Digi International Inc. (DGII) Q1 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Digi International Inc. Q1 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] I would now like to turn the call over to Mike Goergen, CFO. Please go ahead.

Thank you, Ayala. Good afternoon and thank you for joining us today. Joining on today’s call is Ron Konezny, our President and CEO. Ron will provide his thoughts on our business and I will follow with the highlights of our financial performance for the first quarter. Following our prepared remarks, we will take your questions until 6 PM Eastern. We issued our earnings release shortly after the market closed. If you do not have a copy of our earnings release, you may obtain a copy through the Financial Releases section of our Investor Relations website at www.digi.com. Some of the statements that we make during this call are considered forward-looking and are subject to significant risk and uncertainties. These statements reflect our expectations about future operating and financial performance and speak only as of today's date. We undertake no obligation to update publicly or revise these forward-looking statements for any reason. We believe the expectations reflected in our forward-looking statements are reasonable but give assurance such expectations or any of our forward-looking statements will prove to be correct. Please refer to forward-looking statements section in our earnings release today and under the heading Risk Factors in our 2016 annual report on Form 10-K and subsequent reports on file with the SEC for additional information. Finally, certain other financial information disclosed on this call includes non-GAAP measures. The information required to be disclosed about these measures, including reconciliations to the most comparable GAAP measures are included in the earnings release. The earnings release is also an exhibit to a Form 8-K that can be accessed through the SEC filing session of our Investor relations website. Now, I'd like to turn the call over to Ron.

Thank you, Mike and greetings to everyone on the call today. The result of our first fiscal quarter of 2017 demonstrate the improving resiliency of our model as we delivered strong profits while achieving our revenue expectations. As we discussed with you last quarter, growth is our most important priority. We are confident that higher and more consistent levels of growth, combined with a strengthening cost model will result in further operating leverage and higher levels of profitability. In our call today, we will update you on our growth initiatives and provide an updated forecast for our fiscal 2007. First, our sales organization. Mike Ueland, our new Senior Vice President of Global Sales has hit the ground running. He is changing the culture of the sales organization to be more assertive, more creative and targeting larger opportunities. We believe this success in our cellular business is just a glimpse of what Mike and the sales team will deliver near-term. He has also begun to implement sales changes in our organization as we have combined the RF and embedded sales teams as they are selling to the same customer largely embedded engineers and we can better leverage the Digi product portfolio. We're also increasing the size of our direct sales force and we're working with our channel partners to make it easier to do business with Digi and support their efforts to go further into the sales process. Lastly, we have focused our direct selling efforts to larger and more strategic customer opportunities. Secondly, in product management, we continue to make strides with our initiatives in the product management area. First, we are now under 2000 SKUs and see a clear line to less than 1500 SKUs within the quarter. Our SKU optimization process is meticulous as we work closely with our sales team, our customers, our channel partners and our supply chain team to ensure everything is smooth. As we evolve to carry fewer, but more widely appealing products, we expect to gain efficiencies throughout the company. We are laser focused on prioritizing, executing and expanding our new product introductions to also drive growth. We continue to believe that investing in R&D and introducing more advanced and secure products is critical to drive growth. Lastly, product management is working closely with sales to support their large strategic customer initiatives to ensure that proper support and value propositions are delivered. Third, new product introduction. We're seeing great results and strongly leading indicators from new product introduction in our key product groupings. We started shipping in the cellular LR54 Linux-based router in late first fiscal quarter and we continue to progress the offering with software updates and future variance. We sold more embedded ConnectCore 6UL, otherwise known as our CC6UL, development kits than expected and we have over 20 design wins and $40 million pipeline. We expect CC6UL modular shipments to begin this second fiscal quarter. Similarly, we have nearly $50 million in pipeline for RF's XBee cellular module and we expect shipments to begin this second quarter as well. For our channel, we're working closely with our channel partners to go further in the sales process and ensure successful set of new product introductions. We're taking their input to plan our roadmap and move in new offerings and extensions of existing offerings. This is exhibited in our announcement of a Sprint-enabled WR31 product in our cellular business. North American channel sales were up approximately 10% year-over-year and we are working aggressively to expand that success more broadly. Fifth, in services; as you know, Digi cold chain is one of our fastest ramping businesses and we've quickly become a leader in the space. We recently executed two acquisitions within cold chain. FreshTemp was acquired in November of 2016. This brought Jeff Rieger and his team, as well as their leading digital test management solutions to Digi. We quickly had our first significant customer win from the FreshTemp acquisition with the signing of Love's Travel Stops, one of the most respected convenience store operators in the retail industry. Just after our fiscal quarter ended in January of 2017, we acquired SMART Temps, a leading provider of automated temperature management and task management solutions in the food, hospitality and health industry. John Miller and his team have embraced the Digi team and we're excited to work together. Their success in pharmacies, hospitals, clinics, food service hospitality and education markets, expands the addressable market for Digi cold chain. We recently announced customer wins with the Dallas Independent School District and AMC Theatres. Digi now has over 10,000 sites that we are servicing with leading customers in each of our applications. In addition, wireless design services continues to make positive progress, helping companies create and introduce new IOT solutions as well as working with our coaching business on new product introductions. Lastly, in corporate development, our strong operating performance combined with our strong capital position enables us to pursue additional inorganic growth opportunities. We've been focused on building our Digi coaching business and we are looking for more opportunities to build on our leadership position. As I mentioned last quarter, sustainable growth initiatives can take a bit longer to implement and produce measurable results. We are confident that our path to consistently higher levels of growth is within reach, based on our initiatives leading indicators and results. Now I will turn it over to Mike for a comprehensive update of our financial performance, Mike?

