Delaware | 1-34033 | 41-1532464 | ||
(State of Incorporation) | (Commission file number) | (I.R.S. Employer Identification No.) | ||
11001 Bren Road East, Minnetonka, Minnesota | 55343 | |||
(Address of principal executive offices) | (Zip Code) |
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 | Results of Operations and Financial Condition. |
Item 9.01 | Financial Statements and Exhibits. |
99.1 | Press Release dated July 27, 2017, announcing financial results for the third fiscal quarter ended June 30, 2017. |
DIGI INTERNATIONAL INC. | |||
By: | /s/ Michael C. Goergen | ||
Michael C. Goergen | |||
Senior Vice President, Chief Financial Officer and Treasurer |
No. | Exhibit | Manner of Filing | ||
99.1 | Furnished Electronically |
Digi International Reports Third Fiscal Quarter 2017 Results | ||||||
Smart Solutions Highlights Revenue Performance |
GAAP Results from Continuing Operations | ||||||||||||||||
(in thousands, except per share data) | Q3 2017 | Q3 2016 | YTD 2017 | YTD 2016 | ||||||||||||
Total Revenue | $ | 45,739 | $ | 52,130 | $ | 136,529 | $ | 152,551 | ||||||||
Gross Profit | $ | 22,485 | $ | 25,977 | $ | 65,840 | $ | 75,076 | ||||||||
Gross Margin | 49.2 | % | 49.8 | % | 48.2 | % | 49.2 | % | ||||||||
Operating Income | $ | 709 | $ | 5,125 | $ | 4,643 | $ | 12,067 | ||||||||
Operating Income as % of Total Revenue | 1.6 | % | 9.8 | % | 3.4 | % | 7.9 | % | ||||||||
Income from Continuing Operations | $ | 1,335 | $ | 4,277 | $ | 5,023 | $ | 9,634 | ||||||||
Income from Continuing Operations per Diluted Share | $ | 0.05 | $ | 0.16 | $ | 0.19 | $ | 0.37 |
Digi International Reports Third Fiscal Quarter 2017 Results |
Non-GAAP Results from Continuing Operations* | ||||||||||||||||
(in thousands, except per share data) | Q3 2017 | Q3 2016 | YTD 2017 | YTD 2016 | ||||||||||||
Adjusted Income from Continuing Operations | $ | 2,276 | $ | 3,931 | $ | 5,869 | $ | 9,110 | ||||||||
Adjusted Income from Continuing Operations per Diluted Share | $ | 0.08 | $ | 0.15 | $ | 0.22 | $ | 0.35 | ||||||||
EBITDA from Continuing Operations | $ | 2,127 | $ | 5,922 | $ | 8,882 | $ | 15,079 | ||||||||
EBITDA from Continuing Operations as % of Total Revenue | 4.7 | % | 11.4 | % | 6.5 | % | 9.9 | % | ||||||||
* A reconciliation of GAAP to non-GAAP financial measures appears at the end of this release. |
Revenue Detail QTD | |||||||||||||||
(in thousands) | Q3 2017 | Q3 2016 | Change | % Change | |||||||||||
Cellular routers and gateways | $ | 10,768 | $ | 10,756 | $ | 12 | 0.1 | ||||||||
RF | 7,099 | 9,517 | (2,418 | ) | (25.4 | ) | |||||||||
Embedded | 11,799 | 13,774 | (1,975 | ) | (14.3 | ) | |||||||||
Network | 10,994 | 16,500 | (5,506 | ) | (33.4 | ) | |||||||||
Total hardware product revenue | 40,660 | 50,547 | (9,887 | ) | (19.6 | ) | |||||||||
Services and solutions | 5,079 | 1,583 | 3,496 | 220.8 | |||||||||||
Total revenue | $ | 45,739 | $ | 52,130 | $ | (6,391 | ) | (12.3 | ) | ||||||
North America, primarily United States | $ | 30,305 | $ | 34,412 | $ | (4,107 | ) | (11.9 | ) | ||||||
Europe, Middle East and Africa | 9,703 | 11,681 | (1,978 | ) | (16.9 | ) | |||||||||
Asia | 4,508 | 5,013 | (505 | ) | (10.1 | ) | |||||||||
Latin America | 1,223 | 1,024 | 199 | 19.4 | |||||||||||
Total revenue | $ | 45,739 | $ | 52,130 | $ | (6,391 | ) | (12.3 | ) |
