George Notter: Hey, guys. Thanks very much. I guess I was curious about the gross margin structure of the business. I think I heard you say 42% of the target for the year. But if you just sort of step back and think about where the gross margins would naturally land, obviously, in Q1, you had some E&O expense, you mentioned that, obviously, you’re going to have some more scale relative to the run rates right now as the inventory comes off, the business rebounds. Like what do you think a good sort of run rate gross margin would be as the business normalizes?
Jacob Sayer: Probably, George, in around the 40% range for the business. Obviously, there’s a range of gross margins by product family with defense being at the higher end of those. But yeah, 40% overall is probably a good modelling rate.
George Notter: Got it…
Morgan Kurk: So, you referring to — for this year, are you referring to long term?
George Notter: Long term.
Morgan Kurk: Okay. So I think we have historically sort of modeled in kind of 50% was our target, and we were hitting a few points below that. I think we’re going to — it’s going to be a bit before that occurs with the excess inventory in channel, the enterprise margins are suppressed as everybody is competing to get inventory out of channel. And that probably won’t recover tremendously until Wi-Fi 7 becomes the dominant term. And so, the long-term margins, we should be able to move back up as we get scale. But as Jacob said, for this year, that’s what we’re looking at.
George Notter: Got it. So do you think that’s what a 45% gross margin of 43% or 47%, like any kind of thought on what that might look like after…
Morgan Kurk: Yes, I think it’s — I think that the long term, it’s certainly my goal is to have a north of 45%. And I think with our government business, which is higher than normal and with our focus on enterprise, which is higher than average, I believe those are two.
George Notter: Got it. Okay. And then I think you mentioned a bad debt expense going through G&A. Was that in the pro forma financials or excluded? I guess I’m trying to figure out how big that is and if it’s in the numbers I’m looking at.
Jacob Sayer: It’s about $600,000, and it’s in the non-GAAP numbers. We haven’t excluded it.
George Notter: Okay. All right. Thank you very much.
Operator: Thank you very much. [Operator Instructions] I’m showing no further questions at this time. So, I will turn the call back over to Peter Schuman, Vice President, Investor, Industry Analyst and Public Relations for the closing statement.
Peter Schuman: Thank you, Therese. During Q2 ’24, Cambium Networks will be presenting and meeting with investors virtually on Thursday, May 16, 2024, at the Needham Technology, Media & Consumer Conference, and on Tuesday, June 25 at the Northland Growth Conference. In the meantime, you’re always welcome to contact our Investor Relations department at 847-264-2188 with any questions that arise. Thank you for joining us, and this concludes today’s call.
Operator: Thank you, everyone. You may now disconnect from the phone call.
