Adam Thalhimer: Congrats on the Q1 beat. First question on cancellations. You said that they’ve been low to date. I guess I just wanted to gauge your level of concern that that could get worse.
Neil Dougherty: Yes. We’ve had no increase in our cancellation rate. So we continue to believe the quality of our backlog is very high.
Adam Thalhimer: And then I guess I’m just curious, how does this downturn and what you’re seeing so far compare to prior downturns? Because amazingly, you guys have been public almost 10 years, but we haven’t had a prolonged recession during that period.
Satish Dhanasekaran: Yes. I think I’ll take this. Satish here. Every recession, the environment is different. And I would say that after having a couple of very strong growth years, some normalization was inevitable. And what we’re seeing is pull back from some of the customers in response to some of the inventory excesses in specific markets. But I go back to our portfolio position is the strongest it’s ever been because of our emphasis on solutions. Our business model today is much stronger because we have — over 33% of our business is software and services, which gives us additional resilience. And we have a strong operating model at the Company that allows us to tide over some perturbations in the marketplace. And we also enter the year with a strong backlog position as well.
So from those perspectives, it’s different. I also think if you look at the gross margin at the Company level, we continue to stay strong at 65%. And I think with the operational model in place, we remain confident about our ability to demonstrate that resilience.
Operator: Our next question is from Rob Mason with Baird.
Rob Mason: Satish, frankly, I’ll follow up your comment with a question just around the software orders in the quarter. I kind of inferred that they remain resilient. But as you think about where you’ve seen some challenges in Commercial Communications, to the extent that there’s a slowdown in renewals, or is that something that hits your radar screen as you see some of the headcount reductions take place in the tech sector? Just how you defend against that?
Satish Dhanasekaran: Yes. I think we have an incredibly sticky business with our customers, and we’re not seeing them pull back on renewals. Obviously, new purchases are taking longer, as Mark alluded to earlier. But I think even in the Commercial Communications sector, we have two businesses, right, wireless and wireline. We’re seeing stronger pullback from customers in the wireless side of the equation. The wireline customers continue to innovate. You see some of the trends in data center and cloud that are playing out. Need for faster data rates is important. Also in lieu of all of the activity that’s going on around AI, there’s a greater need to optimize the workflows of our customers. So, that part of the opportunity continues to remain stronger on a relative basis. I’ll just have Mark make any comment on…
Mark Wallace: Yes. Rob, just to answer — yes, that was — Satish did a great job. And I’ll just let you know we didn’t see the pullback in software like we did in other parts of the business. As a matter of fact, our renewals were up and our growth from subscriptions and enterprise agreements remained steady, which is what you would expect from a sticky business, something that has kind of a continuous flow of value in a subscription model. So that really worked for us this quarter.
Rob Mason: Sure. Sure. Is that — maybe just as a follow-on question, is that the influence that — there seems to certainly be maybe a trend with — two quarters, two years make a trend, where the first quarter gross margin is a good bit stronger in the Commercial Communications segment and then maybe steps down, moderates in the second quarter. Is that still the expectation or the dynamic at play there?
Neil Dougherty: Could you repeat that? I’m sorry.
Rob Mason: Yes. Just essentially, your communications — CSG group gross margins tends to have a much stronger first quarter gross margin, at least going by the last couple of years, than it does the remainder of the year. Is that — would that be the expectation this year as well?
Neil Dougherty: Yes. I mean I don’t think you can draw any conclusions looking at historical sequential gross margin data as to what to expect. At least as I would think about it, any perturbations that may have appeared to have repeated have to be more coincidental than systematic.
Operator: And our final question is from David Ridley-Lane with Bank of America.
David Ridley-Lane: The typical seasonality is for a nice sequential uptick in EISG in the second quarter. Lot of the commentary on the call has been that ESG remains pretty strong. I mean, within your second quarter guidance, should we expect kind of that historical sequential pattern in EISG?
Neil Dougherty: Yes. I mean all I would say is our sequential guide right now takes a look at our large backlog, looks at the schedule of shipments, looks at the incoming funnel. And obviously, we’re going to rely on a portion of incoming orders to turn into revenue within the quarter. And so. we have a high degree of confidence in our ability to deliver to the number that we’ve put out.
David Ridley-Lane: Got it. And then also IE — on EISG, excuse me. The trend in gross margin has been a little bit softer over the last couple of quarters. Is there — that being said, margin expansion — operating margin expansion has continued to be quite good. But I’m just wondering, is there something in the mix or other dynamics that you could call out to sort of explain that gross margin trend there?