Thank you, Ron. As Ron mentioned, we're off to a good start to the year. We're pleased with our Q1 results, which were within the guidance we provided on our last call. This is important since the first quarter is typically our lowest revenue-generating quarter of the year. This year we expect this to be the case again. From a profit generation perspective, we continue to prove the scalability of our business. During the quarter, we further built upon the more athletic business model Ron and I put in place when we came aboard. Profitability also benefit by currency fluctuations as the dollar continued to strengthen against other world currencies we do business with, in particular the yen, euro and the British Pound and we realized benefit on our U.S. dollars held abroad. From the P&L perspective, we generated $45.2 million of total revenue, which as I indicated fell within our guided range of $45 million to $48 million. Revenue decreased by $5.1 million or 10.1% compared to the same quarter last year. Included in revenue performance for the year was a foreign currency translation decrease of $300,000 when compared to the same period in the prior fiscal year and again was primarily caused by the weakening of the British Pound and euro against the U.S. dollar. We were pleased to see the cellular business return to growth and increase by 13% compared to the year ago quarter and by 10% sequentially from last quarter. We expect that cellular revenue will be supported in future quarters by the recent new product line introductions including the LR54. We did experience weaker revenue performance than a year ago in our RF and embedded categories. As we expected with calendar year-end reporting, many of our channel partners optimized inventory balances in our fiscal quarter one, which negatively impacted these categories. We are starting to build meaningful pipeline with the new product introductions that Ron mentioned, including the CC6UL and are cellular XP. Our network category performance as planned. As I've mentioned previously, this category is typically purchased only in replacement cycles for our customers and not necessarily when technology is upgraded. We do expect our network category to decline in the high single to low double digits for the foreseeable future. Service revenue was flat in Q1 2017 versus the year ago quarter. Incremental revenue from Digi cold chain solutions, which began with the bluenica acquisition a year ago, offset a modest decline in our wireless design services revenue versus the year ago quarter. We're starting to see that business stabilize with more consistent topline performance. Gross profit decreased by $2.9 million or 11.9% in Q1 2017 versus the year ago quarter due primarily to lower topline revenue performance. Our overall gross margin was 47.5% compared to 48.5% in Q1 2016, a decrease of 100 basis points. This was driven primarily by our product gross margins. Our Q1 2017 hardware product gross margin was 48% compared to 48.8% in Q1 2016, decreasing largely from sales mix as our network product category declined as an overall percent of our product's revenue. Service gross margin for Q1 2017 was 35.9% compared to 40.8% in the year ago quarter. We expect margins in the service category to be between 35% and 40% for the balance of the fiscal year. Operating expenses in Q1 2017 decreased by $2 million or 9.7% compared to the year ago quarter. The decrease is primarily due to compensation related expense savings and realizing the reduced cost associated with the restructuring of our German office location, which was completed in April of 2016 as well as our wireless design services relocation from a year ago. We incurred a restructuring charge of $700,000 in Q1 of last year from these activities. As I mentioned previously, we benefited