Q4 2020 Identiv Inc Earnings Call

Good afternoon, and welcome to identity presentation of its fourth quarter and fiscal year 2020 earnings call. My name is Catherine and I will be your operator this afternoon.

Joining us for today's presentation on the company's CEO, Jeff Humphreys and CFO Sandra Wallach following management's remarks, we will open the call for questions.

Before we begin please note during this call management may be making references to non-GAAP measures or projections, including adjusted EBITDA and free cash flow and addition, during this call management will be making forward looking statements and statements that refer to expectations projections or other characteristics of the future events, including financial projections or future market conditions.

And the forward looking statement.

The results may differ materially from those expressed on this and these forward looking statements for more information. Please refer to the risk factors discussed in documents filed from time to time with the SEC.

Including the company's latest annual report on form 10-K, Identive assumes no obligation to update these forward looking statements, which speak as of today I will now turn the call over to your CEO Steven Humphreys for his comments Sir. Please go ahead.

Thanks, operator, and thank you all for joining us today.

And our preliminary results, we said we expected to exceed the aggressive growth projections, we set in November did.

Today, we confirmed we beat those expectations for the fourth quarter, we grew over 30% year over year, our RFID revenue grew more than 100% year over year for the second consecutive quarter and we finished the year with backlog for the first quarter of 2021 that was more than double the same period last year.

Now the market force behind this growth is the the RFID market has taken off.

Huge leaps and chip capabilities of extremely low cost combined with the full embrace of NFC by Apple and its iPhone 12, and I was 14 opened the floodgates of product engineers integrating RFID into their products to create totally new and more engaging customer experiences project reliability and performance as.

And as the market hit this pivot point, we expanded both our capacity and technical leadership.

And we drove growth and RFID and of with our new product launches and expanded customer base, we positioned to grow even faster in 2020 one and.

The momentum we generated in the second half of the year, which grew 30% over the first half showed the 2020 was an inflection point for our business. So.

So let me share some growth metrics that are carrying of so strongly into 2020 one.

And our RFID business, we shipped more than 130 million units in 'twenty, and 'twenty and doubled our RFID volumes and the second half of the year over the second half of 2019.

We also increased our average unit prices by 20% showing the strongest growth is and more sophisticated products and that's also where we're the strongest with over 150 active RFID customers. We're engaged with some of the most advanced early adopters and in 2020, we cemented our reputation as the go to partner for advanced RFID device.

Liz.

Now there are three growth indicators to track and RFID customer launches and design wins and technology launches.

So here are few of each from 2020.

Now, we're usually not allowed to use customer names, but we can talk about the product categories, where we had customer lunches and one that launched and we think we'll scale. The high volumes is and the pharmacy area prescription pill bottles. The can speak the contents for the visually impaired and we think this will expand to all prescriptions and.

And other customer launch was and accessories for mobile devices with the power of mobile phones, having accessories that are just dumb objects is a missed opportunity.

When your phone case wallet glucose monitors and other accessories can talk directly to your phone they become part of the mobile platform.

RFID is the way to do that unless you on a bunch of wires going through your phone to your accessories.

So again, a very interesting category, we designed and launched products for that we think will drive major volumes going forward.

The third customer launches and medical consumables, where it's critical that apart leg of disposal breathing tube is the authentic part to go with the particular manufacturers meant of later.

We supported of customer launch detract, the authenticity and usage of breathing tubes for ventilators and ramped fast to support near term demand.

The mass markets beyond ventilators and of course every medical device consumable should be RFID enabled to make sure of the rate part is used with the right machine and to make sure. It's used only as it's supposed to be and then replaced with the genuine parts and other massive and recurring market with the key customer launch in 2020.

The other several more but these are some good examples.

Turning now to design wins in 2020. These are designs that we're working on but haven't scaled up yet.

And so personal transportation companies think bikes scooters and E bikes, all got very engaged and RFID and both Europe and the Americas.

