntelliBox can automatically monitor and respond to events in real-time with no human intervention. We plan to announce additional new products for this market in early summer.

Our product mix now includes embedded components, external specialized servers and enterprise scalable management systems, spanning the edge and the enterprise within the device networking value chain. This uniquely positions Lantronix competitively and opens up potential new revenue models for the Company.

The time from design win to production for most of our customers is nine months to a year and as a result, we expect that the new products we've introduced this past year will begin to gain momentum starting in the December quarter.

Now, turning to our outlook for the remainder of fiscal year 2007 and into fiscal 2008. We plan to continue providing annual guidance as a policy moving forward. However, since we are now in fiscal Q4, I will update our outlook for the remainder of the year in quarterly terms.

For fiscal Q4, our outlook is for growth in the combined business of Device Enablement and Device Management in the range of 15% to 23% with overall revenues falling in the range of $14.6 million to $15.4 million. This equates to an annual revenue outlook of about $55 million to $56 million for fiscal year 2007. So far this quarter, order levels are up both sequentially and year-over-year. Our outlook also calls for us to be in the range of break even to a net loss of about $0.01 per share for fiscal Q4.

Our cash balance, it may decline by up to $500,000 from the balances as of March 31st, 2007 to fund working capital requirements, primarily increased inventory for new product launches.

Looking towards fiscal year 2008, it is important to note that over the past 12 months, we have introduced a total of 20 new products. We have aggressively expanded into adjacent markets, and we're doing everything within our capacity to drive market adoption within M2M as quickly as possible. Time is of the essence and our execution of these initiatives has been right on target this past year. I am particularly happy with the performance of the Lantronix R&D and operations team, as they have rapidly delivered a string of industry-leading products on time and within our cost targets.

In addition to the customer penetration rate of each of our new products, the other major variable in our financial predictions is the overall rate of adoption within M2M. Industry market analysts have expected the market to grow faster than it has. Our lesson for this past year is that the timing of this market is very difficult to predict and Reagan Sakai and his team have been working to improve the accuracy of our financial forecasting models. Although M2M adoption will likely spike upward sometime in the next few years, we are assuming only a conservative increase in M2M adoption in fiscal 2008 for financial planning purposes. Assuming only a modest gain -- a modest general increase in M2M adoption among existing applications, combined with our product expansion into Wireless, industrial, distributed KVM and the Remote Product Services equipment market, our outlook is for substantial progress next fiscal year towards achieving our ultimate goal of consistent annual core revenue growth greater than 20% and solid profitability. We plan to provide quantitative fiscal year 2008 guidance in the summertime frame after we have full fiscal Q4 data in hand.

The Lantronix management team is deeply committed to the M2M space and we are propelling the market forward with precision execution and a clear vision of Lantronix as the market-leading, network-anything manage-anywhere Company. Throughout fiscal year 2007, we have developed -- delivered ongoing innovation in this emerging market and we have plenty more of where that came from.

Moving forward, the bar has been set high. We intend to fill the promise of Lantronix as a prime growth investment vehicle. With a solid foundation of new expansion product lines to capture growth and create value, we expect a breakout year with increased revenues and solid profitability in fiscal 2008. Thank you for participating in today's call. I'll now ask the operator to open the line for questions. Melanie?

(OPERATOR INSTRUCTIONS). David Soetebier, J.M. Dutton.

On the revenues, I guess they have been a little more volatile than I expected. The noncore business was actually up in March versus December. So with less emphasis on that, I'm wondering how that happened and on the Device Management, back to that December quarter, that very strong $2.6 million, could you give us some additional details on what drove that?

Sure. That's just two questions there, David. The increase in noncore was primarily due to end of life-ing products, so we had several customers come in, do end of life buys in that timeframe, knowing that we were going to not be able to ship those products going forward. But it still bounces around on us. We expect this quarter to be down sequentially in the noncore, but it's hard to predict even that business.

On the Device Management side of the business, the $2.6 million was, we thought, very indicative of the momentum that we were building in the space. The orders were solid. There were some big customer names, FORTUNE 500 companies buying from us now. We believe our product is best in class in that category today. And this is even before we've introduced the Spider product, which adds significantly to our strength in that part of the business. So rather than -- the $2.6 million is something we were building to over time and felt very comfortable was in our future. The surprise really was just the drop this past quarter. And by the way, the drop this past quarter, a number of customers that ordered -- that didn't place orders with us in April at one point in time we thought they were going to come in the March timeframe and they did in fact move out to April. So part of this is also just what the boundary was of receiving the order from the customer.

Thank you.

Henry [Goesching], Brookstreet Securities.