from favorable currency gains on our U.S. dollars held abroad in Q1 2017 as the dollar continued to strengthen. This resulted in favorable currency gains of approximately $600,000. We recorded an effective tax rate of 24.5% for the quarter compared with an effective tax rate of 10.9% for the first quarter a year ago, including tax benefits specific to the quarter. In Q1 of 2016, we recorded a tax benefit of approximately $700,000 largely related to the permanent re-reinstatement of the federal research and development tax credit. Our overall effective tax rate results from the mix of income between taxing jurisdictions many of which have lower statutory tax rates in the U.S. for planning purposes, we project an overall effective tax rate of approximately 28% to 30% for the full fiscal year 2017. Income from continuing operations for the quarter was $2.4 million or $0.09 per diluted share compared to $3.1 million or $0.12 per diluted share in Q1 2016. As a reminder, we divested our theory of subsidiary in Q1 2016 and recorded income from discontinued operations after income taxes of $3.3 million or $0.13 per diluted share most of which resulted from the gain on sale. EBITDA from continuing operations was $4 million or 8.8% of revenue, compared to $4.6 million or 9.1% of revenue for Q1 2016. We anticipate that we will remain on track to deliver our 10% EBITDA margin goal for the fiscal year. We have provided a full reconciliation table for non-GAAP items in our earnings release for your convenience. Moving to the balance sheet, cash and investments including long-term investments totaled $136,400,000, a decrease of $1.3 million over the comparable balance at September 30, 2016. The decrease in cash was primarily a result of the FreshTemp acquisition and other M&A activity. Fiscal year 2016 incentive compensation payments and our first earnout payment for bluenica. As a reminder, we have a $15 million stock buyback plan in place that expires May 1, 2017. To date, we have not utilized this plan. Our balance sheet continues to be very strong with a current ratio 10.8 to 1 at December 31, 2016, compared to 8.2 to 1 at September 30, 2016. We continue to improve our working capital position by reducing our inventory and receivables from September 30, 2016. We remain debt-free. Before I move to our updated guidance, I would like to take a moment to talk about our cold chain solutions business. First, we will be reporting these revenues in our services category as well as now being included in our updated guidance. We expect our existing and recent acquisition in our cold chain portfolio to generate between $10 million and $15 million in revenue over the next 12 months. We love the attributes of this solutions-based business, with it's sticky recurring revenue, strong growth rates and better predictability. We further believe as these businesses become a larger percentage of our topline revenue, we will also benefit from increased valuation multiples for our overall company. Second, to date we have invested approximately $35 million in cash, the majority of which you'll see in the second quarter as part of the SMART Temps acquisition. Now I would like to provide our updated guidance, which includes the second quarter and the full year of fiscal 2017. For the second fiscal quarter of 2017, we expect revenue to be in a range of $47 million to $50 million. We expect net income per diluted share from continuing operations to be in a range of $0.06 to $0.09. For the full fiscal year, we now expect revenue to be in a range of $201 million to $211 million. We would expect net income per diluted share from continuing operations to be in a range of $0.40 to $0.48. That completes our prepared remarks. At this time, Ron and I are pleased to open the call for your questions. Operator?

