Good day, ladies and gentlemen, and welcome to the Q2 2013 Digi International Inc. Earnings Conference Call. My name is Clinton, and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And now I'll turn the call over to Steve Snyder, Chief Financial Officer. Please proceed, sir.

Good afternoon, and thank you for joining us today. Before we start, I need to go over a few details. First, if you do not have a copy of our earnings release, you may access it through the Financial Releases section of our Investor Relations website at www.digi.com. Second, I would like to remind our listeners that some of the statements that we may make in this presentation may constitute forward-looking statements. These statements reflect management's expectations about future events and operating plans and performance and speak only as of today's date. These forward-looking statements involve a number of risks and uncertainties. A list of the factors that could cause actual results to be materially different from those expressed or implied by any of these forward-looking statements is detailed under the heading Forward-Looking Statements in our earnings release today and under the heading Risk Factors in our 2012 annual report on Form 10-K, on file with the SEC. We undertake no obligation to update publicly or revise these forward-looking statements for any reason. 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 on an exhibit to our Form 8-K that can be accessed through the SEC Filings section of our Investor Relations website at www.digi.com. Now I'd like to introduce Mr. Joe Dunsmore, Chairman, President and CEO.

Thank you, Steve, and welcome to the call, everyone. This was the 41st consecutive quarter of profitability for Digi. Revenue of $48.2 million and earnings per share of $0.04 met the Street consensus. The revenue breakdown this quarter for growth portfolio products and services, including Etherios, was 56.4% and the mature product portfolio was 43.6%. Gross margins of 51.8% were slightly down sequentially but continue to be strong. Now for a bit more detail. Last year, fiscal 2Q had a revenue uplift of approximately $3 million that was deferred from Q1 due to Thailand flooding. Therefore, our year-over-year results were somewhat muted. Growth products grew 2.9% year-over-year, inclusive of Etherios. The mature products declined 7.1% year-over-year, which is right in the range that we expected. Etherios performed very well in the first full quarter as a part of Digi, continuing to outperform our revenue expectations. The integration and performance of Etherios today has gone very well and exceeded expectations. This last week, we introduced The Social Machine product offering at Cloudforce, Chicago, a major regional salesforce.com event to much fanfare. I will discuss this in more detail in a few minutes. Next, I'm going to discuss some key highlights and strategic progress made this quarter. Digi strengthened its sales organization with the appointment of Kevin Riley as Senior Vice President of Sales. Kevin provides years of solution selling experience and will be instrumental in driving increased sales of M2M solutions and creating process improvement for the Digi sales organization. Kevin will have global sales responsibility, enabling much greater focus on improvement of our sales processes. The keyword here is focus. Last week, Digi announced a rebrand of the iDigi Device Cloud, as Device Cloud by Etherios. The rebranding emphasizes the openness of the Device Cloud, and that it is hardware…

Thank you, Joe. Revenue for the second fiscal quarter of 2013 was $48.2 million, a decrease of $800,000 or 1.7% from second fiscal quarter a year ago. Excluding Etherios consulting services of $2.4 million, wireless revenue was $20.8 million or 45.5% of total revenue in the second fiscal quarter of 2013 compared to $21.8 million or 44.5% of total revenue in the second fiscal quarter of 2012. Revenue from growth products and services in the second fiscal quarter of 2013, including $2.4 million of revenue from Etherios consulting services, was $27.2 million or 56.4% of net sales compared to $26.4 million or 53.9% of net sales in the second fiscal quarter of 2012, an increase of $800,000 or 2.9%. Digi's growth products portfolio includes all wireless products, as well as ARM-based embedded module product lines with both wired and wireless connectivity. The growth portfolio also includes the services components of the business, including our wireless design solutions, application consulting services, Etherios CRM consulting services and the Device Cloud by Etherios platform. Revenue from mature products was $21.0 million or 43.6% of net sales in the second fiscal quarter of 2013 compared to $22.6 million or 46.1% of net sales in the second fiscal quarter of 2012, a decrease of $1.6 million or 7.1%, which is in line with our expectations. Revenue in North America was $28.6 million in the second fiscal quarter of 2013 compared to $29.0 million in the second fiscal quarter of 2012, a decrease of $400,000 or 1.3%. International revenue was $19.6 million or 40.7% of total revenue in second fiscal quarter of 2013 compared to $20 million or 40.9% of total revenue in the second fiscal quarter of 2012, a decrease of $400,000. The gross profit was $25.0 million in the second fiscal quarter of 2013…

[Operator Instructions] And your first question comes from the line of Mike Walkley of Canaccord.