Our patented tag on metal RFID tags for authenticity tracking and customer engagement are obvious uses we're also working on tag on metal designs detract higher pressure. So you can just tap your phone to the wheel and get pressure instead of awkwardly jamming of pressure gauge on the tube stem.

Another design win was for rapid blood analyzing systems. This application goes on to consumable cartridges and both calibrates the testing system and confirms the authenticity and contents for the blood test assay again.

Again designs of complete and we expect to ramp in 2020 one.

Still another category of design wins is with existing customers corridor of strategy is continuously improving designs to leverage new chip features and price performance from companies like NXP Impinge T I and others.

With one of our major customers, we shipped three different designs and 2020, but also developed three new designs and at least two of these will be scaling up and going to market in 2020 one.

As we ramp these customers aggressively and the second half of 2020, we made investments and technologies to drive new processes World class quality and automation.

These investments did impact margins, but they've strengthened our competitive position. So despite doubling volumes, we delivered two aggressive schedules with quality and yield levels that exceeded our customers' targets and give us competitive advantages. We can now apply to all of our customers and prospects as the result.

We expect the margin compression to be temporary and to contribute to faster growth because of the competitive advantages we built as a result.

Now our ability to get ever more design wins depends on our best in class engineering and production, but upstream of that is built on new technologies, we're constantly incorporating and designing of new capabilities for our customers in 2020, we developed a record range of new technologies and chips were bringing to our customers.

The key technology relaunch was passive temperature sensors and patches. This lets you track the temperature of people or things about having a big battery attached great technology with tons of use cases.

Now one of the most interesting I think we launched capacitive sensors integrated into our RFID devices.

The census fluid, Phil even through glass or other materials. So you can track medicine, and fills and syringes serum bottles and anything else.

And now more on the applications later, but great technology with lots of use cases.

We also launched designs with integrated strain gauges to track the bending and strain of objects, whether they're made of metal plastic group and concrete.

Now another area, you'll see having an impact is our multi frequency devices and if C and high frequency are great, but the read ranges are usually a few centimeters.

I'll drive frequency has range, but the readers are expensive and day rates are low in.

In 2020, we developed and launched combination RFID devices integrating both U H F and H F and a single device.

Now there are others, and especially devices incorporated incorporating new chips from NXP impinge S T as well as specialty chipmakers like assign yeah micro and others.

So behind the numbers as you can tell we made a lot of business building progress and RFID, and 2020 across customer launches and design wins and technology developments.

So and the other parts of our business. We also built business strength behind the financial results.

In 2020 of the federal government remains of strong growth driver.

Our federal sales grew 30% year over year, driven by our technology strength and by work from home and work mobile demand.

We had key deployments and the department of energy Treasury, NIST F B I and I R. S offices nationwide VA hospitals, multiple secret service facilities Air force bases worldwide and lots of others.

Now our third strategic focus is on recurring revenues and customer retention.

In 2020, we launched subscription services for our entire physical security product line velocity Cirrus freedom cloud both of which are our access control is the service offerings. Three Bureau of Prime video surveillance of the service and mobile as I D. Our mobile identities of the service.

Customers, who adopted our service platforms and the fourth quarter included these West Bank Myeloma Medical center, and a cost of apartments and others.

So in 2020, our growth financial showed our strength, but just as important we got a wide range of customer and design wins and technology launches supporting a strong 2020, one and beyond the.

The areas of RFID leadership and growth the federal market and recurring revenues and customer retention remain our focus.

But before going into our expectations for this year I will turn the call over to Sandra to hit the highlights for the fourth quarter and fiscal year, 2020 Sandra.

Thanks, and as Steve mentioned, our financial results reflect our business strength.

Exiting 2020 and have us on track for double digit growth in 2020, one and beyond. These results are all in range of the preliminary results announced every night with revenue non-GAAP adjusted EBITDA and GAAP cash flow from operations at the high end of the ranges and GAAP net loss within the 0.1 million of the range.

Got it.

We closed out the fourth quarter of 'twenty, and 'twenty with $24 8 million and revenue up 31% compared with the fourth quarter of 2019 and flat with the third quarter of 2020, which reflects the strength versus our normal seasonality exiting 2020.

