Sierra Wireless Q3 2021 Earnings Call Transcript

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Provided by Quartr
November 8, 2021

There are 10 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to Sierra Wireless Third Quarter Earnings Call and Q and A. At this time, all participants are in listen only mode. After the speakers' presentation, there will be a question and answer session. As a reminder, this conference call is being recorded.

Operator

I would now like to turn the call over to Mr. David Climie, Vice President, Investor Relations. Please go ahead.

Speaker 1

Thanks and good afternoon everybody. Thank you for joining today's conference call and webcast. On the call today are Phil Brace, President and CEO and Sam Cochran, our CFO. As a reminder, today's call is being webcast and will be available on our website following the call. Today's call contains certain statements and information that are not based on historical facts and constitute forward looking statements within the meaning of securities laws.

Speaker 1

These statements include strategies, goals, objectives, expectations and commentary regarding the outlook for our business. Our forward looking statements are based on a number of material assumptions, which could prove to be significantly incorrect. Additionally, forward looking statements are based on management's current expectations and we caution investors that forward looking statements, particularly those that relate to longer periods of time are Subject to substantial known and unknown material risks and uncertainties that could cause actual events or results to differ significantly from those expressed or implied by our forward looking statements. I draw your attention to a longer discussion of our risk factors in our annual information form and management's discussion and analysis, which can be found on SEDAR and EDGAR as well as other regulatory filings and our quarterly earnings release. With that, I will now turn the call over to Phil for his quarterly update.

Speaker 2

Thanks, David, and thank you everyone for joining us on the call today. Total revenue in the Q3 was $82,500,000 and GAAP gross margin was 29.3%. As we discussed during our Q2 earnings call, Q3 was negatively impacted by manufacturing capacity constraints due to the COVID-nineteen pandemic in Vietnam as well as some well publicized supply chain issues such as shipping and customs and continued tightness in the availability of components. Before I turn the call over to Sam for more details on the Q3 financials, I would like to talk about our current demand environment, How we're doing on the 5 point operating plan that I outlined on last quarter's earnings call and the recent changes I've made to our executive team, which we announced publicly yesterday. Regarding the current environment, we are continuing to experience very strong customer demand for our devices and services.

Speaker 2

We are seeing more customers in industrial, enterprise and infrastructure markets wanting to deploy IoT solutions. And at the end of Q3, we had record backlog for our devices based on orders from existing and new customers. We strongly believe the macro trends for LPWA, 5 gs and private networks are positive and we expect these technologies to ramp in 20222023. We also continue to see supply constraints, particularly in semiconductors, and we expect those constraints to continue throughout 2022. Regarding the 5 point plan I laid out in early August, let me provide you with a short update on each item.

Speaker 2

The first action item was to work very closely with our contract manufacturing partner in Vietnam with the goal of resuming full production as soon as possible. Over the last 3 months, we have made steady progress in restoring manufacturing capacity at the Ho Chi Minh City facility. It was at its lowest level in July and has gradually improved since then. This improvement has continued into the Q4 and we are now running at full capacity. Our partner has done an excellent job managing the COVID-nineteen protocols, and I very much want to thank all the employees in that location for their diligent work through a difficult situation.

Speaker 2

The second action item was to have 2 additional manufacturing sites up and running as quickly as possible to diversify our geographic production and increase our manufacturing resiliency. I'm glad to say that we have now reestablished capacity at a facility in China And are ramping new production lines at a facility in Mexico. With this North American facility, we can ship to our enterprise router customers in the U. S. Much faster while reducing some of the global complexity associated with overseas manufacturing.

Speaker 2

The 3rd action item was to use our balance sheet to play offense Invest in parts that will enable us to fulfill our customers' orders as soon as possible. These investments were made in Q3 and inventory levels increased, as you can see on the balance sheet. Now that we have ramped back up our manufacturing capacity, we have been converting our raw material component inventory into finished goods. The 4th item was to undertake strategic price increases to offset some of the additional costs and investments we are making, balanced with the need to remain competitive in the market. Our approach is to be strategic on pricing, not opportunistic, As we need to be able to meet our customers' IoT requirements over the long term, while allowing us to earn proper return on investment and recoup the increases in costs that we are experiencing.

Speaker 2

We expect the impact of these pricing changes to occur gradually over time, starting in the Q4. And the 5th and final item was to control the company's OpEx. Our OpEx has declined sequentially Sam has been doing a great job with his team ensuring that we are only spending in areas where we absolutely have to. Moving on to the executive management changes that we announced yesterday. I'm very pleased to say that Praveen Dasal has joined us as Senior Vice President of Engineering.