[Operator instructions] Our first question comes from Greg Burns with Sidoti & Company. Your line is now open.

Good afternoon. I just wanted to dig in on the strength in cellular this quarter. Was there anything in particular driving that, any particular projects that came in that you weren't expecting? And how should we think about the cellular business for the balance of the year, given the new products that were recently launched?

Hey Greg. Good to hear your voice, this is Ron. So first off, what broad based, it wasn’t one large customer that drove the success in our cellular business. We did start seeing the impact Greg of our LR54 router new product introduction that began shipments. So, that contributed to some extent, but again it was pretty widely distributed quarter. I'll let Mike comment on expectations for cellular moving forward.

Yes Greg, I think similar to prior calls, we don't really guide on a product category basis. So, I would like to stick with that theme. We do expect really cellular to kind of continue to perform well, but I want to refrain from guiding specifically on the product categories. I think what you've seen is they can fluctuate from quarter to quarter, but we expect strong performance.

Okay. Thanks. And can you talk about how your strategy with cold chain is evolving? With the recent acquisitions of FreshTemp and SMART Temps, you're expanding verticals and bringing in some new technologies. But could you just give us a broad overview of what your strategy is in that market and how you're looking at building a platform to really address the growth you see there?

Yes, thanks for asking Greg. First, we did a lot of research and studying and talked a lot of folks throughout a wide variety of applications and industries and what really attracted us to what we call Digi coaching was a large addressable market, a lot of customer fragmentations, a lot of opportunities and opportunity to really help those verticals reduce costs, to improve safety, to protect their customers and their brand and to have a more efficient food supply chain and health supply chain. And we didn't see a tremendous amount of competition. So, we saw a real interesting opportunity that in some way reminds us of Telematics in the earlier days. We also saw a customer base that generally was comfortable with relying on third parties for these types of solutions. If you think about retail, food and pharmacy, if you think about trucking and warehousing, hospitality, they're very comfortable with ROI based solutions that are built by leading customers and companies that provide great service. So, we saw the attributes and we think that the addressable market is several billion in size just within North America and so as we went about this journey here, bluenica really got us into automated time and temperature. FreshTemp really brought digital task management. If you think about taking temperatures that happens to be a very frequent past that you can automate, but many enterprises want to ensure that procedures task are followed uniformly throughout the organization. So, digital task management as opposed to manual recording information in a log book or a red book is far superior and more efficient. And then lastly the SMART Temps acquisition really brought in the appeal of Digi coaching beyond food, which SMART Temps is a leader in as well, but really SMART Temps got us into education, got us into hospitals, clinics, pharmacies, hospitality and so we're committed to go-to-market that is vertically centric. We have our resources that are calling on specific applications, but then the technology ends up being the best-in-class for that application, which we got some great collaboration between the three groups and our guiding post is making sure the customer has success and so we're excited. We see a great opportunity. We're seeing great growth rates and having talked to many of our existing customers and prospects, it's delivering real value.

Okay, and I guess you gave a little bit of color on the revenue potential you see over the next 12 months. Is there any point when you're going to start to disclose some more KPIs around that business, whether it is customers, ARPU, anything to that nature?

Yeah, absolutely Greg. I think as we think about the important measures for that business, what we would like to start talking about would be a number of sites, average revenue per site, churn metrics will be very important and then you’ll start hearing us talk more about recurring revenue and annualized recurring revenue. So obviously, we've got two very new acquisitions here over the last 90 days and as we get those business more integrated and just kind of understand ebbs and flows of those businesses, I think you will see us share some of those stats.

All right. Thanks.

[Operator Instructions]. Our next question comes from Mike Walkley with Canaccord. Your line is now open.

Thank you, and thanks for the color on the cold chain monitoring businesses. As you look to your overall full-year guidance, can you maybe talk us through the core businesses and how you see embedded and RF and some of those businesses? For the full year, do you expect those to be growth businesses year over year or do you see them steadily recovering throughout the year, given those two businesses were a little bit below my expectations for the quarter?

Yes, we think again we've got some lumpiness in our three main product categories. We do think network will soften as compared to last year. We do expect growth in all three of those other product categories. As Mike mentioned, we had softer than expected channel pool and that left us a little upside throughout the balance of the year. But we expect growth in three of our four product categories.

Okay, great. That's helpful, thanks. And then, Mike, just on the mix of the business, with the update for the services business start to grow in a 35% to 40% gross margin, should we expect as that business grows a little faster that gross margins are coming down a bit for the year? That's implied in your guidance to 47%, 46% for the year. Is that where we are thinking about it?

Yeah, so I think if you look at kind of the existing services business, which is kind of predominantly the wireless design services, coming into the quarter, that 35% to 40% gross profit is the right way to model business. As we add both organically and with the new acquisitions, we would expect that gross profit margin to actually improve over time. So, I gave you how we view the current business, which is really again dominated by that consulting services. So, I am not sure if that answers your question. We certainly expect that segment to grow right, and we gave you 10% to 15% over the next four quarters and margin on that business on that 10% to 15% is on top of that 40%.

Okay. Got it. That's helpful. And then, finally, last question and I will pass it on. You mentioned in your prepared remarks that as this business grows and you have more recurring revenue, you thought that would improve the overall multiple of the business. Can you maybe just discuss how you view the value of the business and if there is any update on the Belden offer and discussions there?