• | Hardware product revenue decreased by $9.9 million, or 19.6%, in the third fiscal quarter of 2017 compared to the third fiscal quarter of 2016. All product categories declined, with the exception of cellular routers and gateways revenue, which was consistent with the same quarter a year ago. Our decline in network product revenue was more than anticipated, as there were significant terminal server sales to large customers in the prior fiscal year, partially offset by an increase in USB connected products revenue during the quarter. Embedded and RF product revenue also declined as we had significant sales to large customers in the prior fiscal quarter. Additionally, embedded products declined due to a decrease of sales of Rabbit® embedded modules, which are in the mature portion of their product life cycle. |
• | Services and solutions revenue increased by $3.5 million, or 220.8%, in the third fiscal quarter of 2017 compared to the comparable quarter in fiscal 2016. The increase was driven primarily by the growth of our Digi Smart Solutions business, which includes $2.4 million of incremental revenue from our recent acquisitions. We acquired SMART Temps on January 9, 2017 and FreshTemp on November 1, 2016. |
Digi International Reports Third Fiscal Quarter 2017 Results |
Revenue Detail YTD | |||||||||||||||
(in thousands) | Q3 2017 | Q3 2016 | Change | % Change | |||||||||||
Cellular routers and gateways | $ | 35,972 | $ | 35,826 | $ | 146 | 0.4 | ||||||||
RF | 21,634 | 26,582 | (4,948 | ) | (18.6 | ) | |||||||||
Embedded | 35,352 | 40,697 | (5,345 | ) | (13.1 | ) | |||||||||
Network | 32,641 | 44,421 | (11,780 | ) | (26.5 | ) | |||||||||
Total hardware product revenue | 125,599 | 147,526 | (21,927 | ) | (14.9 | ) | |||||||||
Services and solutions | 10,930 | 5,025 | 5,905 | 117.5 | |||||||||||
Total revenue | $ | 136,529 | $ | 152,551 | $ | (16,022 | ) | (10.5 | ) | ||||||
North America, primarily United States | $ | 89,678 | $ | 98,312 | $ | (8,634 | ) | (8.8 | ) | ||||||
Europe, Middle East and Africa | 29,059 | 33,663 | (4,604 | ) | (13.7 | ) | |||||||||
Asia | 14,446 | 15,162 | (716 | ) | (4.7 | ) | |||||||||
Latin America | 3,346 | 5,414 | (2,068 | ) | (38.2 | ) | |||||||||
Total revenue | $ | 136,529 | $ | 152,551 | $ | (16,022 | ) | (10.5 | ) |
• | Hardware product revenue decreased by $21.9 million, or 14.9%, in the first nine months of fiscal 2017 compared to the first nine months of fiscal 2016. This decrease occurred in all product categories, other than cellular routers and gateways, which was consistent with the first nine months of the prior fiscal year. Our decline in network product revenue was more than anticipated as there were significant terminal server sales to large customers in the prior fiscal year, partially offset by an increase in USB connected products revenue. Embedded and RF product revenue also declined as we had significant sales to large customers in the prior fiscal year. Additionally, embedded products declined due to a decrease of sales of Rabbit® embedded modules, which are in the mature portion of their product life cycle. |
• | Services and solutions revenue increased by $5.9 million, or 117.5%, in the first nine months of fiscal 2017 compared to the first nine months of fiscal 2016. This was driven primarily by the growth of our Digi Smart Solutions business. Services and solutions revenue includes $3.9 million of incremental revenue from the |
Digi International Reports Third Fiscal Quarter 2017 Results |
• | Included in revenue performance for the year was a foreign currency translation decrease of $0.6 million when compared to the same period in the prior fiscal year, primarily caused by the weakening of the British Pound and Euro against the U.S. dollar. |
