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Digi International, Inc. (NASDAQ:DGII)

F2Q09 (Qtr End 03/31/09) Earnings Call

April 23, 2009 5:00 pm ET

Executives

Joe Dunsmore - Chairman, President and CEO

Kris Krishnan - SVP and CFO

Analysts

Jeff Evanson - Dougherty & Company

Jay Meier - Feltl & Company

Greg Weaver - Invicta Capital

Operator

Good day, ladies and gentlemen. Welcome to the Second Quarter Digi International Incorporated Earnings Call. My name is Letrice. I will be your coordinator for today's conference. At this time all participants will be in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions).

At this time I would like to turn the call over to your host for today's conference, Mr. Kris Krishnan, Chief Financial Officer.

Kris Krishnan

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 our press release section of the Digi website at www.digi.com.

Second, I'd like to remind our listeners that our remarks may contain forward-looking statements that involve risks and uncertainties. These forward-looking statements are not a guarantee of the company's future performance. Important factors that may cause the actual results to differ materially include but are not limited to the following.

Rapid changes in technologies that may displace products sold by Digi, the business environment in which Digi operates, Digi's reliance on distributors, declining prices of networking products and changes in the company's levels of profitability, the current uncertainty of the global economic conditions which could negatively affect product demand and the recent financial crisis affecting the banking system and the financial market which could negatively impact the financial solvency of our customers and suppliers, the extreme volatility in fixed income credit in equity markets which could result in actual amounts realized on our debt securities or other investments that differ significantly from current market values.

The estimated expense and risk associated with the planned restructuring of the company's operations, the ability to achieve the anticipated benefits and synergies associated with recent acquisitions and the risk that the combined businesses will not be integrated successfully.

Finally, certain of the financial information disclosed on the call, includes non-GAAP measures. The information required to be disclosed about these measures, including reconciliation to the most comparable GAAP measures are included in the earnings release or in the Form 8-K that we filed before this call. The Form 8-K can also be accessed through the SEC filing section of our investor relations website at www.digi.com.

Now, I would like to introduce Mr. Joe Dunsmore, Chairman, President, and CEO.

Joe Dunsmore

Thank you, Kris. Good afternoon, everyone. This is the 25th consecutive quarter of profitability for Digi in an environment that remains very challenging. Our results were within the revenue and profitability guidance ranges that we provided at the beginning of the quarter, albeit revenue was at the low end of the guidance.

Revenue of $40.1 million was down 3.4% sequentially and 6.9% year-over-year. However, wireless product revenues continued their vigorous positive trend, growing 49.4% year-over-year. Wireless product revenues are now 34.9% of our total revenue, up from 21.8% this time last year.

Next, I will comment on the current environment and the opportunity that are presented to Digi, and the additional actions that we are taking to capitalize on that opportunity. As I have said in the previous calls, we (inaudible) in the most severe Darwinian survival of the fittest environment that I've seen in my business career. We are continuing to see shakeout and consolidation across virtually all industry sectors, including the M2M space.

There will be clear winners and losers by market sector as we move through and eventually emerge from this market downturn. Digi's position with its stellar balance sheet, strong operating margins and highly differentiated product positioning to gain share emerges the winner. We are taking action today to fortify this already solid long-term positioning in this very uncertain economic climate.

While we are hopeful that we will see improvement in the external environment, we don't feel that we can make that as an operating assumption going forward.

Thus we are taking actions to reduce expenses including the elimination of the 2009 incentive plan, while at the same time driving accelerated business pivot to invest even more heavily in our wireless solutions.

This restructuring will accelerate the ongoing pivot of Digi's business from wireline to wireless and from individual hardware products to solutions that include hardware, software and services. Specifically, we are shifting more resources to wireless solutions initiatives, closing an engineering location in Long Beach, California, relocating and consolidating the manufacturing function located in Davis, California to Digi's corporate headquarters located in Minneapolis, Minnesota.

