Steven E. Snyder – Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Treasurer Joseph T. Dunsmore – Chairman, Chief Executive Officer and President.

T. Michael Walkley – Canaccord Genuity, Research Division Howard Smith – First Analysis Securities Corporation, Research Division.

Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Fiscal Year 2014 Digi International Earnings Conference Call. My name is Kim, and I will be your operator for today. At this time all participants are in listen-only mode. Later we will conduct the question and answer session.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Steve Snyder, Chief Financial Officer. Please proceed..

Good afternoon and thank you for joining us today. Before Joe give you our business updates, I would like you remind you about a few administrative items. First, we issued a press release regarding our quarter and full year results earlier today.

If you do not have a copy of our earnings release, you may access it through our Investors website at www.digi.com. Second, I would like to remind you that some of the statements that we’ll make on this call are forward-looking.

These statements reflect our 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 our 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 2013 annual report on Form 10-K and subsequent quarterly reports and other filings 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 or in our earning release include non-GAAP measures.

The information required to be disclosed about these measures, including reconciliations to the most comparable GAAP measures, are included in the earnings release. The earnings release is also an exhibit to a Form 8-K that was filed earlier and can be accessed through our website. Now I would like to introduce Mr.

Joe Dunsmore, Chairman, President and CEO..

Thank you, Steve, and welcome to the call, everyone. Now for to report on our business, we are very pleased that our fourth quarter revenue of $51.6 million reached the midpoint of our guidance of $50 million that we provided on our call at the end of the last quarter. Earnings of $0.02 per share were towards the low end of our GAAP guidance range.

Hardware sales exceeded our expectations and services revenues were flat sequentially but close to our expectations for the quarter. Hardware sales were led by all time high quarterly sales of growth of hardware products and also bolstered by sales from our mature product lines that surpassed our expectations to the third straight quarter.

Our cellular product line led the growth of 15% sequentially and 31% from last year’s fourth quarter. Additionally, we have the strongest RF products sales quarter since Q2 2012. Mature product sales in Q4 were down 0.4% sequentially but increased to 1% year-over-year.

Sales of our services offerings remain flat primarily due to softness in our CRM consulting business, the under utilization of consulting labor that had been retained for higher expected sales from our CRM business was the main driver that led to lower than anticipated overall gross margins in the fourth quarter.

We continue to expect a modest revenue wrap to occur in our services business through fiscal 2015. This is fuelled by more robust sales pipeline driven by a group of new sales account managers that we’ve hired earlier this year and are now fully on boarded.

In Q4, we landed notable deals across multiple industries including transportation, medical, retail and industrial. For example, a very large public transit system in North America planned to deploy our cell routers for cellular connectivity in new passenger payment systems.

Also, a leader in timers and temperature controls for the foodservice industry plans to deploy an estimated 50,000 RF modules to enable connected solutions for its foodservice customers. The fourth fiscal year had a challenging start impacted negatively by a pause in orders from our three largest customers.

However, I’m very encouraged by this strong second half recovery in the business. We wrapped our quarterly revenue from a low of $45.9 million in fiscal Q2 to $47.9 million in fiscal Q3 to $51.6 million in fiscal Q4.

The ramp is yield by new customer deployments in our target markets centered around the wireless M&M and internet of things projects and our cellular and other product lines which coupled with their built in cloud management capabilities drove exceptional growth in the quarter.

This positions us very well for the long term high growth market opportunity. We have a number of new wireless products introductions underway that we feel will serve the market well in key protocols that we are targeting. We’ll announce more details in the coming months.

As Steve will discuss, we anticipate that in FY 2015, Digi will return to overall top line revenue growth and increase in profitability. For Q1 I have high confidence, they will meet or exceed the midpoint of the revenue guidance we announced today, which would yield the highest revenue for fiscal Q1 in the company’s 29-year history.

We are specially encouraged by our sales backlog and pipeline going into Q1 and the balance of 2015. So in summary, first our Q4 revenues results were in the upper end of the revenue guidance range driven by a strong performance from our hardware product lines.

Second, margins were slightly lower in operating expenses higher resulting in slightly lower than expected Q4 bottom line. The operating margins will improve as we see the expected recovery in the services top line growth. And third, looking at the fiscal year, we realize stronger revenues in the second half which we will see continue into 2015.

As a result we expect a resumption of top line company growth in the higher profitability in the new fiscal year. And so I hand it back to Steve..

world product categories are projected to increase at a 10%-20% rate. Services are expected to grow at 85-15% rate and mature products are expected to decline 85-15% annual rate. Before going to Q&A I’d like to reiterate some things Joe mentioned. 2014 was a challenging year for our company financially.

However, we ended the year with reason for optimism and remain excited about our sales pipeline, product portfolio, and our prospects for 2015. At this time I’d like to open the call for questions.