• | Cash and cash equivalents and marketable securities balance, including long-term marketable securities, of $111.3 million, a decrease of $26.4 million from the end of fiscal 2016. Digi completed two acquisitions in the first nine months of fiscal 2017, for a total cash expenditure of $30.1 million (net of cash acquired of $0.5 million). Please refer to the Condensed Consolidated Statements of Cash Flows for more information. |
• | Current and long-term contingent liabilities of $9.4 million. |
• | No debt. |
Digi International Reports Third Fiscal Quarter 2017 Results |
• | Rite Aid Corporation added 3,150 SMART Guards with glycol probes to their front-of-store food service operations. This initial push equipped more than 600 stores with equipment needed to monitor perishable items, including Reach-In and Open Air Linear Cases. |
• | Minnesota Children’s Hospital deployed 625 SMART Guards to their two hospitals and off-site physician group. SMART Temps is monitoring lab samples, pharmacy medications and vaccinations, cryogenics and environmental humidity and temperature readings. |
• | A pharmacy management services provider installed over 300 SMART Guards at over 90 pharmacy sites to monitor their medication and vaccination storage. |
• | In May, SMART Temps was selected as the preferred vendor for one of the top purchasing groups for hospitals across the country. This agreement makes the SMART Temps a preferred solution for over 3,750 hospitals and 130,000 healthcare providers. |
• | UCLA selected SMART Temps to monitor one of the country’s most prestigious college and university food service programs that serves over one million meals per year. |
• | Digi International was awarded a SMART Temps contract with the Dallas Independent School District, one of the largest school districts in the country. |
• | A grocery retailer awarded SafeTemps with a contract for 26 of its grocery market locations, which will include over 3,000 sensors and gateways managing food safety. |
• | VersaCold, one of Canada’s largest supply chain companies, selected SafeTemps to monitor approximately 200 trucks and 20 warehouses. |
• | The new Digi TransPort® LR54 router was selected for upgrading telecommunications infrastructure in at least 122 weather forecast offices used to disseminate weather content to over 1,000 very high frequency (VHF) transmitter sites - including the equipment monitoring and control systems at the VHF sites. Digi TransPort LR54 routers incorporate a FIPS 140-2 cryptographic module with key cybersecurity and LTE Advanced (CAT 6) cellular features, along with support for multiple wireless standards, carriers and channels. |
• | A major southwestern U.S. city has initiated deployment of the Digi TransPort WR44R for a new traffic control communications network that will connect traffic equipment to a central system so that signals can be operated in real-time. This will reduce congestion and delays by transmitting live intersection video to help detect unusual traffic situations. |
• | Grupo Dragón, one of the largest electric renewable energy generators in Mexico, has chosen Digi TransPort routers to manage telemetry data for their load management system. Grupo Dragón selected us because of the security, reliability and dedicated support of our products. |
• | A South African customer is ramping up production of its BIMS (Biometric Identity Management System) for a voter verification project. The customer remarked that they could not have achieved their technology objectives without Digi ConnectCore® 6UL and the support of the Digi Technical Team. |