This restructuring will result in a work force production of 87 positions and 13% of Digi's total work force. It will also result in increased engineering business development, sales and marketing focus and investment on wireless solutions.

Next, last quarter, I introduced the fundamental principles that we are focusing on in 2009. They are aggressive share gain, profitability, positive operating cash flow, aggressive supply chain management and acquisition.

Now let's review our progress, first, aggressive share gain through continued investment in wireless M2M. As mentioned earlier, we are continuing to increase investment, in wireless M2M while others are pulling back. As a result we are seeing high growth from our wireless product in the face of this downturn. Today's restructuring will create even more positive momentum.

Two, profitability. Digi just posted its 25th consecutive quarter of profitability and we expect our actions today will enhance prospects of profitability through this down cycle.

Three, positive operating cash flow. Digi EBITDA this quarter is, in the midst of a severe contraction, remained over 8%. So, we achieved 8.5% EBITDA this quarter and we believe that we'll have even stronger operating momentum as a result of the restructuring actions to drive positive operating cash flow going forward.

Four, aggressive supply chain management. We continue to proactively manage our supply chain to ensure our key sources of supply are intact and we have contingency plans in place. Additionally, the increased focus on inventory turns has reduced inventory levels this quarter and we have maintained very strong receivables and payable strategy in position.

Five, continued focus on acquisition. In this environment there are many opportunities to look at distressed companies and assets. We are increasing our focus and energy on the identification in evaluation of these opportunities.

Now, let's shift to discussion of guidance ranges. Obviously providing guidance in this cycle continues to be quite a bit more challenging that it's been in the past. We expect revenue for the third fiscal quarter of 2009 in a range of $42 million to $48 million and net income per diluted share in the range of $0.01 to $0.06.

Non-GAAP net income per diluted share excluding the impact of the restructuring charge is projected to be in a range of $0.06 to $0.11. We project annual revenue in a range of $165 million to $175 million. We project annual GAAP net income per diluted share to be in a range of $0.11 to $0.22, annual non-GAAP net income per diluted share excluding the impact of restructuring charge and the reversal of tax reserves and other discreet tax benefits is projected to be in a range of $0.16 to $0.26.

So to summarize. First, Digi posted its 25th consecutive quarter of profitability. Second, we continued executing our strategy in pivoting even more aggressively toward wireless end solutions. Third, we're implementing a restructuring plan that will enhance profits in wireless growth through the downturn and beyond. And fourth, there will be winners and losers in this environment and Digi will clearly be a winner. Kris?

Kris Krishnan

Thank you, Joe. Revenue for the second fiscal quarter of 2009 was $40.1 million, a decrease of $3 million or 6.9% over second fiscal quarter revenue a year ago.

Revenue from Sarian and Spectrum acquired in April and July of 2008 respectively, was 5 million and 1.2 million. Sarian revenue for the second quarter includes $3.3 million from the large deal with Fujitsu as we have discussed in previous calls.

Revenue in EMEA, which is Europe, Middle East, and Africa, was $14.9 million in the second fiscal quarter of 2009, including Sarian brand of products revenue of $5 million compared to $12.8 million in the comparable quarter a year ago, an increase of $2.1 million or 16.8%.

Revenue in Latin America was $700,000 in the second fiscal quarter of 2009, compared to $1.7 million in the comparable quarter last year, a decrease of $1.1 million or 61.8%.

Revenue in North America was $20.7 million in the second fiscal quarter of 2009, including Spectrum revenue of $1.2 million, compared to $24 million in the comparable quarter last year, a decrease of $3.2 million or 13.5%.

Revenue in Asia-Pacific region was $3.8 million in the second fiscal quarter of 2009 compared to $4.6 million in the second fiscal quarter of 2008, a decrease of $800,000 or 18.3%.