Our full year, 2020 revenue of $86 9 million well within the original guidance issued in January of 2020 before COVID-19 altered the world economies exceptional growth and RFID more than offset temporary revenue declines and premises as compared to our original pre COVID-19 guidance.

For the fourth quarter of 'twenty, and 'twenty, our GAAP and non-GAAP adjusted gross profit margins were 35, and 36%, respectively compared to 40, and 42% and the fourth quarter of 2019.

For the full year, 2020, our GAAP and non-GAAP adjusted gross profit margins were 39, and 40%, respectively compared to 44 and 45% in 2019.

Gross profit margin changes resulted primarily from investments and technology and manufacturing processes and system to meet the short and long term growth profiles of our customers and also by the mix of products SD.

As Steve has previously said, we expect margins to revert to historical levels, specifically, we ramped high growth RFID customers and the second half of 2020, and we made investments and technology to drive new processes, more automation and even higher manufacturing speeds consistent with our already industry leading quality.

And performance. These investments have already contributed and will continue to contribute to growth and the current year and years ahead because of the competitive advantages created as a result.

Our non-GAAP adjusted EBITDA margin was 6% and the fourth quarter and 5% in the full year 2020.

Our Q4 net loss was 1 million or a loss of <unk> <unk> per share compared with the loss of $2 1 million or a loss of 12 cents per share in.

In Q4 of 2019 are.

Our full year GAAP net loss was $6 2 million or a loss of 34 cents per share compared with the loss of 13 cents per share in 2019 or a loss of 2.2 million.

And our cash flow from operations was positive $3 6 million, even after our investment of the airplane 6 million and capital expenditures non-GAAP free cash flow was $2 9 million positive and the fourth quarter alone.

Because of our operating leverage on the expense line and because we managed working capital prudently, we achieved our commitment to shareholders to deliver a positive non-GAAP free cash flows exiting Q4, 2020.

We have provided in the appendix today of full reconciliation of GAAP to non-GAAP information, which is also included in our earnings release.

Our next slide further analyze these trends by segment beginning with premises the segment accounted for $9 million or 36% of our total revenue in Q4, representing an increase of 5% from Q4 2019.

This reflects the recovery of the segment delivered exiting 2020, leading the way against the backdrop of total year results for 2020, our premises segment generated 39% of our full year revenue of $34 2 million a decrease of 19% from 2019.

The quarterly and annual changes in revenue from the premises segment were due to fluctuations and sales of various product lines as customers adapted to the pandemic and other macro factors.

GAAP margins for premises and the fourth quarter were 56% compared to 52% in Q4 2019 for the full year of premises GAAP margins were 55% compared to 53% in 2019.

Turning to the identity segment revenue from our identity products totaled $15 8 million or 64% of our total revenue in Q4, 2020, a 53% increase from Q4 2019.

Our identity segment generated 61% of our full year, 2020 revenue of $52 7 million and increase of 25% from 2019.

Identity revenues and both the full year and the fourth quarter were primarily driven by higher sales of RFID transponder products as well as higher sales of smart card readers.

Our Q4, 2020 identity segment, GAAP margins were 22% compared to 29% in Q4, 2019, and our full year 2020, I did and identity segment GAAP margins were 28% compared to 35% in 2019 as previously mentioned due to very rapid growth.

And of customers in the early stages of their RFID deployment strategies, which are driving our higher proportion of RFID revenues.

Now moving to our operating expense management, our GAAP operating expense for the fourth quarter was $8 9 million a decrease from $9 3 million in Q4 2019, our non-GAAP operating expenses for the quarter totaled $7 5 million or 30% of total revenue compared to 7.7.

$10 million or 40% of total revenue in Q4 of 2019.

For the full year, our total GAAP operating expenses were $37 1 million and increase of 0.4 million from 2019, our non-GAAP operating expenses for the full year were $30 7 million of 35% of revenue compared with $31 3 million or 37% of total revenue in 'twenty.

And 19.