This is Siddharth for Mike. Joe, one for you. Given the fact that Digi has significant amount of cash and cash equivalents in the balance sheet, how do you think in terms of making acquisitions and moving up the value chain in the M2M ecosystem, given that there are a bunch of smaller companies out there?

Yes. So that's exactly what our strategy has been and continues to be. We're leveraging the cash in a couple of ways. One is to look at acquisitions. As you know, we recently made the acquisition of Etherios, really important acquisition for us, moving up the value chain, being able to really drive even more aggressively into this salesforce.com ecosystem, providing the full end-to-end solution and actually doing a lot of muscle building with that acquisition around solution sales and professional services. So that's a good indicator of the kind of acquisition that we're looking for. We're going to continue to look at the marketplace very aggressively for acquisitions that have that kind of impact that are going to really drive the end-to-end solutions part of our business. So that's one part of the cash strategy. The other part is we are continuing to execute on the cash buyback -- on the stock buyback, leveraging our cash. So we'll continue to execute on that through the year.

And I just wanted to dig a little deeper into this, the branding of iDigi into Device Cloud by Etherios. When do you plan to see benefits from this? I guess, is it more of a long-term strategic vision? Or do you plan to see immediate benefits from this?

I expect to see immediate benefits from this. This is the centerpiece of our end-to-end solution strategy, it's the centerpiece of The Social Machine. And so we're driving very aggressively into the salesforce ecosystem, driving this end-to-end solution. And it's important that we provide device on boarding, leveraging both the flexibility that we have with our Digi hardware products, our gateways that make it very easy to program using our unique capability in our DEA[ph] layer of our gateway platform to speak the device protocol, whatever protocol is out there. It's also very important that we be hardware agnostic about leveraging our device connectors, then piece of software that can be easily integrated into any development environment, any chipset development environment into any product in order to provide native Device Cloud connectivity and also provide HTTPS hardware-agnostic capability with the iDigi -- with the Device Cloud by Etherios. And so it is very important that we send that message and drive that message through Etherios that we're driving this end-to-end solution and we're driving it in a very open -- cloud-based, open hardware agnostic way.

The next question comes from the line of Matthew Kempler of Sidoti. Matthew J. Kempler - Sidoti & Company, LLC: So there's a number of positives to highlight here that I want to get to. But I don't think the management addressed the guidance reduction on the call. So I was wondering if you can talk through what are the main considerations for taking down the revenue and earnings forecast for the second half of the year.

Yes. So the broader context on this, Matt, is, as you know, we've gone through a bit of a revenue trough here. We talked about why, we talked about the investment that we made in Smart Energy that really hasn't taken off the way we expected, the Rabbit product line, talked about European softness and really driving through that in order to get into a model of being able to see the sequential growth. And really, driving that with solution sales, driving it with sales process improvement, driving it with Etherios and spectrum-based growth, as well as -- is really with the solutions pulling along our wireless hardware products. And so we're starting to see that. We're seeing sequential growth now this quarter, and we project sequential growth to a midpoint of 49 for the current quarter, midpoint of 52 for fourth quarter, and we expect that to continue naturally. And we expect a layering effect from the benefit of The Social Machine. The reason for the slight reduction to the second half of the year is improved visibility. I mean, we've got very good visibility. We felt like last quarter, we said, "Okay, it's $47 million to $49 million midpoint of $48 million And we came in at $48.2 million. So we're just above the midpoint. And if you look at it on a product-by-product basis, we had real good visibility on a product line basis. We feel like we're getting better visibility now and have refined those numbers for the second half of the year. I think the real positive aspect of this, Matt, is while it's not quite the ramp that we had originally expected, it's still a very positive sequential ramp that we're expecting that's going to be boosted by The Social Machine opportunity. Matthew J. Kempler - Sidoti & Company, LLC: Okay. Is it the existing rollouts that were ramping up a little slower than expected? Or was it new business that didn't come on as quickly as expected in the second half?