Well we think as the Cold chain business gets larger and we start really shinning a brighter light on the subscription revenue, we are certainly understanding that we need to demonstrate not only a certain size, but also the ability to call the ball on how that business progresses. But we do think that that business will unlike our share product business it tends to be more of a multiple of EBITDA. We think that the recurring revenue business will be a more multiple of their recurring revenue. And we may start to get credit for the higher growth rates, the higher gross margins associated with that, the visibility and the predictability of that revenue in combination with a larger rest of market where we are becoming a real strong leader. Regarding your second question, we really can’t provide any additional information then what has been probably disclosed to date on the Belden situation. We certainly can’t speculate on, what third parties may or may not do, but -- so there is no additional information at this time.

Okay. Thank you very much.

Our next question comes from Tavis McCourt with Raymond James. Your line is now open.

Hi Ron and Mike. Thanks for taking my questions. First, a clarification. Was it $10 million to $15 million of trailing 12-month revenues or go-forward 12-month revenues you mentioned for the cold chain solution? I just want to confirm that was all your cold chain business. You weren't just referring to the acquisitions that you just closed? Is that correct?

That's correct. It's $10 million to $15 million really starting from call it Jan 1 forward. So, think about it as calendar 2017, $10 million to $15 million and it includes the existing as well as the new acquisitions.

Got you, and then I guess follow-up in that regard, talk to us a little bit about your strategy for organic growth versus acquisition. Obviously, one of the challenges there, you want to scale it up quickly, but obviously the revenue multiples on these things tend to be pretty high, at least the growing ones. So, how do you scale it up quickly without depleting all of your cash reserves in the form of acquisitions, and are there a reasonable amount of acquisition targets out there in this niche? Thanks.

Yeah those are good questions? First of all, we feel very good about our organic growth. We’ve got a great team both bluenica and FreshTemp were relatively small acquisitions. SMART Temps was certainly a larger acquisition with a great install base and a great go-to-market team and we think that Digi can really help SMART Temps as does SMART Temps feel that Digi help them. We are taking steps very quickly to focus them on go-to-market and take over some functions that they're glad to hand to us such as IT, legal and also take over their supply chain and improve their cost situation on their products and hopefully improve the service levels and the product offerings. So, we feel very good about organic opportunities that the SMART Temps team has a tremendously large pipeline and we think we can help them close a greater percentage than possibly they will be able to close on their own. And regarding acquisitions there are a lot targets up there. There are smaller companies, there are a few companies that are emerging and we're looking at opportunities to continue to build and we're trying to be very careful about making sure that we have a right chemistry on the team that we have in place and anybody we bring into the fold. So, we will be very, very selective.

Our next question comes from David Gearhart with First Analysis. Your line is now open.

Hi good afternoon Ron and Mike. Thank you for taking my questions. My first question, I wanted to ask a little bit about what you are targeting, what you think you can get the business to as a percentage of revenue for the recurring services piece? You have made three acquisitions up to this point, and just trying to get a sense of how -- where you think you can get it in maybe three to five years' time through the combination of organic and M&A, just to get a guidepost so we can model it out.

Yeah. It’s a great question. We really have, as stated internally, that we in shorter order, we want to really get that Cold Chain close to 20% of our overall revenue composition. That enables us we think to really give credit for that business and its growth rate a near-term objective is much closer to 10% sort of any additional acquisitions. But listen we are targeting that the Cold Chain business goes much farther than that we can build it in to a much, much larger business, 2 billion to 3 billion addressable market out there is -- if there is no dominant provider we have the opportunity to assert some leadership here and we intend to do so.

And then in terms of the SMART Temps acquisition, you said $10 million to $15 million for the combined cold chain businesses, and the lion's share of that sounds like it is SMART Temps. Was there any revenue that was written off in purchase accounting with deferred that is not going to come through, that that number is somewhat compressed? Just want to get a clarification on that. And is it predominantly a services piece versus hardware, because I know the SMART Temps business was selling hardware units, so I wonder if the hardware piece for that is still in the services business or is it allocated to another product line how you report?

Hey David, it’s Mike. I'll pick those apart for you. So, we haven’t gone through purchase accounting, but they did have in excess of $1 million of deferred revenue that will get to keep a portion up. I think we'll lose probably a good deal of that from a margin perspective. So, that will go in purchasing account. We’ve already fact that out of kind of our assumptions. The hardware for all of the Cold Chain businesses will be reported within that services group. We do want to keep the Cold Chain reporting together, so there will be a portion of hardware and monitoring and certification and implementation kind of in that services category.