We held our non-GAAP operating expenses flat during 2020 by successfully reinvesting for growth within our current cost envelope and do not expect to increase non-GAAP operating expenses for 2020 one as we've discussed on prior calls we strongly believe that we of the capacity to support at least 20% more.

Revenue within our current operating cost structure.

Bringing all of the pieces back together, our non-GAAP adjusted EBITDA was 1.4 million and the fourth quarter of 2020 of $1 2 million increase compared to Q4 2019 for.

For the full year, 2020, our non-GAAP adjusted EBITDA was $4 4 million.

Turning to the balance sheet, we exited Q4, 2020 with $11 4 million and cash and net decrease of 0.9 million from Q3, 'twenty 'twenty and of $2 million increase from Q4 of 2019.

The key drivers of our cash activity for the last quarter were $3 6 million of positive GAAP net cash flows generated from operations.

0.6 million and capital expenditures invested and our Singapore manufacturing plant.

Under financing activities, we used $4 1 million and cash $3 3 million was used to pay off the term loan facility 1.2 million to reduce the promissory note and 0.3 million was used for tax payments related to RSV, but license.

And lastly, there was a small 0.3 million positive impact of foreign currency fluctuation to reconcile to our GAAP cash flow and.

And our 10-K filings, we will be providing a full reconciliation of the year to date cash flows for completeness. We have included the full balance sheet per the earnings release in the appendix.

Due to the operational momentum exiting the fourth quarter of 2020 today, we are updating the guidance previously issued on November 10th 2020 for the full year 2021.

With total new orders booked in 2020, one as of mid February exceeding 16 million or a 60% increase over the comparable period in 2020. We are updating the lower end of the expected revenues for fiscal 'twenty 'twenty, one to 100 million up from $96 million because the.

The adoption of RFID technology, and consumables accessories, and short life technology products is in its initial stages.

This early in the year, it's difficult to forecast the potential upper end of the range as we develop better visibility into the second half of the year, we will be able to more accurately assess that number and we will provide updated guidance as appropriate.

Normal seasonality is expected to continue with momentum building quarter over quarter, and we continue to have strong confidence and our guidance for 20% to 25% revenue growth in the first half of 2021 over the first half 2020.

We are also confident that our double digit growth expectations are on track and we believe that full year revenue guidance may still be somewhat conservative.

During the current business momentum.

With the strength from operations and limited capital expenditures required to scale for growth, we expect to stay non-GAAP free cash flow positive for 2021.

This concludes the financial discussion and I'll pass it back to Steve.

Thanks Sandra.

As our revenue growth cash flow and backlog clearly show, we've got strong momentum setting us up for 20% to 25% revenue growth and the first half of 2020, one and a strong year overall.

We expect our growth this year to be driven by the same three strategic priorities the drove our growth and late 2020.

Our strength as the premier provider of sophisticated NFC enabled RFID products federal government expansion and improving predictability by increasing recurring revenues and expanding customer attention now.

And now RFID as the main growth engine for 2020, one and it's the core technology underneath most of our products. So I'll focus mostly on it on this call.

The key thing to understand is exactly why did our RFID business double year over year, and both Q3, and Q4, 2020 versus 2019.

Is the sustainable from a market perspective, and can we keep our leadership and market share growth.

The main reason for the huge growth is that the market itself is growing explosively and it's just at the beginning.

And we shared the vision with NXP impinge and video and others that every physical thing on the planet will have a digital existence RFID is the way this happens tie.

Tiny low cost chips with highly tuned and optimized antennas systems software and security that are embedded in everything we interact with this is software reaching every physical thing on the planet and RFID enabled it.

So syringes can track of the exact rate amount of medication is filled into them and dispensed and to the patient. The refrigerator can tell you when the filter needs to be replaced and make sure. It's and authentic replacement that's put in and working youre running shoes can sense, how many steps you've taken your phone accessories can work together intelligently with your phone to create experiences and applications. We've never had.

Governments contract the quality and authenticity of cannabis products for compliance and especially protects collection.

