Unidentified Participant: Hi, this is [Kron] [ph] on for Mita. So you sort of mentioned inventory being a source of cash next quarter, I guess, just generally, what gives you confidence in that and maybe just how much of a source of cash can it be for next quarter and maybe across the year next year?
Nancy Erba: Yeah, we have been using working capital over the last several quarters through this period of time of the inventory adjustment. We think inventory has peaked in Q3. I will say, though, we’ve been sharing with you that our total commitments, if you look at both the inventory on our books, as well as the commitments to our RCM is actually down Q2 to Q3, and then we expect to reduce inventory and the inventory commitments total, again in Q4. So that cash flow will start in Q4 and flow into Q1. I can’t give you a real magnitude at this point. But more to just say that the trend is now turning in the right direction there.
David Heard: Yeah. So I think in the quarter our inventories were up close to $40 million-ish in Q3, and our overall obligations, purchase obligations plus inventory were down 20. So despite the inventory being up total net liability down 20. And we expect that to peak and then again, given the nice book-to-bill and what our outlook is, for Q4, and projects from backlog for Q1, we expect that to go down.
Unidentified Participant: Okay, got it. That’s helpful. And then just a quick follow-up on the service provider side you mentioned service seeing the continued strength there. I guess just generally, in terms of customer conversations, are you getting any pushback on the pricing front during sort of this pause?
David Heard: We always get pushed back on the pricing front, but our job is to make vertically integrated products that provide price performance, not just by reducing the price tag, but actually the effective dollar per bid and watts per bid. So, and I do want to correct, when I say, service provider strength, do not write that up. There are pockets of strength based on priority is spent. Overall, there is still muted environment of conservatism around CapEx dollars. And I expect that our team is in planning mode and out with our customer base now. And were in the process of locking down our plans for 2024 accordingly.
Unidentified Participant: Perfect. Thank you. Appreciate it.
Operator: The next question is from George Notter with Jefferies. Your line is open.
George Notter: Hi, thanks a lot, guys. I am curious about the mix of ICE-X as a percentage of product sales, and then also the mix of vertically integrated sales as a percentage of product sales. Do you guys have those numbers?
David Heard: We do. ICE-X was just under 30%. The vertical integration was at 57%-ish.
George Notter: Got it, okay. And then as I think about driving those numbers forward, obviously the XTM and GX redesigns are kind of the key elements there. Can you tell me where you guys are on that? I think you said one of those products is going to be available by year end for revenue. Obviously, your customers also have to test those products. How long do you think those testing processes will take? What do you think it looks like in terms of really turning those numbers upward in terms of vertical integration of products?
David Heard: Yeah, the bookings of the GX series are up significantly. And we should probably put that out in our next earnings cycle to show the percentages of that and what’s the embedded base for GX is growing on the top. So we’ll do that, George. But now those products are ready, the software, the OS, everything we’ve done over the last years to make them productive from Metro long haul and aggregation. So that’s great. What we talked about, George was, we were shipping the first one to a customer that not only had the GX, but had the, our own pluggables in them. And so, that will actually go out, that’s going out right now this quarter, and thus will either revenue in this quarter or in Q1. Thus the start of the vertical integration.
So, now all of our GX platforms that are out there, where we might have used our merchant CFP2 or pluggable in it, are able to incorporate our pluggable and we’re going through various stages of integration testing with those clients. Obviously, if we can provide them better price performance, they’re eager to have us implement. So we’ll try to make sure, George going forward in 2024, I think that’s a good metric for us to start looking at.
George Notter: And then integration –
David Heard: Total vertical integration – yeah.
George Notter: Sorry, go ahead.
David Heard: No, go ahead.
George Notter: I was just going to ask that the mix of vertically integrated product, obviously we’re looking for that to step up as the year goes on next year. Like, what do you think is doable in terms of that mixture?
David Heard: Again, I don’t want to get too far ahead of the season into 2024. But I think what we said was that, we thought over 60 and over time that that can approach 70. So.
George Notter: Great. Okay, thank you.
David Heard: Thanks, George.
Operator: The next question is from Christian Schwab with Craig-Hallum Capital. Your line is open.
David Heard: Hi, Christian.
Christian Schwab: Hey. Thanks for taking my questions. Just two quick ones. We don’t want to talk about ‘24. But I missed some of the prepared comments. Did we reiterate our outlook for dollar share earnings in ‘25 and ‘26?
David Heard: Yeah, we did not, but we have not pulled off that. And I think when you see the – I think what we said in our last earnings call, is that, we continue to expand EPS this year in 2023 by 25%. And a big goal of ours next year isn’t just the growth in the top line, but we’re super-focused on growing our bottom line dollars and that EPS percentage. So, that we’re not pulling off that at all.