Sarian branded revenue of $5 million was sold entirely in the European region. Service revenue from Spectrum of $1.2 million was sold entirely in North America. Revenue from the embedded products in the second fiscal quarter of 2009 was $17.4 million including Spectrum revenue of $1.2 million compared to $21.7 million in the second fiscal quarter of 2008, a decrease of $4.3 million or 20%.

Revenue from non-embedded products was $22.7 million in the second fiscal quarter of 2009 including Sarian brand of product revenue of $5 million compared to $21.4 million in the second fiscal quarter of 2008, an increase of $1.3 million or 6.4%. International revenue was $19.4 million or 48.3% of the total revenue of second quarter of fiscal 2009 compared to $19.1 million or 44.4% of total revenue a year ago.

The strengthening of the U.S. dollar compared to the euro and U.K. pound sterling had an unfavorable impact of revenue of $2.7 million in the second fiscal quarter of 2009 compared to the second fiscal quarter of 2008.

The gross margin was 47.8% in the second fiscal quarter of 2009 compared to 53.8% in the second fiscal quarter of 2008. The gross margin was lower in the second fiscal quarter of 2009 than in the comparable period a year ago due to unfavorable product mix within primarily the non-embedded products including sales of Sarian non-embedded products which provide lower gross profit margins.

Spectrum products also provide lower gross profit margins and contributed to the unfavorable gross margin variance for the prior year comparable quarter. The strengthening of the U.S. dollar compared to the euro and the pound sterling had a unfavorable $1.1 million impact on gross margin in the second fiscal quarter of 2009 compared to the second fiscal quarter of 2008.

Total operating expenses for the second fiscal quarter of 2009 was $18.6 million or 46.3% of revenue compared to $19.5 million or 45.3% of revenue in the second fiscal quarter of 2008. The decrease in operating expense in the second fiscal quarter of 2009 compared to the prior year comparable quarter is primarily due to the reversal of all incentive compensations previously accrued for fiscal 2009.

Since this program was eliminated for the entire fiscal year, offset by ongoing operating expenses for Sarian and Spectrum.

Total other income that decreased by $600,000 in the second fiscal quarter of 2009 compared to the same quarter in the prior year primarily due to lower interest yields on cash equivalents and marketable securities. Reported net income for the second fiscal quarter of 2009 was $700,000 or $0.03 per diluted share compared to a net income of $3.1 million or $0.12 per diluted share in the second fiscal quarter of 2008.

Non-GAAP net income and net income per diluted share for the second fiscal quarter of 2009 was also $700,000 or $0.03, excluding a tax benefit of $44,000 for the reversal of tax reserves due to the resolution of a state tax matter. Please refer to the reconciliation table in the earnings release which reconciled a net income and a net income per diluted share from a GAAP basis to a non-GAAP basis.

Digi's effective tax rate for the second fiscal quarter was 28.1%, including the discrete benefit realized as a result of the reversal of the tax reserve due to the resolution of a state tax matter, compared to an effective tax rate of 33.6% in the second fiscal quarter of 2008.

Digi expects its effective tax rate for the full fiscal year to be approximately 25% to 28%, including the discrete tax benefit for the extension of the R&D credit recorded in the first quarter of fiscal 2009 and the reversal of the tax reserve for the resolution state matters recorded in the second fiscal quarter of 2009. The annualized effective tax rate is expected to be lower than the statutory rate for fiscal 2009 primarily as a result of the aforementioned items.

For the first six months of fiscal 2009, Digi reported revenue of $81.4 million compared to $87.6 million, a decrease of $6.2 million or 7.1%. Revenue from the embedded products in the first six months was $35.4 million, including Spectrum revenue of $2.2 million compared to $42.4 million in the comparable period of 2008, a decrease of $7 million or 16.6%.

Revenue from non-embedded products was $46 million in the first six months of fiscal 2009, including Sarian branded revenue of $8.1 million compared to $45.2 million in the first six months of fiscal 2008, an increase of $800,000 or 1.9%. International revenue was $37.6 million or 46.1% of our total revenue in the first six months of fiscal 2009, compared to $35.6 million or 40.6% on the total revenue in a year ago comparable period.