I think it's the effect of judging the effect of kind of coming through this trough and really driving through the challenge of -- the challenges that we talked about, the Smart Energy challenge now, bringing down that investment, driving it in other areas, gaining the benefit of our solution sales effort, gaining the benefit of the sales improvement. We're now starting to see it. It feels very, very good, very tangible. We feel good about the sequential growth. And now -- then what you do is you look at the current quarter and you look at everything that's in front of you. You look at the backlog, you look at all of the customer situations and we've got a pretty good visibility into this quarter for our guidance and pretty good visibility into next quarter. One of the reasons why we feel pretty confident about the 52 midpoint and the upswing that we're going to see in the fourth quarter is because we already see bookings and backlog that we believe are going to generate that upswing. And on top of that, typically, fourth quarter is a very good quarter for us from a seasonal perspective. So we think that's all positive. Matthew J. Kempler - Sidoti & Company, LLC: Okay. And then on the Etherios opportunity here, so we announced the product last week. Is it in beta or commercially available? And then it sounds like you're anticipating wins within the next 5 months, the second of the fiscal year. Are those quicker than normal sales cycles? Can you just talk to that a little bit and maybe characterize kind of who's looking at this product?

Yes. Really good question. We are publicly available on the Salesforce AppExchange. So it is available. It is generally available to the marketplace. We launched it at Cloudforce in Chicago. I had the opportunity to speak on stage just before Benioff came out. It was a big deal. Salesforce saw it as a big deal. That's why they brought me onstage to talk about it. We are the only platform right now on the AppExchange that enables this key value proposition that they're driving. The new theme is the customer company, and connected products is an integral part of that theme. And so we are the company out there driving how you do connected products, how you do that with the salesforce platform. So it's very important. As a result of that, we've done a lot of prelaunch evangelism on this and then the capability. And we have generated a lot of excitement on all levels within salesforce and the salesforce ecosystem, their partners, their customers. And prelaunch, we have many customer engagements already active. And at launch, there was a number of others that became active. And it's pretty unprecedented in my career in terms of the level of prelaunch excitement and activity that I'm seeing. So I'm very bullish. Now on the question of timing, we're involving customer engagement. I would expect over the next sales cycle, over the next 6 months to generate opportunities. And I would expect to see revenue ramp, certainly, in fiscal 2014, likely prior to fiscal 2014. And our focus is to be the de facto standard for how you connect products to the salesforce platform. So -- and on targeted customers, there's 34,000 Service Cloud customers out there. They are -- and they break it out into enterprise and commercial are the 2 big categories. The enterprise guys are the big guys, typically Fortune 500 kinds of companies. Commercial are less than, I don't know, I think it's less than 8,000 employees or something like that. And so we're targeting both commercial and enterprise customers that have partner[ph] Device manufacturers, machine manufacturers that will benefit from this value proposition, connecting their machines, their products to the service cloud to revolutionize customer service as the initial value proposition. And so we're focused on both. We think the shorter sales cycles will probably come from the commercial customers. We think the enterprise customers will have a little bit longer sales cycles.

The next question comes from the line of Tavis McCourt.

This is Dan Toomey on for Tavis. You answered my other question, so I'll just have a housekeeping question. If you could give us a breakdown for your wireless and wireline revenues?

Yes. So for the quarter, wireless, which excludes the Etherios piece, wireless was $20.8 million and wired was $24.9 million.

Thank you. I'd now like to hand the call over to Joe Dunsmore for closing remarks.

All right. Well, thank you very much for listening. We're very excited about the sequential growth momentum that we've established, and that we expect to be able to talk more about when I talk to you in 3 months. So I hope to be able to talk about that and how that's going to extend in our 42nd consecutive quarter of profitability. Thank you.

Thank you. Ladies and gentlemen, that concludes your conference call for today. You may now disconnect. Thank you for joining. Have a very good day.