• | A major system integrator in Shanghai selected Digi Transport WR21 extended-temperature 4G routers for traffic flow monitoring and signal control in an eastern Chinese city with total demand of over 500 routers. |
• | A state health authority in Australia has selected and deployed more than 400 Connect ES 8 and more than 500 Digi Remote Manager® licenses to manage ICU equipment. |
Digi International Reports Third Fiscal Quarter 2017 Results |
Digi International Reports Third Fiscal Quarter 2017 Results |
Mike Goergen | ||
Senior Vice President, Chief Financial Officer and Treasurer | ||
Digi International | ||
952-912-3737 | ||
Email: mike.goergen@digi.com | ||
Digi International Reports Third Fiscal Quarter 2017 Results |
Three months ended June 30, | Nine months ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenue: | |||||||||||||||
Hardware product | $ | 40,660 | $ | 50,547 | $ | 125,599 | $ | 147,526 | |||||||
Services and solutions | 5,079 | 1,583 | 10,930 | 5,025 | |||||||||||
Total revenue | 45,739 | 52,130 | 136,529 | 152,551 | |||||||||||
Cost of sales: | |||||||||||||||
Cost of hardware product | 20,286 | 24,988 | 64,213 | 73,981 | |||||||||||
Cost of services and solutions | 2,968 | 1,165 | 6,476 | 3,494 | |||||||||||
Total cost of sales | 23,254 | 26,153 | 70,689 | 77,475 | |||||||||||
Gross profit | 22,485 | 25,977 | 65,840 | 75,076 | |||||||||||
Operating expenses: | |||||||||||||||
Sales and marketing | 8,504 | 8,627 | 25,557 | 25,310 | |||||||||||
Research and development | 7,420 | 7,948 | 21,304 | 23,543 | |||||||||||
General and administrative | 3,337 | 4,283 | 11,821 | 13,409 | |||||||||||
Restructuring charges (reversals), net | 2,515 | (6 | ) | 2,515 | 747 | ||||||||||
Total operating expenses | 21,776 | 20,852 | 61,197 | 63,009 | |||||||||||
Operating income | 709 | 5,125 | 4,643 | 12,067 | |||||||||||
Other (expense) income, net: | |||||||||||||||
Interest income, net | 153 | 43 | 389 | 155 | |||||||||||
Other (expense) income, net | (221 | ) | (359 | ) | 210 | (520 | ) | ||||||||
Total other (expense) income, net | (68 | ) | (316 | ) | 599 | (365 | ) | ||||||||
Income from continuing operations, before income taxes | 641 | 4,809 | 5,242 | 11,702 | |||||||||||
Income tax (benefit) provision | (694 | ) | 532 | 219 | 2,068 | ||||||||||
Income from continuing operations | 1,335 | 4,277 | 5,023 | 9,634 | |||||||||||
Income from discontinued operations, after income taxes | — | — | — | 3,230 | |||||||||||
Net income | $ | 1,335 | $ | 4,277 | $ | 5,023 | $ | 12,864 | |||||||
Basic net income per common share: | |||||||||||||||
Continuing operations | $ | 0.05 | $ | 0.17 | $ | 0.19 | $ | 0.38 | |||||||
Discontinued operations | $ | — | $ | — | $ | — | $ | 0.13 | |||||||
Net income (1) | $ | 0.05 | $ | 0.17 | $ | 0.19 | $ | 0.50 | |||||||
Diluted net income per common share: | |||||||||||||||
Continuing operations | $ | 0.05 | $ | 0.16 | $ | 0.19 | $ | 0.37 | |||||||
Discontinued operations | $ | — | $ | — | $ | — | $ | 0.12 | |||||||
Net income | $ | 0.05 | $ | 0.16 | $ | 0.19 | $ | 0.49 | |||||||
Weighted average common shares: | |||||||||||||||
Basic | 26,522 | 25,904 | 26,390 | 25,684 | |||||||||||
Diluted | 26,956 | 26,300 | 27,110 | 26,156 |
Digi International Reports Third Fiscal Quarter 2017 Results |
Three months ended June 30, | Nine months ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income | $ | 1,335 | $ | 4,277 | $ | 5,023 | $ | 12,864 | |||||||
Other comprehensive income (loss), net of tax: | |||||||||||||||
Foreign currency translation adjustment | 2,535 | (1,272 | ) | 57 | (1,718 | ) | |||||||||
Change in net unrealized gain (loss) on investments | 8 | 6 | (2 | ) | 49 | ||||||||||