The strengthening of the U.S. dollar compared to the euro and the U.K. pound sterling had an unfavorable impact of revenue of $4.1 million for the first six months of fiscal 2009 compared to the first six months of fiscal 2008. In the first six months of fiscal 2009, Digi reported net income of $1.7 million or $0.07 per diluted share compared to net income for the first six months of fiscal 2008 of $6.8 million or $0.26 per diluted share.

Net income benefited by $400,000 or $0.02 per diluted share during the first six months of fiscal 2009 as a result of the retroactive benefit of the extension of the R&D credit.

As Joe indicated in his comments, we are working on the strategic business initiatives to move out of our business to become a wireless provider of solutions that include hardware, software services, while also improving continued profitability.

We expect to record a pretax charge of $2 million during the third quarter fiscal quarter of 2009 related to the restructuring. The restructuring charges expected to reduce earnings per diluted share in the third quarter of fiscal 2009 by approximately $0.05, but will provide a foundation for earnings growth as the economy improves. We expect quarterly pretax savings as a result of these initiatives of approximately $700,000 and $1 million in the third and the fourth quarters of fiscal 2009 respectively.

The savings will benefit gross margin by $200,000 and operating expenses by $500,000 in the third quarter of fiscal 2009. The savings will benefit gross margin by $200,000 and operating expense by $800,000 in the fourth quarter of fiscal 2009. We anticipate quarterly pre-tax expense savings of approximately $1.4 million in fiscal year 2010 as a result of these initiatives, of which $500,000 will benefit gross margin and $900,000 will benefit operating expenses.

During the second quarter of fiscal 2009, we continued to repurchase stock on our previously announced stock repurchase program. We have exercised this authorization by repurchasing 834,190 shares for $6.1 million at an average price per share of $7.37 during the second quarter of fiscal 2009.

Total shares repurchased to-date are 1,305,390 shares for $11.3 million at an average price per share of $8.62. Diluted average shares outstanding at the end of the quarter, was 25,195,058 compared to the previous quarter of 25,678,663 shares, a decrease of 483,605 shares.

Turning to the balance sheet and cash flow statement. Our combined cash and cash equivalents and marketable security balance, including long-term securities were $63.6 million as of March 31st, 2009, decreasing by $6.6 million from the end of the prior quarter. Net cash provided by operating activities for the quarter was $1.2 million. We spent $6.1 million on repurchasing our stock in the second fiscal quarter.

Our stockholders' equity decreased by $6.2 million during the second quarter of fiscal 2009, compared to the prior quarter, primarily as a result of repurchasing our stock. Our current ratio is 6.4 to 1 compared to the current ratio of 6.7 to 1 at the end of the prior quarter. Our DSO is at 36 days compared to 39 days in previous quarters.

Now, I would like to provide some guidance for the third fiscal quarter of 2009. Digi projects revenue to be in the range of $42 million to $48 million. The expense-to-revenue ratio is projected to be in the range of 44.9% to 49.3% including the $2 million restructuring charge and anticipated operating expense savings of $500,000. Digi projects GAAP net income per diluted share to be in the range of $0.01 to $0.06. Non-GAAP net income per diluted share excluding the restructuring charge is projected to be in the range of $0.06 to $0.11.

We project our annual revenue in the range of $165 million to $175 million. The expense-to-revenue ratio is projected to be in the range of 45.6% to 47.7%, including the $2 million restructuring charge and anticipated operating expense savings of $1.3 million.

We project GAAP net income per diluted share to be in the range of $0.11 to $0.22. Annual non-GAAP net income per diluted share excluding the impact of restructuring charge and reversal of the tax reserves and other tax benefits is projected to be in the range of $0.16 to $0.26.

Now I would like to open the call to questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of Jeff Evanson with Dougherty & Company.