Operator?.

[Operator Instructions] Your first question comes from the line of Mike Walkley from Canaccord Genuity. Please proceed..

Great thanks.

Steve just building on the guide for the full year, can you help us with how to think about maybe the gross margins for the three divisions and how they might trend for the year?.

Sure. Generally, we expect to see stabilization in a modest uptick in the product side. We expect to see a more substantial gross margin percentage increase on the services side. On the whole, I’d say stable to modest uptick. But not just to recall Mike, not returning to fiscal 2013 levels..

Okay and with that type of outlook would that kind of back into maybe flattish year-over-year absolute OpEx levels?.

That actually would a modest increase. .

Modest increase. Okay, great that’s helpful. And then just on some of the new announces during the quarter, the transport deal that seems like a nice deal.

How big do you see that market potential and can you maybe size that deal for us and was it an impact to the current quarter, is it more in the bookings for the future growth?.

Yes, so that deal is a nice deal for us. In general what we are saying is with the transport product line we seeing real robust growth.

I think in the neighborhood of 30%, when you look at the entire cellular product line including transport and our cell gateways year-over-year, so real robust growth with really strong momentum with the gateway and router business.

Transport specifically, the cell routers we’re targeting key markets, the utility space, transportation, retail and in transportation specifically there’s lot of interesting deals that we’re working on. This one, to give you a sense of deal size, it’s a good size deal. It’s over a million revenue and we’ll begin to see that revenue this year.

It’s a real interesting application. We see a lot of these types of applications for cell routers in buses, in subways, in these types of systems so we’ve won many, many deals in this particular segment so and these deals tend to be pretty good size..

And just building that are these, upgraded these cellular technologies to current customers or these competitive deals you’re winning from like a Novotel or somebody else in the market?.

While these tend to be new deals, new customers. .

Okay then, thank you. And maybe just one last on the services and then I’ll pass it on.

Can you update us there just on I know you have some things in the works and if you are keeping the people there for utilization but any color on some projects and how they are coming together, just give us some light on gross margins?.

Yes, so that’s an excellent question Michael. I wanted to spend a little more time talking about this. So, to give you a sense of why we’re in a flat time period here with the services business, 20-20 hindsight is always wonderful.

So, as we look at what we’ve seen is that we had a big focus on trying to drive building the sales organization at the same time they we’re building the ability to provide facility with the technical consultants, the business analysts etcetera that we need for these types of deals.

And what we found was, the sales ramp up, bringing a sales team on board and getting them fully on boarded and effective took longer than what we expected and so we’ve been on a time period where we’ve had more fulfillment resources than we need at the moment as we’re ramping up the sales capability.

Good news is we’re starting to see the benefit of having the sales people fully on board and we’re now seeing the beginning of a sales pipeline ramp in that business.

So, we feel like as we look at the next quarter it’s looking flat to up and if we look at out further it’s looking, the pipeline is looking optimistic that we can expect a ramp up in sales and better utilization of those resources.

When you look at the color underneath that what are the kinds of deals that we’re seeing, we’re seeing some significant deals. I’d say it’s exactly the way we’d like it to be. Most of the deals or majority of the deals are service club, where we’ve got a very strong brand.

We’re a platinum partner with sales force, at dream force we won the innovation partner of the year for our service club implementation with the Lawgreens and we’re the first to achieve Service Club Masters certified status of any partner.

So, the way I would color it is, it tends to be service club customers that are ramping, it tends to be right now 18-20 existing follow on deals, 20% new deals and we’re feeling that pipeline begin to ramp..

Okay sounds great. Thank you. .

[Operator Instructions] The next question comes from the line of Howard Smith from First Analysis. Please proceed. .

Yes, good afternoon. Just wanted to follow up on a kind of a discussion on services side and having the people on the bench, so to speak.

If you are looking to have 5% to 15% growth which is I think what I heard on the services line, and we think about that layers in? Do you get the utilization with the people you have at those types of levels or is there some further adjustment that might need to be done?.

Yes, we believe that if we maintain at this level and we get 5% to 15% growth that will begin to see gross margins averaging up into the 30% and above kind of range and then continuing from that point of time. We think we can get there fairly quickly. .

Okay that was really my only question. Thank you..

All right. Thanks Howard. .

[Operator Instructions] Thank you ladies and gentlemen, that concludes our question and answer session. I will now turn the conference back to Joe for closing remarks..

Thank you. This is my last quarterly call with all of you. I want you to know that I thoroughly enjoyed working with all of you throughout the years. This is I think my 60th call and I will see you on the golf course. Thanks. .

Ladies and gentlemen that concludes today's conference. Thank you for your participation. You may now disconnect and have a great day..