Speaker 2

Praveen and I have worked together at multiple companies, including Veritas, Seagate and LSI. So we know each other well and he has consistently delivered high quality hardware and software Solutions. So we're glad to have him on board and he'll be ramping up quickly here in the Q4. In an effort to streamline the organization And also provide better focus for each of the teams, I have made the following key changes. Roy McClain is reporting to me as Senior Vice President of Operations, overseeing manufacturing, procurement and quality.

Speaker 2

Joining Roy's team will be a new Vice President of Supply Chain, who To take on the role of Senior Vice President, Product, Partnerships and Marketing, the product management team at Sierra will now be consolidated under his leadership. Steve Harmon is moving to a new role as Senior Vice President of Global Sales. Steve will be adding the European and Asian regions together with his America sales team So that will streamline and improve our go to market efforts worldwide. As a result of these changes, the new leadership at Sierra is smaller, more efficient And with clear roles and responsibilities. I would like to take the opportunity to thank those leaving the company for their contributions and service.

Speaker 2

In conclusion, our demand remains very strong across our product lines and we expect again to be supply constrained in 2022. We have made significant progress getting the manufacturing lines back up and running with increased geographic diversity, including a new facility in North America. We have a new leaner management structure with clearly defined roles and responsibilities that enables a clear focus on profitable growth in 2022. I would once again like to thank our employees, our customers, our suppliers as we collectively work through the challenges of the COVID-nineteen pandemic and the tight global supply chain. Together, we will thrive.

Speaker 2

With that, I will turn the call over to Sam for his review of the 3rd quarter results.

Speaker 3

Thank you, Phil. Good afternoon, everyone. Note that we report our financial results in U. S. Dollars and on a U.

Speaker 3

S. GAAP basis. We also present non GAAP results to provide a better understanding of our operating performance. A full reconciliation between our GAAP and non GAAP results is available on our website. Total revenue in the 3rd quarter was $82,500,000 compared to $113,400,000 in the same period last year.

Speaker 3

Connectivity, Software and services revenue was $35,200,000 in Q3, up $5,400,000 or 18.2 percent year over year. Gross profit in the 3rd quarter was $24,100,000 or 29.3 percent, lower sequentially by approximately 5.5 percentage points. Our performance in the 3rd quarter was Primarily impacted by our manufacturing capacity being significantly reduced in Q3 due to the COVID-nineteen related production interruptions in Vietnam. And this significantly impacted our revenue and gross profit in the quarter. Gross profit margin was lower Due to the absorption of fixed costs spread across lower production volumes due to the production interruption and Higher component costs as a result of continuing supply chain constraints.

Speaker 3

Our non GAAP operating expenses in the 3rd quarter were $44,700,000 down $6,200,000 or negative 12.2 percent year over year. This reflects our cost efficiency initiatives that we've been undertaking. Sequentially, OpEx decreased 1,600,000 Or negative 3.5 percent as we've been tightly managing expenses in several areas this past quarter. Also note our GAAP OpEx in Q3 Reflects an $11,500,000 impairment charge related to the intangible assets of Maingate that was acquired in 2015 in Sweden. In the Q3, our adjusted EBITDA was negative $15,000,000 compared to an adjusted EBITDA of Negative $7,100,000 a year ago.

Speaker 3

Moving to the balance sheet. We ended the 3rd quarter with $75,500,000 Including $9,900,000 in attractive long term debt that we obtained during the quarter. Cash flow from operations was negative $48,400,000 and capital spending was $4,300,000 which was expected in Q3. During the quarter, we continued our strategy of investing in inventory to secure the supply of components. So you can see that inventory increased to $71,200,000 from $46,900,000 at the end of Q2 this year.

Speaker 3

Over the next two quarters, we expect working capital to normalize as we experience improved production in Q4 And we'll be shipping more products to our customers. Regarding guidance for the 4th quarter, The impact of the COVID-nineteen pandemic and on our global business continues to remain uncertain. While we continue to experience and evaluate the effects on our business, The overall severity and duration of adverse impacts related to COVID-nineteen on our business, financial condition, Cash flows and operating results for the remainder of 2021 beyond cannot be reasonably estimated at this time. As Phil mentioned, global demand for our products remains very strong. Given this landscape, we are providing revenue guidance for Q4 of $120,000,000 To $135,000,000 with a midpoint of $127,500,000 We are Experiencing very strong customer demand and orders for our products and solutions, and we believe the macro trends of IoT, Private Networks and 5 gs are accelerating.