Jeff Evanson - Dougherty & Company

Joe, I would be curious to hear you talk about your thoughts on market share. If you think you will be a beneficiary from a consolidating market I would assume then at this point you are taking market share. So your thoughts on that, where you thing it's happening? I know your markets are dynamic as you are expanding into new opportunities but your thoughts on that.

Second of all, there has been a lot of talk about an expected March quarter dry down of channel inventories across the economy. I would think that you guys would have suffered from that in first quarter but also then be a beneficiary of it in the June quarter. Maybe the guidance suggests that a little bit. So, I'd like your thoughts on channel inventory, what happened during the quarter and if you think there's some restock opportunity for you in the June quarter? Thanks.

Joe Dunsmore

Thanks, Jeff. From a market share perspective I think probably the best indicator would be to look at Digi revenues versus other players in our space. And we try to keep track of the public players in this space as well as what we hear about what's happening with the private players in the space on a year-over-year sequential basis. Generally what we're seeing with people in our space is that they are experiencing a lot more significant year-over-year sequential revenue declines are what we are seeing.

At 6.9%, we feel like from a general prospective we are out there gaining share versus our M2M competitors that are year-over-year declining, a lot of them in the 20% to 30% range. So, at a high level those are the kinds of things that we're seeing in this economy. In addition to that we are seeing some of the smaller players beginning to run into serious problems. So there is a lot of stress out there and we're seeing some companies go away.

So, that also positively impacts our ability to drive our share position. The other place that we get information, which is a little bit anecdotal in that, it's just a portion of our businesses through the channel and the indicators continue to view that. Depending on the product line, we're either holding or gaining share. So, from a share perspective we feel like we're gaining significant traction.

I mean, if you look at our revenue decline of 6.9% even in general versus the most significant players out there. People like IBM, was down 11% topline, TI was down 36%, Cisco hasn't come out yet, but their guidance is 15% to 20% down. So those are the kinds of numbers that we're seeing out there.

In terms of channel inventory, we maintained very tight control over our channel inventory. So we maintain on hand and on order, very, very tightly between five and seven weeks of supply on hand and on order. So that just does it very much with us. We work very closely with the channel to keep that very tight. So the benefit that we might see, the uptick that we might see this quarter isn't going to come from any channel benefit.

It will come from solid orders out there. We've got a real solid backlog. The backlog is much higher mainly based on one time kind of lumpy demand that we're seeing this quarter over last quarter. So it's mainly that multi demand that's driving what we believe will be an upward trend for this quarter.

Jeff Evanson - Dougherty & Company

Just one quick follow up for you on the market share. Are there any product categories where you don't feel you're taking market share or frankly what is the product category where you're taking the least share?

Joe Dunsmore

Probably the mature products would be the areas where nobody's taking share. Everybody's pretty much just holding their own. I think in the growth product arenas we feel like we're out there doing a pretty good job managing our share position.

Operator

Our next question comes from the line of Jay Meier with Feltl & Company.

Jay Meier - Feltl & Company

Thanks for taking my questions. First of all, you used to give us some color around what you expect your gross margin and operating margins to be. You gave us something that sounds like an operating margin expense-to-revenue estimate, but can you give us some color about where you expect your longer run margins to wind up as you look forward after this restructuring?

Joe Dunsmore

The bill long-term Jay, when the economy comes back and we get back to more normal times and normal GDP growth rates within the U.S. economy and other economies. We would expect our gross margins to improve a bit. One of the reasons we've been hit is not just product mix but, just manufacturing efficiencies when you are dropping from $50 million to $40 million in overhead, et cetera, really drive a lot of pressure on gross margins.

So as we see growth rates improve with the improved economy, I would expect to see the benefit, certainly the benefit of that. We will see the benefit of moving more and more into the kind of full bundled service offering arena. And then we will continue to see probably a negative trend in terms of some of the growth products that would become higher growth when the economy begins to come back. I think we will see a little bit of price pressure there.