And just with that, sorry to interrupt, are any of the cold chain businesses running a different model in terms of doing a fully bundled solution where the hardware is bundled for the subscription, or is it predominantly one-time upfront sales?

So, our existing business is really predominantly all SAAS. So, there is a small implementation fee and then the balances are recurring monitoring services. Bluenica – I am sorry, SMART Temps has got a slightly different model. So, they’ve got kind of – CapEx model where they sell the hardware upfront and then enjoy the monitoring services after that. I think there are certain verticals for SMART Temps where that CapEx model works really, really well. But I think there are opportunities to take them more to a similar model, where we kind of take that capital requirement out of play for their customers. And I think that to an entrepreneur that’s an example where I think with Digi’s balance sheet you know that makes that just a little bit easier to accomplish. So, I think over time you will see SMART Temps probably offer both models. But the existing business is almost entirely SAAS-based.

Yeah, and one more for me, I wonder if you can help handicap a little bit the opportunity specifically with SMART Temps. I know that they had Rite Aid as a customer, 4,600 stores with a number of freezers in that business. And with Walgreens trying to purchase Rite Aid, just wondering if you can provide some color on what you think maybe that opportunity or other opportunities that are of similar size can present to Digi.

Yeah, it’s a really good question and we certainly can’t comment on what Walgreens will do and how the FDC will rule on the Walgreen’s Rite Aid situation. But what really has helped attract us to SMART Temps is they are one of the few companies that really rolled out enterprise wide projects. You know like you said Rite Aid got over 4,500 locations and thus have been very, very pleased with the SMART Temps solution as well as their service. So, we think that put SMART Temps in a really good position to win additional enterprise contracts. And we’ve got a number of those that the SMART Temps team has in the pipeline. And so our expectations are that we are able to execute on those and we are being – I’d say in a very prudent and how we are forecasting this to make sure that we are off to good start here and there is kind of upside from the numbers that we provided, but we want to make sure we’re integrating SMART Temps and FRESH Temps with the existing Digi Cold Chain team and we’re establishing the reputation of hitting our marks.

Okay. Thanks a lot. That's it for me.

Thanks David.

[Operator Instructions]. Our next question comes from Jaeson Schmidt with Lake Street Capital. Your line is now open.

Sorry about that guys. Thanks for taking my questions. Wondering if you could comment on what you are seeing from inventory situation at the distributors.

Yeah. I made a comment specifically about the channel and the inventory and most of these guys are calendar year end. So, I am going to contradict myself, because in aggregate the inventory actually went up, it went up by about a $1 million. But the majority of that really was with a program we did with one of our larger distributors, all of -- we call them the big eight. All of the other seven really were down, quarter-on-quarter. So, we are up $1 million primarily due to one channel partner.

Okay.

So, it’s roughly $13 million.

Okay. Perfect. And then, just shifting back to the cold chain opportunity, do you guys think you have all the technology and products in house to be able to adequately build out your niche in that market or -- I know M&A will be part of the strategy, it sounds like, going forward. But just curious if you could comment on the current product portfolio you guys currently have

Yes, we have a really capable set to service the vertical that we mentioned; warehousing, trucking, retail food, the health and life sciences areas of hospitals, clinics and pharmacies as well as hospitality opportunities and educational opportunities. I think the area where we have plenty of market, that's a $3 billion opportunity, the area that we don't participate in at the moment we recall maybe industrial, automation and industrial applications. We don't have the technology developed today although there could be an extension of what we have in place, but we have the right teams and the right technologies to attack those markets.

Okay. Thanks a lot guys.

And we have a follow-up question from Greg Burns with Sidoti & Company. Your line is now open.

Thanks. I just wanted to make sure I understood fully the comment around the $35 million spent in total on the cold chain, so that would be, I guess, it looks like, around $5 million or so on bluenica, and FreshTemp and SMART Temps would be the balance and that balance is hitting in the second quarter. Is that correct?

Yes, that's right Greg.

Okay. Okay, just wanted to clarify that. Thanks.

Yes.

And I am showing no further questions. I would now like to turn the call back over to Ron Konezny for any further remarks.

Thank you. On behalf of the entire Digi team, we thank you for your continued support and interest in our company. We're off to an exciting start to the year and we look forward to demonstrating out building momentum through the year. I'm pleased with the progress we've made on our strategy and I am excited about our future. Have a good evening.

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