Less income tax (expense) benefit | (3 | ) | (2 | ) | 1 | (18 | ) | ||||||||
Reclassification of realized gain on investments included in net income (1) | — | — | — | (7 | ) | ||||||||||
Less income tax provision (2) | — | — | — | 3 | |||||||||||
Other comprehensive income (loss), net of tax | 2,540 | (1,268 | ) | 56 | (1,691 | ) | |||||||||
Comprehensive income | $ | 3,875 | $ | 3,009 | $ | 5,079 | $ | 11,173 |
Digi International Reports Third Fiscal Quarter 2017 Results |
June 30, 2017 | September 30, 2016 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 92,052 | $ | 75,727 | |||
Marketable securities | 17,230 | 58,382 | |||||
Accounts receivable, net | 28,561 | 28,685 | |||||
Inventories | 33,008 | 26,276 | |||||
Receivable from sale of business | 1,988 | 2,997 | |||||
Other | 3,651 | 3,578 | |||||
Total current assets | 176,490 | 195,645 | |||||
Marketable securities, long-term | 2,011 | 3,541 | |||||
Property, equipment and improvements, net | 13,288 | 14,041 | |||||
Identifiable intangible assets, net | 12,529 | 4,041 | |||||
Goodwill | 131,069 | 109,448 | |||||
Deferred tax assets | 8,047 | 7,295 | |||||
Non-current receivable from sale of business | — | 1,959 | |||||
Other | 268 | 196 | |||||
Total assets | $ | 343,702 | $ | 336,166 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 9,829 | $ | 8,569 | |||
Income taxes payable | 84 | 167 | |||||
Accrued compensation | 3,339 | 10,787 | |||||
Unearned revenue | 1,709 | 361 | |||||
Contingent consideration on acquired businesses | 1,147 | 513 | |||||
Accrued restructuring | 2,302 | — | |||||
Other | 3,400 | 3,411 | |||||
Total current liabilities | 21,810 | 23,808 | |||||
Income taxes payable | 810 | 1,490 | |||||
Deferred tax liabilities | 504 | 616 | |||||
Contingent consideration on acquired businesses | 8,275 | 9,447 | |||||
Other non-current liabilities | 717 | 776 | |||||
Total liabilities | 32,116 | 36,137 | |||||
Total stockholders’ equity | 311,586 | 300,029 | |||||
Total liabilities and stockholders’ equity | $ | 343,702 | $ | 336,166 |
Digi International Reports Third Fiscal Quarter 2017 Results |
Nine months ended June 30, | |||||||
2017 | 2016 | ||||||
Operating activities: | |||||||
Net income | $ | 5,023 | $ | 12,864 | |||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |||||||
Depreciation of property, equipment and improvements | 2,187 | 2,088 | |||||
Amortization of identifiable intangible assets | 1,842 | 1,474 | |||||
Stock-based compensation | 3,502 | 2,663 | |||||
Excess tax benefits from stock-based compensation | (326 | ) | (202 | ) | |||
Deferred income tax provision | (648 | ) | 748 | ||||
Gain on sale of business | — | (2,870 | ) | ||||
Change in fair value of contingent consideration | (1,330 | ) | 187 | ||||
Bad debt/product return provision | 338 | 116 | |||||
Inventory obsolescence | 1,030 | 1,284 | |||||
Restructuring charges | 2,515 | 747 | |||||
Other | 138 | 89 | |||||
Changes in operating assets and liabilities (net of acquisitions) | (14,729 | ) | 1,395 | ||||
Net cash (used in) provided by operating activities | (458 | ) | 20,583 | ||||
Investing activities: | |||||||
Purchase of marketable securities | (33,469 | ) | (56,256 | ) | |||
Proceeds from maturities and sales of marketable securities | 76,149 | 46,664 | |||||
Proceeds from sale of investment | — | 13 | |||||
Proceeds from sale of Etherios | 3,000 | 2,849 | |||||
Acquisition of businesses, net of cash acquired | (30,111 | ) | (2,860 | ) | |||
Purchase of property, equipment, improvements and certain other identifiable intangible assets | (1,577 | ) | (1,584 | ) | |||