I wonder if you can take me through a little bit of -- this is kind of the several consecutive quarters where we have heard about what's going to be an explosion in growth. And then could you describe some of the things necessary besides the development of outside network equipment and that sort of thing that's going to contribute to the growth in your particular part of the market? And without making this two questions, but as a side note, maybe you would address what seems to be different about Lantronix than maybe Digi or Echelon or one of those guys, who seem to be meeting their expectations and in a lot of cases even exceeding their -- or increasing their guidance?

Sure. Actually I'm going to address the second question first. If you look at our competitors in the space and analyze their underlying organic growth rates, you will probably find, I know in the case of at least, other -- the biggest competitor that you mentioned, we actually have higher growth rates organically than they do. What we have not done is we have not embarked on an acquisition path and therefore you are not seeing acquisitive growth from Lantronix. And that's primarily due to our financial position and liquidity or lack of capital, I should say, at this point in time. So take a look at the underlying organic growth and you'll see it's been very strong at Lantronix.

The other question is in terms of explosion of growth, as I mentioned, this phase of the market is being driven primarily by OEMs wanting to put this kind of feature in their product and rolling it out. Less so by end-users saying I've got to have Ethernet or Wireless connectivity in my end product. That will change over time.

What's driving the market today and what's delivering these kind of 16% rough growth numbers is really retrofit applications. And what I mean by that are we're being designed into a lot of applications where modem connection may have been used or 900 MHz point-to-point proprietary Wireless may have been used in the past, and those applications, they already have a connectivity model built into their business and they are just migrating moving from dial-up modems to broadband connection, let's say, or from 900 MHz to 802.11 Wireless.

What's really going to drive explosive growth in the market in my opinion is when new business models adopt device connectivity. And we are seeing some signs of that in particular verticals today, but it's just not big yet. Signs are very healthy. So in the case of say point-of-sale signage, there's a number of players out there starting to connect up those remote signs so they can download data for them on the fly. Audiovisual market, projectors and plasma panels and things like that for the same kind of reasons, are starting to adopt a business model that includes connectivity to their devices.

Medical is the same way. At some point in time in the medical industry, you are going to be at home rather than the hospital and your vitals are going to be sent directly to the hospital or the doctor's office and monitored remotely. While again, while OEMs are starting to experiment there, the end user pull isn't there yet.

So let me wrap this up. I'm sorry I'm taking up some time here. But we believe that the largest single short-term application, almost a killer app if you will for this market, is Remote Product Services and that's why we've made the move that we did and announced this last week.

Remote Product Services crosses many different verticals. So it's a horizontal play that ultimately the cost savings of connecting up and monitoring and maintaining equipment remotely on the benefits to end organizations and the benefit to the OEM, the service provider, will be substantial. And that's why we've focused our management products into that space.

I'm not sure that you answered the exact question I asked, so that begs the question of, is there enough money within Lantronix to compete and go out and develop new products without acquiring? I mean is $6 million enough to run the business? Successfully be competitive?

Well over the last five years, we have gone from zero in this market to basically the leader -- there's maybe one or two other companies that have a position in this market like we do, so I think we've done quite a bit given the resources at hand.

(multiple speakers) to get from there I guess is what I'm asking.

Say it again.

To get from here, where you are now, to where you want to be, is that enough money to do that?

I think it is. I think we're able to continue to invest at this rate that we're investing in today. We will accelerate that rate as the business grows, but we've been very competitive and we will continue to do that. There's enough -- it's early enough in the market that small -- relatively small R&D investments make big differences in your position.

Thanks.

Winder Hughes, Hughes Capital.

Hi, Mark. I guess my question, I keep kind of going round and round with what I wanted to ask you. But looking forward, because I'm trying as an investor to kind of put this quarter behind us and that's what lots of people do if they think that the future is going to be better than the past. And we look over the last 36 months, the numbers have been up and down, but the word that I've used here is we've been sputtering. And I know that you had these older products and they drain off and you have a bunch of new ones and they are not ready to hit yet and you've had some new people who you've added and all those things make a lot of sense here to me.

So when you are talking about the June quarter, let's say that on average there, like you're shooting $15 million. I'm assuming that that range has been scrubbed down where that's a conservative number? That's number one.

And number two, how much of the difference between the 13 and change up to 15 will be new products? And looking in the September quarter, would you expect to see sequential growth in September from June, so that we could hopefully finally see at that point that if you hit 15 or so in June, and it goes up in September, that you finally move out of this 12, $13 million range.

That's a lot of questions [that you'd like me to answer.]

So A, is June scrubbed down where it's conservative? B, what percent of the increase from March to June is new products? And C, would you expect September would be up sequentially from June because if that is like 16 or 17, whatever, then we would all and hopefully think that we are out of this level.