Speaker 3

With that, I will now turn the call over to questions. Operator, please open the lines.

Operator

Your first question comes from the line of Josh on Nichols with B. Riley Securities. Please go ahead.

Speaker 4

Hey, guys. This is actually Aman jumping Thank you for Josh, but congratulations on a better than expected quarter here. My first question is, what type of ramping Demand for high margin 5 gs products is the company experiencing. And when do you think will that When will that have a favorable impact on gross margin?

Speaker 2

Hi, there. This is Phil. We're actually seeing very strong demand for our 5 gs products. I think what we've said historically is we expect to see that really ramp and have an impact Probably towards the second half of twenty twenty two into 2023, I mean, we're ramping very strong, but in terms of percentage of our overall volume, it's still not a big enough But suffice to say, they're ramping and we're getting very good traction on our customers.

Speaker 4

That's helpful. And then with the strong end market demand, do you anticipate backlog growth with that potentially flushing out in 2022 As production improves?

Speaker 2

Yes. I mean, right now, I mean, our backlog, frankly, is as strong as we've ever seen it From that side, and I think we can going to continue to work it. As I mentioned, we expect to continue to be have more demand than we can fulfill Certainly well into 2022, if not all of 2022. And that's a function of our strong demand, but also a function of our supply chain constraints

Speaker 4

Got it. Last question from me. So I know you've been ramping up your production facility in So can you talk about how that's progressing and where you are to getting that close to max capacity?

Speaker 2

Yes. We've actually started ramping up production for enterprise products. Some of the first products came off the line earlier this month, So into the Q4. And I think that we're continuing to ramp that. So I think we've been pleased with that ramp up.

Speaker 2

And at this point now, we are in fact shipping production level units of various sorts out of 3 different facilities around the globe. Thank you. I'll pass it on.

Speaker 5

Thank you.

Operator

Thank you. Your next question comes from the line of Thanos Moschopoulos with BMO Capital Markets. Please go ahead.

Speaker 6

Hi, good afternoon. How should we think about gross margins? So for example, if Q4 revenue were to kind of rebound to Q2 levels, which I guess would be at the upper end. Would the gross margin profile look similar or Are there some dynamic associated with the supply constraints that would lead to a different gross margin profile even if the revenue recovers?

Speaker 2

Yes. Thanos, this is Phil. Look, I think that our we do expect gross margin to recover some into the 4th quarter. Really 2 factors. 1, we expect the volume to increase and second is we'll start to see some of the effect Price increases we made, so we do expect to see some of that.

Speaker 2

Offsetting that will be a little bit of mix related issues because where we're farthest Behind is on the module side, so you might expect us to try and recover from the module backlog and then also additional continued cost increases. So I would expect the gross margins to improve into the 4th quarter. We're not guiding that, but we've got some headwinds and tailwinds that are kind of offsetting a little bit there. But net, we should See some improvement into the Q4.

Speaker 6

Okay. And maybe a bit early to ask this, but just as far as seasonality, normally you have a seasonal I think Q1, but just given the dynamic year of supply constraints in the backlog, may it be different this time around or would be your thoughts on that?

Speaker 2

Yes, that's a good question. I mean, historically, we do see some seasonality into Q1 from Q4. I mean, obviously, we're not guiding Q1 at this point. So it's a little bit premature, but I will say, I mean, I think we expect to be component constrained again I hear fairly soon before long. So I think that I think Q4 here is probably going to be a bit of a bounce back quarter, just now spreading through some of the component Inventory that we had on the balance sheet and we're going to likely be supply constrained again here in the Q1.

Speaker 6

Okay. And then finally, as far as OpEx, I mean given some of the Cost actions, would it be fair to think of OpEx being down a little bit sequentially in Q4 versus Q3? Or how do we think about that?

Speaker 2

Yes, I think it may be slightly up. I mean, we're doing everything we can to control it. I mean, I think in the Q3 timeframe, we really worked Hard to make sure that, obviously that was pretty challenging situation. We delayed some stuff, that we actually need to get done from Certification perspective, I'm not expecting a lot of movement, but it may be up a little bit, but we're not really guiding that. It's kind of in and around there.

Speaker 3

Okay.

Speaker 6

All right.

