Operator: One moment for our next question. And our next question comes from Harsh Kumar with Piper Sandler.
Harsh Kumar: Yes. Hey, guys. Just a couple of quick questions. So Ron, I wanted to circle up on your comments about second half pickup in console service. We’re seeing tremendous activity in the semiconductor side with compute, particularly in data centers and the stack of kind of not just large but mega data centers building. So I was curious, a, you’re saying that you’re starting to see some opening up of wallets in the console service side. But as you talk to the customers, particularly on the data center side, I guess I’d be curious to hear what their outlook is or what they say or what they think they’re going to be spending on things like console servers as you look out? And then also, I’d love to get a quick update on console servers that retail environment places like Home Depot and bank branches and things like that, where there’s a pretty good application for those as well.
Ron Konezny : Hey, good morning, harsh. Good question. When we started working with Open-gear and they became a part of the Digi team back in 2019, data center was actually over 50% of their revenue and edge was under that. And that is now the — actually the leading application with data centers go be very small, but not the majority of our overtaken sales was back then. And there’s a lot of energy around no pun intended around AI data center build-out. And one of the biggest constraints is access power, in particular, affordable power. And this current generation of AI chips, it does require quite a bit of energy. People I know are working on improving that situation. But as they expand into new locations, access to affordable power is one of the biggest constraints.
And so there’s great excitement. I think that our ability to — as we get into the physical world, building these things out is more pace. Now you can have an existing data center which has traditional compute and add AI capabilities to that that you’ve got space there, but building out new data centers is hitting some robots.
Harsh Kumar: Okay. Okay. Got it. And then as you look at your business, Ron, maybe give us an idea of what segments or sub-segments you are most excited about, not just the rest of the year but maybe next year or two years out, just kind of a little bit longer-term oriented picture.
Ron Konezny : Yes. Harsh, if you recall, we have a very diverse set of customers and we service a number of different verticals. And so we enjoy that diversification, and I think that shows in some of the strength of our performance over time. So some verticals that are doing well right now that we anticipate continuing to do well is more of a utility grade, solar for example, which is doing well or residential solar is not as robust as it was. EV charging remains very strong. We’ve always been strong in medical device. You mentioned data center, retail, point-of-sale type applications. So we’ve got a number of applications that we feel pretty good about with one of the others that’s been a traditional strength of ours that obviously got really wallets during COVID is the mass transit and smart city segment and we’re seeing that come back which is nice.
And those applications now are considering moving from 4G to 5G. So we’ve got some nice existing customers that we are going to help them transition and adds new opportunity to come up.
Harsh Kumar: Got it. And then the last one. I wanted to get back to your comment in the press release and then earlier about wireless scanner getting a little tight in the IT spend. So the question really is are they taking longer to close or are they kind of not wanting to initiate new projects. And then when they look, let’s just say past election maybe towards the end of the year, what kind of outlook are your customers providing when you talk to them?
Ron Konezny: Yes. When we look at the data, the opportunity set is as robust as it’s ever been. So the demand is there. The conversion time line is taking longer. So it’s taking longer for customers make decisions. And if you look at our average order size that’s actually down by about 5% as well. So you’ve got customers that are being more cautious, issuing smaller POs. And you’ve seen this with a number of public companies, profitability and cost cutting right now is very trendy, right? Obviously, it starts with the huge companies but how many companies are you seeing nowadays, where revenue may not be exactly where they want but you’re seeing profitability really strong. And that’s I think some of that exposure that I’m talking to which is customers being very cautious. They know they need the stuff. They are being more exacting on what they’re looking for and the terms of that arrangement, which is elongating sales cycles.
Harsh Kumar: Very well, Ron. Thank you so much, again.
Operator: [Operator Instructions] Our next question comes from Mike Walkley with Canaccord Genuity.
Mike Walkley: Thanks. Just a quick follow-up question for Jamie. If you take kind of the midpoints of your full year guidance in Q3, it kind of speaks to flattish Q4 but an uptick in adjusted EBITDA. Is that just better mix of console server so more of a gross margin uptick? Or is there something else like increased cost controls expected in the September quarter?
Jamie Loch: I think the biggest driver that we see that’s ticking that up is that continued mix of ARR. As we project ARR to continue to hold, I think we continue to see that up. There aren’t cost controls that we’re looking at that we – some we put into place, some we get put into play in the quarter and then you’ll get a full quarter effect of that in Q4 versus a partial in Q3. So it’s a little bit of a combination but I would say the biggest driver is going to end up being more positive mix and the impact on gross margin largely led by ARR continuing to grow.
