Derek Soderberg: Got it. And then Jamie, on the gross margin front, I think they were slightly down year-over-year. Can you just kind of talk about or maybe quantify the puts and takes on what’s having an effect on gross margins? And then if you can, where do you think gross margins will move from here, sort of as we move throughout the year? Thanks.
Jamie Loch: Yes. Thanks Derek. I think there is really a couple of things that drive that. And purchase price variance is one of the biggest impacts that you see. In that constrained environment, you are seeing pricing on certain components going up and above what we have got our standard pricing in that. And our accounting policies have been to take those purchase price variances at the time of purchasing the inventory. So, one of the challenges that we do get is as inventory goes up, we see a little bit more purchase price variance going through the P&L. We are seeing that to some degree on a large scale, kind of the theme is that it’s coming down, you still see pockets of it. And again, it’s kind of back to that timing issue, we are depending on the components that you buy, that depending on the opportunities that how you are deploying the working capital.
That is another part of the equation in terms of where is the pricing on those components, where do we think that pricing is trending. And so that’s probably one of the biggest impacts that we have seen. On the gross margins side, we have talked in the past about our pricing strategies and how in some cases, you are able to get that reflected in price. In other cases, we have made determinations that it’s appropriate for us to make that investment and to the relationship with our customers. I think you have seen us as the supply challenges have really navigated their way through. We are really watching those gross margins at a sequential level. And you are seeing that just a regular, pretty consistent ticking up. And I think you will continue to see that as the supply chain stabilizes, as recurring revenue becomes a greater mix of the total revenue portfolio, which provides strong mix into that.
So, I think you will continue to see that, that gradual improvement making its way through as those two elements, as time allows those to flow through the P&L.
Derek Soderberg: Got it. That’s helpful. Thanks guys.
Jamie Loch: Yes. Thanks.
Operator: Thank you. Our next question or comment is a follow-up from Mr. Tommy Moll from Stephens. Mr. Moll, your line is now open.
Tommy Moll: Just a couple more to wrap this up maybe for the day. Ron, one comment you made in the materials this morning was around, ARR was maybe not as the growth was maybe not what you had hoped for first quarter, but you are still confident in exceeding overall revenue growth for the year. You called out some internal investment in process and systems there. Can you give any more detail around that?
Ron Konezny: Yes. So, what we are spending a lot of time as a team is making sure of that, especially in a business that goes through a channel, Tommy, that when we ship inventory to that channel and it eventually gets to the end user, we get that point of sale data back. And that point of sale data has to contain the serial numbers. So, we create the customer account or if it’s an existing account, those products go into that account, so it’s a seamless zero touch activation for the customer. And the first contact they get is a proactive one for us, making sure the channel partners have the systems, the tools and give us the data on a timely basis is incredibly important. And of course, then we have got to make sure we ingest that data into our ERP, CRM system and into any host systems like the best device management system.
So, that gives you an example of some of the plumbing that we are putting in place to make sure that that customer experience is an outstanding one.
Tommy Moll: That’s helpful. Thanks. Jamie, this will be my last question of the day. And I wanted to ask a follow-up on working capital, which has been discussed a couple times or at least inventory. I hear you loud and clear that making a call on inventory any given quarter is difficult, just because you have got the plan to buy opportunistically as I think I hear you say. But just as a working assumption for working capital comprehensively for the year, are we thinking a source of cash, a use of cash, neutral, or no way to know?
Jamie Loch: Yes. I do think when you look at it over the year, I think Digi has always been a good, strong generator of cash. I think that will continue. I don’t think you will end up in a use of cash position. I do think you may not have cash flow from operations as high as maybe what we have seen in the past. But I definitely €“ right now, I am not projecting that it would flip into a use of cash position as much as just less positive than normal course and speed.
Tommy Moll: That’s great. I appreciate it. I will turn it back.
Jamie Loch: Thanks Tommy.
Operator: Thank you. Our next question or comment is a follow-up from Mr. Harsh Kumar from Piper Sandler. Your line is open, sir.
Harsh Kumar: The follow-up guys, first of all, just a quick comment. I love the format of this call, all the information is in the letter, and then it’s just pretty quick, and we can get to the topics that are on our mind. So, appreciate you following this. And then Ron for the question, you have got a couple of different software, you have got Lighthouse, you have got SmartSense software. The question is really on your journey towards better ARRs or increasing ARRs? Could you maybe help us understand how much of that software can €“ how much of that software has penetrated for example, into your existing hardware? And therefore, as you move towards a greater penetration, what would that impact roughly be on the ARRs?
Ron Konezny: Yes. Thanks for the follow-up Harsh. As probably most people know, our solution segment, it’s 100% attach rate. You cannot do business. You cannot consume your offerings without a subscription that’s part and parcel. Within our products and services businesses, the attach rate, if you will, has been well under 30%. We are moving towards 100% attach rate with both systems processes offerings and as well as increased software content. We announced containers are available now for our cellular gateways. As an example, the OEM business recently announced their connect core cloud and connect core security services, which allow our customers to have more of the solution provided and get them to market more quickly. So, you are seeing very demonstrative efforts on the products side as well.
And with these opportunities, with the exception of embedded, we think we can race towards the 100% attach rate. But we want to be very considerate, very thoughtful into the process of systems, the service and the experience that this bundle that we are offering is going to be comprised of 24/7 support, limited lifetime warranty, and of course all of our device management capabilities and software. So, we think it’s a compelling offering of that the market will see.
Harsh Kumar: So, Ron from the process angle, I suppose when you make a sale now from a product angle, is it mandatory for the customer to get the software with it, or do you really push them, but it’s not mandatory?