Right. Well let's look at this one quarter at a time. I think that the outlook that we provided here for fiscal Q4, I would term as being realistic. Could we do better than that? Potentially. But it is a realistic range and that's why we put it out there. So, that's what I would label it.

In terms of the September quarter, seasonally, the September quarter is weaker. It has been consistently for the last three years. I believe if you take a look at the details, you would see that the enablement business, particularly embedded products tend to slow down that period as our OEMs kind of go on vacation and just don't build as much.

Having said that, we're not in a position today to be able to put together an outlook to provide you actually an outlook for next fiscal year and break it down any better than that at this point. I have no reason to believe that fiscal '08 from a seasonal standpoint would look any different than the last couple of years.

Okay.

Yes, Reagan has made a good point. We do expect year-over-year growth in fiscal Q1 in the September quarter.

Well the last year, I mean that quarter was as disappointing as this quarter was, so I would certainly hope so. That was 12.5 last year. When that quarter was supposed to be in the 13's. So I don't think folks are going to jump up and down if it were up from last year, given the fact that that was 12.5.

Valid point. Depends how much we're up.

Michael Ciarmoli, Boenning & Scattergood.

Forgive me if I missed some stuff. I joined the call late. In terms of operating expenses, how should we view that going forward? Do you effectively have the levels in place to grow the revenue base from here?

Yes. So I would, from a modeling standpoint, we would be comfortable including stock-based comp in the high 7's to very low 8's.

Okay. And then also, it looks like I guess someone had mentioned it seems like companies like Digi, Echelon are meeting or exceeding numbers. In particular, Digi seems like they are seeing strength, lifted their guidance and they are seeing a lot of strength in some of the modalities that you guys don't offer in the mesh networking, in the cellular. Is there a need on your part to get into or to broaden your product offerings to include some of those additional Wireless connectivities?

Those Wireless connectivities are on our radar. At some point in time you may see products introduced in those spaces, yes.

Okay. What would the cost be to add those types of modalities?

That would be internal development activities, so it would be part of our R&D plan if we were -- you could think of it as part of our R&D spending at these current levels.

And in terms of just the space in general, M2M, I know the forecasts by all the market research firms seem pretty aggressive. It seems one of the big hang ups, you are connecting a lot of just the whole market in general, just not Lantronix, connecting devices, enabling this flow of information, but it seems like the software isn't quite there yet to manage all of these devices. Is that something you are going to look to play a little bit more in, or how do you view that I guess area of the M2M space?

That's a great question. We did talk earlier on the call about our recent product announcement in the Remote Product Services space. And that product offering -- we haven't gone into a lot of details on it yet -- but it's a combination of hardware, multiple hardware platforms as well as software specifically targeted at easy -- making it easy for an integrator or an OEM to deploy a complete end-to-end solution. And that is what's holding up the market in our minds.

For instance, I've been to -- over the years, I've been to many accounts where we started a project only to find out that three quarters of the way into it, the OEM decides to drop the program because they failed to get the enterprise side of their solution working properly. And that's one of the reasons why we've entered the business.

We also believe that over the long-term, it would make a significant revenue contribution to the Company and that it will present opportunities beyond the general just sell a piece of hardware revenue model and we'll eventually be able to garner ongoing annuity streams by entering this business.

Okay.

So it's a major -- it is a major step for the Corporation. If you take a look our Web site, you'll see that we've upgraded the Web site to reflect our entry into this space. And we are in the process of repositioning our marketing messaging around an end-to-end solution.

Okay. In terms of the market, it seems like the metering space is picking up lately. Are you seeing particular strength in any one vertical out there?

I'll let Chris Preston, our VP of Marketing answer that.

A quick clarifying question. Is that related to the Device Management platform that Marc was referring to or just in general?

In general across all products.

Yes, we continue to see strength in security and in emerging growth in industrial automation with the entry of some of our new product offerings that we announced in the last couple of earnings calls.

Okay.

So that's, and as Mark said, we are doing some things on the Device Management side with Spider that also we expect to make an impact as well.

Okay. Are you seeing any new --

By the way, that's in the Enterprise IT management space.

Okay. Are you seeing any new competitors out there or typically the same ones?

No, I would say typically the same ones.

Ladies and gentlemen, that does conclude our time for question and answer today. I would now like to turn the call back over to management for any closing remarks. Please proceed.

Thank you very much. We look forward to seeing some of you next week at the AEA Micro Cap conference on May 8 and we'll also be available over the summer at various locations for additional meetings. Thanks again for joining us today and have a great evening. Bye bye.

Ladies and gentlemen, thank you for your participation in today's conference. That does conclude the presentation. You may disconnect your lines. Have a good day.