Speaker 3

Thanks a lot, boy.

Operator

Thank you. Your next Question comes from the line of Todd Coupland with CIBC. Please go ahead.

Speaker 7

Yes, good evening, everyone. I was curious on what is the expected cash burn in the 4th quarter? And if you're going to unwind the inventory, Will you not have to make further inventory investments as you go into 2022, so the burn rate picks up again? So Some color on that would be helpful. Thanks a lot.

Speaker 2

Yes, thanks. This is Phil. Sam, I'll try a little bit and then maybe you dig in with the details. I mean, I do expect our inventory to go down in the 4th quarter as we continue to burn kind of make our finished excuse me, our Component inventory and the finished goods. Cash on the balance sheet, it really depends on a number of other factors in terms of Working capital and timing of APAR and a bunch of things like that.

Speaker 2

And we expect the working capital as a result of that to normalize over the last Next couple of quarters, but we do expect inventory to go down here in the 4th quarter. And Sam, do you want to make any additional color on that?

Speaker 3

Yes, sure. If you look at the revenue guidance we provided, it's kind of going to be flattish cash from operations. So then you have really Working capital, should improve a little bit offset by some restructuring costs. You saw the announcement of management changes Yesterday, also offset by a little bit of CapEx. So I think cash will be flattish It's a plus or minus $5,000,000 would be a good range.

Speaker 7

Okay. But then If you burn the components and you're supply constrained in 2022, do you have to start to dip back in And drive inventory up throughout 2022, how should we think about that? Thanks a lot.

Speaker 3

Well, Todd, I mean, we're at an elevated level right now with the Factory being interrupted with what was happening in Vietnam, which we previously disclosed. So I think we've seen a high in our inventory levels given our relative That being said, obviously, we will continue to invest into the supply constraints throughout 2022. I just don't think you'll see it quite at these levels because we'll be turning it quicker Our factory is on. So that investment will continue and overall we'll have to make those investments in working capital. But I see this Closer to the ceiling on the inventory side.

Speaker 7

Great. Appreciate it. Thanks a lot.

Operator

Thank you. Your next question comes from the line of Anthony Stoss with Craig Hallum. Please go ahead.

Speaker 8

Hey guys, Staphyl and Sam. Couple of questions here. So, Phil, I understand the component charges, but from a production standpoint, if you've got 2 additional facilities coming online in the December quarter, are you capable in You want from a production basis to handle kind of the influx of orders? I know you probably won't with component in terms of production. And then secondly, So you were brought in to really make some pretty significant operational changes and I know you got hit right out of the gate with COVID issues in Vietnam.

Speaker 8

With the new management team, can you now hit the ground running and start to focus on those operational issues and maybe Give us a sense of what OpEx might look like, say, a year from now.

Speaker 2

Yes. Hi, Tony. Thanks. I mean, well, just a couple of quick comments on that. In terms of the manufacturing Output and things like that.

Speaker 2

One of the things to keep in mind, we've what we've tried to do with our manufacturing is actually increase resiliency, because We knew we are going to be relatively component constrained. We didn't want to bring on enough capacity and have it stranded. So what we've been doing is actually moving text fixtures, Moving component supply, doing things like that. So while we may end up with some a little bit extra capacity in general, what we've been trying to do is just increase Our ability to manufacture at different sites and give us some more resiliency. So it's not like I've got triple the capacity online.

Speaker 2

So that's one thing to keep in mind. In terms of some of the operational changes, I think you've seen I've taken a pretty Big change in terms of clarifying the staff, in terms of the organization, the roles and responsibilities. You see us kind of turning around and getting the manufacturing You're going to start to see recovery in gross margins. And where it goes into 2022, I would We're not guiding that at this point, but I certainly think the backlog and the business conditions continue to be strong and you should Expect to see significantly improved financial results from this company in 2022.

Speaker 8

Okay. And then if I could just ask one more. And I think you commented about this in the last quarterly conference call, just increasing visibility from your customers. Everybody wants to get ahead of continuing component shortages. Are you into kind of 2023 with your customers and you have a good sense of what they're willing to pay and what your ASPs might look like and hopefully gross margins improving?

Speaker 2

Yes. We are not into 2023 yet. I would say we're probably out into Q3 3 of 2022. And I think The gross margin question is obviously we're going to try and do what we can to improve that across the board. There's going to be multiple factors that drive that right mix, component Price increases, all the rest of it.