So those are competing phenomena on the gross margin line. So the net of that in the short-term I am expecting to see gross margins improving as a result of some of the actions that we are taking. Then over the long-term I am expecting us to be able to fight the battle of higher price pressure on our high volume products and mitigate that and hopefully maintain gross margins in the 50% range is where I would see that.

Then as we see the economy come back, I would expect to see us aggressively drive the expense-to-revenue back down into the ranges where we were before the economy took the hit, where we were down 36%, 37% expense-to-revenue range. I would hope as we see higher growth opportunities in this wireless solutions arena then we would be able to drive that expense-to-revenue] even more aggressively. I mean that's very hard to visualize when you are dealing with the kind of economy that everybody is dealing with right now. That would be the long-term view.

Jay Meier - Feltl & Company

I appreciate that. We've talked a lot about your opportunities in the wireless M2M space and you are obviously reinvigorating your efforts there, increasing your investments as you say and obviously starting to cut bait on some of the older areas. We know that there is a lot of stimulus opportunity out there and smart great capabilities and things like that and I have been under the assumption that you guys could benefit greatly from that. Hence, the iDigi platform. Do you have any visibility on that opportunity? Are you waiting for visibility? When would you anticipate at this point that business to start to flow?

Joe Dunsmore

The iDigi energy solution bundle that we announced really targets that space, that smart energy space, the Smart Grid, the demand response applications. We think we've got a very strong solution set to that space and we've announced relationships already in the space. The opportunity with TXU is public information, the relationship with Comverge, who is a significant player in the demand response space and a significant partner of ours and the Itron relationship is another relationship where they announced the relationship with Digi going after the Smart Grid opportunity.

I think it's safe for you to assume that we are very aggressively pursuing many other strategic partnerships in that space and many through our strategic partnerships with people like Comverge and others, rifle shooting into those significant utility opportunities out there. So that momentum is momentum that was already established in the demand response arena and Smart Grid arena before the Stimulus package was announced.

I think that whole process is still sorting itself out. But the money is likely going to flow into the utilities and then into the major integrators that are going to be providing solutions of which we're going to be part of anyway. So we think we're laying, setting the table, laying the foundation to be able to benefit from that opportunity.

Jay Meier - Feltl & Company

I appreciate that. My question was, do you have any visibility of that Stimulus package money or other investment in those infrastructures and when would you anticipate that business to start to kick in?

Joe Dunsmore

No. we don't have visibility. We don't believe that the utilities have visibility yet at this point. I would expect that it's going to take some time for the Stimulus to filter through to the utilities and through to the systems integrators that are going to be driving the opportunity. How much time that's going to take, I don't think anybody knows at this point.

Jay Meier - Feltl & Company

That's fair. The closing of the R&D facility in Davis, was that affiliated with any particular business line?

Joe Dunsmore

Let me kind of clarify that. Shutting down the manufacturing facilities in Davis, we have got two buildings over there. We are consolidating into one, shutting down manufacturing, consolidating manufacturing back into Minneapolis and maintaining all of the functions in Davis albeit reducing investment across the board there.

So we maintain an R&D group in Davis that are focused on driving the Rabbit product line towards wireless and wireless solutions. So they will be be focused on wireless and overtime focused on making sure that those products roll into the iDigi strategy.

Jay Meier - Feltl & Company

Okay. Can you give us some sense of how Rabbit? I mean is it safe to assume that Rabbit is struggling along with the – you haven't owned it that long, right and how would you were characterize the Rabbit business right now?

Joe Dunsmore

It's in the same position that all of the product lines, non wireless product lines, are in right now. There are suffering along with the economy. We are seeing sequential declines in the 15% to 20% range is which is not, like I say if you look at industry benchmarks it's not any different than looking, see from Cisco or others.

