Harsh Kumar: I think the Street’s coming around to appreciating your software business and the profitability that it generates, Ron. But if I could ask you to maybe clarify or give us some color on the profitability of your software business at a gross margin or op margin level, versus your hardware business? And what it can do as you get — start getting penetration higher in your hardware base? Like what can the business hope to see down the line midterm, long term? Any color would be appreciated.
Ron Konezny: Harsh, thanks for the question. We’ve been really focused on the solution mindset. We’re bringing more of the value proposition of our customers. So our customers can then focus on the data that’s brought to their doorstep and really add much more value in the insight of how their remote assets are performing and making sure they have the highest uptime as well as then feeding those lines into their engineering cycles. And we think that message is really resonating. And that’s being shown in really ARR, which is arguably the most important measure that we’re focused on here at Digi to value how much progress we’re making. And ARR comes at a higher margin than our company’s overall gross margin. So as ARR grows, you see that really start to contribute to the gross margin line.
And you can see that in our sequential performance, our ARR has lifted that gross margin up, and we’re obviously almost 57% and want to see that continue to improve. And then it’s up to us as good operators to make sure that we’ve got the OpEx profile that allows that profitability to flow down the adjusted EBITDA line, and you’re seeing that progress as well. And certainly, we think it’s going to progress over time as ARR continues to build. And then if we can jump start that at some point with acquisitions, we’re going to look at that as well. But I think it’s really important that we continue this progress on ARR and see it impact gross margin and adjusted EBITDA margin as well.
Harsh Kumar: Ron, if I can push you on that last sentence that you used. Is it fair to assume that any software you look at will be — I’m sorry, any acquisition you look at would be now in the software side as opposed to hardware side? Or would you look at maybe some complete solutions as well?
Ron Konezny: Yes. I think we’re probably most squarely focused on hardware-enabled recurring. It’s an area we think we have expertise. We think it’s consistent with what we’re doing and performing so we can add value. And quite frankly, it’s got a different set of growth profiles of mechanics than, say, a pure software business that can have extreme polarization in valuations. A lot of software businesses, especially when they’re smaller, are investing pretty heavily to fund their growth. And so the profitability of the software companies may not be at the profile that would be helpful for Digi. But that hardware-enabled recurring, we think is our sweet spot. It’s often times, as you can see from some of our performance, it can be harder sometimes to close those deals.
But then once you get them, you perform, it could be very a long-lasting relationship because it’s just quite an effort to deploy in some cases, hundreds or thousands of remote connectivity assets and keep it up and running. So if there’s any takeaways, we’re hardware-enabled recurring, which is a little bit different than to pure software.
Harsh Kumar: Absolutely. If I can ask one more, Ron, I think you’ve got some presence in Europe, and you’ve got some tremendous opportunity with your solutions business and also Ventus in Europe. Could you highlight for us or could you chalk out for us where you stand and maybe what that opportunity could be for you down the line?