Net cash provided by (used in) investing activities | 13,992 | (11,174 | ) | ||||
Financing activities: | |||||||
Acquisition earn-out payments | (518 | ) | — | ||||
Excess tax benefits from stock-based compensation | 326 | 202 | |||||
Proceeds from stock option plan transactions | 3,264 | 6,732 | |||||
Proceeds from employee stock purchase plan transactions | 686 | 688 | |||||
Purchases of common stock | (922 | ) | (546 | ) | |||
Net cash provided by financing activities | 2,836 | 7,076 | |||||
Effect of exchange rate changes on cash and cash equivalents | (45 | ) | (431 | ) | |||
Net increase in cash and cash equivalents | 16,325 | 16,054 | |||||
Cash and cash equivalents, beginning of period | 75,727 | 45,018 | |||||
Cash and cash equivalents, end of period | $ | 92,052 | $ | 61,072 | |||
Supplemental schedule of non-cash investing and financing activities: | |||||||
Receivable related to sale of Etherios | $ | — | $ | 4,931 | |||
Liability related to acquisition of businesses | $ | (1,310 | ) | $ | (10,550 | ) | |
Accrual for purchase of property, equipment, improvements and certain other identifiable intangible assets | $ | — | $ | (38 | ) |
Digi International Reports Third Fiscal Quarter 2017 Results |
Three months ended June 30, | Nine months ended June 30, | ||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||||||
Income and income per diluted share from continuing operations | $ | 1,335 | $ | 0.05 | $ | 4,277 | $ | 0.16 | $ | 5,023 | $ | 0.19 | $ | 9,634 | $ | 0.37 | |||||||||||||||
Restructuring reserve | 2,515 | 0.09 | (6 | ) | NM | 2,515 | 0.09 | 747 | 0.03 | ||||||||||||||||||||||
Tax effect from restructuring reserve | (880 | ) | (0.03 | ) | 2 | NM | (880 | ) | (0.03 | ) | (262 | ) | (0.01 | ) | |||||||||||||||||
Discrete tax benefits (1) | (694 | ) | (0.03 | ) | (342 | ) | (0.01 | ) | (789 | ) | (0.03 | ) | (1,009 | ) | (0.04 | ) | |||||||||||||||
Adjusted income and adjusted income per diluted share from continuing operations (2) | $ | 2,276 | $ | 0.08 | $ | 3,931 | $ | 0.15 | $ | 5,869 | $ | 0.22 | $ | 9,110 | $ | 0.35 | |||||||||||||||
Diluted weighted average common shares | 26,956 | 26,300 | 27,110 | 26,156 |
(1) | Discrete tax benefits include reversals of tax reserves due to the expiration of statutes of limitation, and extended research and development tax credits. |
(2) | Adjusted income per diluted share may not add due to the use of rounded numbers. |
Three months ended June 30, | Nine months ended June 30, | ||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||
% of total revenue | % of total revenue | % of total revenue | % of total revenue | ||||||||||||||||||||||||
Total revenue | $ | 45,739 | 100.0 | % | $ | 52,130 | 100.0 | % | $ | 136,529 | 100.0 | % | $ | 152,551 | 100.0 | % | |||||||||||
Income from continuing operations (1) | $ | 1,335 | $ | 4,277 | $ | 5,023 | $ | 9,634 | |||||||||||||||||||
Interest income, net | (153 | ) | (43 | ) | (389 | ) | (155 | ) | |||||||||||||||||||
Income tax provision | (694 | ) | 532 | 219 | 2,068 | ||||||||||||||||||||||
Depreciation and amortization | 1,639 | 1,156 | 4,029 | 3,532 | |||||||||||||||||||||||
EBITDA from continuing operations | $ | 2,127 | 4.7 | % | $ | 5,922 | 11.4 | % | $ | 8,882 | 6.5 | % | $ | 15,079 | 9.9 | % |
(1) | Stock-based compensation of $1.2 million and $0.9 million for the three months ended June 30, 2017 and 2016, respectively, and stock-based compensation of $3.5 million and $2.7 million for the nine months ended June 30, 2017 and 2016, respectively, is included in EBITDA from continuing operations. |
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