Like I said, we are focusing that product line on – if you look at the development projects that we have in the roadmap, we are focusing that now on wireless. So the expectation is with that focus as we come out of the downturn that we will be able to drive growth from that initiative. Taking this same kind of negative impact that now I would say is the norm in this environment, 15% to 20% year-over-year decline kind of range.

Jay Meier - Feltl & Company

How about some of the other acquisitions that you made? What about MaxStream and not the ones that are still non-organic, the Spectrum and the British one. What about MaxStream, how are you feeling about that these days?

Joe Dunsmore

I still feel real good about MaxStream, that's part of the business that's providing the wireless endpoints in the best networking arena and its part of our broader wireless initiative. We feel real good about this strategy that we have with the MaxStream business going forward.

Jay Meier - Feltl & Company

You are carrying I think its $82 million in goodwill on the balance sheet. You've given any thought about that test given the three major contractions you've experienced in the last year?

Kris Krishnan

Yes, we have to continue to do our test as we're required to and we feel comfortable with the value that is on our balance sheet.

Jay Meier - Feltl & Company

Okay. That test you normally do in the fourth quarter.

Kris Krishnan

We do it every quarter. We do testing and then we do an annual testing in July.

Jay Meier - Feltl & Company

You test goodwill quarterly?

Joe Dunsmore

We have to. We're required to.

Operator

(Operator Instructions). Our next question comes from the line of Greg Weaver with Invicta Capital.

Greg Weaver - Invicta Capital

Thanks for taking my questions. Just a couple of leftovers, in fact most of mine have been answered. On the bonus reversal, how big was that?

Joe Dunsmore

That was about $850,000.

Greg Weaver - Invicta Capital

Okay. Kris, just to be clear then, so on go-forward OpEx in terms of dollars, at least on the June quarter here, you're looking at about $18 million you said?

Kris Krishnan

No. You mean from a savings standpoint?

Greg Weaver - Invicta Capital

No, no, total dollars.

Kris Krishnan

I gave you a range, the range was from an operating expense standpoint, was as a percentage. The expense-to-revenue ratio is 44.9% to 49.3% on the revenue of 42 to 48.

Greg Weaver - Invicta Capital

42 to 48.

Kris Krishnan

Which includes the $2 million restructuring charge, and the anticipated operating expense savings of $500,000.

Greg Weaver - Invicta Capital

The just reported quarter then if we take out the reversal here then the OpEx was like 19.6 or something like that?

Kris Krishnan

Right.

Greg Weaver - Invicta Capital

Okay. The Sarin business, do you put that in the wireless bucket?

Joe Dunsmore

Yes.

Greg Weaver - Invicta Capital

Okay. So if I take that $5 million out from that I think I am doing something wrong, it looks like its pretty much flat, is that correct?

Kris Krishnan

Yes. I don't have those numbers in front of me. I think we took a look at kind of the organic growth within the wireless bucket, looking across all product lines, and it's about 12%.

Greg Weaver - Invicta Capital

Organic growth or across the board?

Kris Krishnan

Across the board organic. Wireless.

Greg Weaver - Invicta Capital

I guess just lastly, you mentioned the backlog was up sequentially. Can you give us a sense of what turns percent is needed to get the mid point of your guidance? I guess how that compares to how it has been usually?

Joe Dunsmore

In order to hit the mid point of the guidance I think we will have the daily bookings would need to be roughly what they were last quarter. So we weren't assuming a major uptick or downtick from where we were last quarter.

Operator

There are no further questions in queue at this time. I would like to turn the call over to Joe Dunsmore for closing remarks.

Joe Dunsmore

Thank you, for listening to the call and while today was a challenging day. We feel like we have made some changes here that are going to place even more focus on the wireless solutions part of the business. We think that that's the appropriate action in this market. We feel just as strongly about the opportunity to drive our position in the market and positioned for when this economy comes back.

So thank you, see you in three months.

Kris Krishnan

Thank you.

Operator

Thank you for participation in today's conference. This concludes the presentation. You may now disconnect and everyone have a great day.

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