Speaker 2

So I think that, what I would say is rest assured that myself and my management team Are keenly focused on improving all elements of the P and L.

Speaker 8

Okay. Best of luck, guys. Thank you.

Speaker 2

Thank you.

Operator

Thank you. Your next question comes from the line of Derek Foderbergh with Collier Securities. Please go ahead.

Speaker 6

Hey, guys. Thanks for taking my questions. I want to start with monthly recurring revenue, Sort of flat again quarter over quarter. I understand you guys have some month to month fluctuations. I was hoping if you can sort of explain that a bit more why that's the case.

Speaker 6

And maybe explain it as it relates to attach rates of connectivity and software on your devices, how that's trending, that'd be great.

Speaker 2

Yes, that's a good question. Thanks. This is Phil. I mean, I do think that we kind of guided that to be relatively Flattish, I guess, and you kind of came in there. I think the delay in production of both modules and routers, has caused a bit of delay in terms of deployment, which in turn has affected that growth.

Speaker 2

It has grown nicely year over year, and I would expect That to grow into 2022 from that side. So I think that's where we're looking at that point. I think your question on attach rate is in I'm not prepared to frankly answer that today because I think there's a lot of moving parts in and out of that. And we've been just frankly Trying to figure out how to make sure we get the manufacturing up and running. But I think what you should walk away with is that the key part of the business, we do expect it to grow into 2022.

Speaker 2

And I'm focused on growing the entire company as well.

Speaker 6

Got it. And then You guys have been sort of going to the gray market for components. You're still in a component constrained environment broadly, but has your ability to sort of use the gray Market for additional components. Has that changed at all? You sort of navigated the supply constraints pretty well throughout COVID.

Speaker 6

Has that market deteriorated or can the gray market sort of serve as a decent level of support on

Speaker 2

the component side in 2022? As you might imagine, the gray market spot market Changes daily. And so in some cases, the price premiums that we see out there for certain constrained components are frankly way out of reach. And we have not been able to get all of our components satisfied on the gray market. So I don't expect that to To be the case in 2022.

Speaker 2

So what we try and do is work as best we can with our partners. We are trying to build all the various different kits that we can. And when it comes down And if we can get enough at a reasonable enough price, then depending on the situations, we'll do it. And depending on the situation, So I would say it's a case by case basis that we manage daily and we'll likely be in that situation through 2022.

Speaker 6

Got it. Very helpful. Thanks guys.

Operator

Thank you. Your next question comes from the line of Paul Treiber with RBC Capital Markets. Please go ahead.

Speaker 5

Thanks very much and good afternoon. Just following up on the supply Chain constraints that you're seeing, what's your like with the changes in your manufacturing footprint, Is there an opportunity or what timeframe do you see as an opportunity to make changes to try to mitigate some of the supply constraints In terms of reengineering your products, over what timeframe do you think that's possible?

Speaker 2

Most of 2021, a lot of 2021 from an engineering capacity perspective has been actually spent Doing redesign of components, and we are actually continuing to do that on that front. What's interesting there is, I mean, we've really taken approach to try and increase the diversity of components that we use versus what has Historically been engineering dogma to try and use the same components and increase reuse. We're actually going out and trying to Yes, multiple different products to make sure we've got diversity in place. So we're continuing to do that. I expect that certain percentage of the engineering capacity we have will be Focused on doing that kind of development, certainly through the first half of twenty twenty two.

Speaker 3

And I mean, if you

Speaker 5

can throw over some rough numbers, it would be helpful, but like the environment is likely to be challenging. To what extent, like from a proportion point, I don't know 50% or whatnot. Do you think you can mitigate those challenges through improved engineering of products, just diversifying component

Speaker 2

live. Yes, I mean, we definitely are trying that. In some cases, right, obviously, it's easier for example, Again, it's easier to swap out memories or it's easier to swap out passive components and do some other things. When you've got some more complicated logic that requires software and firmware changes, we want to be really careful Because it involves a recall of some of our network operators, right, which is obviously a painful situation. It's hard to give a blanket answer to that.

Speaker 2

Obviously, we try and minimize the amount of downstream impact that we can. Oftentimes, these replacements are not PIN for PIN compatible, and so it takes a little more work to do so.

Speaker 5

And then just one last one for me. Just in terms of the cash and the cash flow,

Speaker 3

on the balance sheet, you have

Speaker 5

a reasonable amount of cash. I mean, how much of that is Either stranded in certain geographies or some sort of restrictions on it or you need it for the operations of the business?

Speaker 2

Sam, I'll let you answer that in terms of location of cash.

Speaker 3

Yes, Sam here. Yes, we don't have a ton of restricted cash. But obviously as a global company, we do operate in Asia Pacific, EMEA and North America. So a certain amount of cash is needed to operate in those regions, but there's no restricted cash or any cash stuck In an area, like for instance, when we had automotive, we had cash in China, which is very difficult to move and get out, right? But we're no longer in any of those jurisdictions.

Speaker 3

So our cash can move relatively freely.

Speaker 5

Okay. Thank you. I'll pass the line.

Operator

Thank you. Your next question comes from the line of Scott Searle with Roth Capital. Please go ahead.

Speaker 9

Hey, good afternoon. Thanks for taking my questions. Nice job out of the gate and the Look into the Q4. Hey, maybe just to quickly dig in on that front, Phil, the guidance of $120,000,000 to $135,000,000 it doesn't sound like demand and backlog are the problem. I'm wondering if you could address what you've got covered from a component supply availability standpoint at the current time into that 4th quarter outlook?

Speaker 9

And also where at what revenue level do the real supply constraints start to kick in? And then I've got a couple

Speaker 2

of follow ups. Yes, Scott, thanks. Look, I think you might imagine that last Quarter, we didn't guide, right, given the uncertainty for all that. And I think it's reasonable to assume that The guidance range that we have, I have certain degree of confidence, a high degree of confidence that I have the supply To build the range, the products in the range we talk about. Okay.

Speaker 2

Maybe Sorry, you had a second question going forward.

Speaker 9

Well, just in terms of where those supply constraints really start to kick in. I mean, you've talked about this Fixing Vietnam, you quickly moved from being production constrained to being supply constrained. And I'm wondering if you could just kind of help Help us understand at what revenue level and I know it's going to vary depending on the mix between modules and gateways, etcetera, but kind of roughly where we are today and where you think we are as we kind of move into the first half of this year for next year.

Speaker 2

Yes, that's kind of a tricky one to answer. I guess what I'd say So the way you want to think about it is, I mean, we've kind of ramped up to nominally full production at At this point in the quarter, in early November, we did. And probably by the end of Q4, we will Back be back in a supply component constrained environment. So it's kind of a situation where we need 20 parts to build something, we get 19 and we miss one of them, then you still can't build. So it's difficult to answer that question.

Speaker 2

But I would say lead times in semiconductors are not Decreasing, in fact, they're increasing. And I think our procurement team is doing as good a job as possible managing all these situations. And I would expect us to be again component supply constrained or say, demand far exceeds our supply even into Q1.

Speaker 9

Okay. That's helpful. And maybe if I could, I know the revenue categories have shifted around a little bit, but looking at connectivity software and services, Traditionally, the tide of gross margins in the mid to low 40s. Relative to, I guess, the rest of the It's a low gross margin figure. There's a lot of data traffic I think that goes through that.

Speaker 9

And it's also been an unprofitable business. I know it's early, but I wonder if you could give us kind of your thoughts on that front in terms of what that business should look like as we start to look out to the second half of next year.

Speaker 2

Well, I think the I think it's fair to assume that we can do better. I think there are multiple comparisons So on multiple different of our businesses where I'm not satisfied with the results and I'd expect us to do better, not just on the gross margin side, but on the overall profitability of That business and other businesses. So I don't want to get into Specific things here, but you might imagine that I'm not leaving any stone unturned in that area.

Speaker 9

Okay. Fair enough. And one last one, if I could, kind of falls into the category of probably prematurely unfair. But On the enterprise business, it's been a nice business for you guys. It's been a good business from a gross margin profitability standpoint.

Speaker 9

There have been some Moves within the industry, whether it's Ericsson and Cradlepoint or more recently with Digi and Ventus, I'm wondering if you're seeing a push from your customer base To more of a recurring revenue model there and what's your early thoughts are on that front? Thanks.

Speaker 2

Yes. I mean, look, I think the enterprise business is a very strong part of the portfolio. We've got a very good presence in first responders, public safety, industrial, oil and gas, Infrastructure markets, a very strong feedback on our product line. And yes, I think we are looking at different ways that we can Attach connectivity business to that, including some things like managed connectivity services and the like. So I would that would be an area that we are definitely Focused on growing.

Speaker 9

Great. Thanks so much.

Speaker 6

Thank you.

Operator

Thank you. And we have no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

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