Every temperature sensitive medicine can be tracked and made sure. It stayed within the safety parameters and not spoiled and every blood test assay is authentic and matched with the right blood sample.

These are examples and some of the ones I mentioned earlier, the would give you a sense of the market scale over 30 billion syringes used annually worldwide 20 billion prescription bottles annually over 5 billion consumables used and major appliances annually 6 billion athletic shoes sold annually of one.

Billion package of cannabis sold anyway, and just one country 13 billion and phone accessories over 15 billion temperature controlled medical shipments and over 20 billion automated blood test assays used annually and.

And a few sentences, that's potentially well over 100 billion units annually and.

And I won't take more time on more examples, but just obvious other use cases get two of market size of hundreds of billions of units.

Competitive pressures will force adoption across every sector as technology gets better and cost drop until nearly every physical thing has the sensor augmented integrated digital existence of.

RFID makes this happen.

So why is identive, winning because we enable the amazing digital capabilities of the chips to work and the messy analog world of antennas power harvesting data conversion and security.

They have to go on the shoe and a syringe embedded in the hair of a dull and then they have to communicate through RF and harvest power from the radio signal of the phone of reader to run the chip.

They have to do this totally reliably while the thing has dropped washed stuffed and pockets and generally exposed to the real world. We make that part work. We designed the systems of the antennas software security and physical form the connects the chips excesses of their incredible capabilities manages the RF communications and power conversion and creates the platform.

Form for the digital experience all in harmony with the physical experience of the product where the bridge that brings digital chip capabilities to all of the product engineers trying to get the benefits of RFID and embedded sensors into their products.

We make this happen with our huge library of designs with patents like tag on metal and wood trade secrets, we've developed working with the most advanced early adopters and their industries, we deepened our value and competitive moat by providing both the devices themselves and the readers and programmers to personalize and read the RFID devices.

Whether it's on a pharmacy or any other place where RFID is redder programmed our readers are among the most widely deployed for NFC and high frequency RFID programming and reading.

This gives us both credibility with our customers engineers and the flexibility to add features and software value the providers of just RFID devices can't add.

We then work closely with our customers engineers and with the chip vendors to build the very tricky analog bridge and system to make it all work across RF.

With very high reliability high data security and optimize power transfer the end user gets a delightful engaged interaction.

And our designs make the difference between and inconsistent awkward interaction and it almost magical totally reliable and durable experience.

And then because we own our own production facilities. We go directly to prototypes pilot runs ramp up production and deliver with extremely high quality even for the most complicated devices would almost always happens next is the customers' engineers want to improve the product either from what they've learned or because of chip partners come out with new chips, new features new price points.

So we run another design and prototype pilot production process.

Now, we'll keep leading it because in this market of thousands of designs and hundreds of billions of units, they're huge first mover advantages.

We have a unique design through production and redesign platform the keeps customers with us as they drive more capabilities and better performance into their customer experiences. This.

And this will keep accelerating driven by the chip vendors Moore's law speed advances and by competitive pressures created when any digitally enabled product is launched it'll pressure of others to keep up or lose their market.

So with that perspective on the core driver of our growth. Let me close of the couple of specific metrics to watch and comments across our business.

And RFID will keep updating on customer launches and design wins and the use cases that we can replicate across and industry.

These are the core drivers of growth and our continued market leadership.

In the area of federal government expansion, we expect the 30% growth and our federal business to continue as the new administration emphasizes physical security and cyber security with our product superiority, we expect to continue to grow our share even in a healthy spending federal government market.

I'm on recent wins in the federal government, we're securing the secret service headquarters field offices and all the places they secure.

Our security leadership also is behind some rather urgent delivery orders. We recently got for the U S House of Representatives in the capital.

And we'll share more wins and expansions throughout 2021.

The third strategic priority for 2020, one is increasingly predictable revenue and mentioned the full range of recurring revenue products, we've launched and our premises product lines and RFID. Most products are either consumable or short life technology products. So the key to revenue predictability is getting designed in and then very high customer retention.

<unk>.

Our orders recur as consumables are consumed and then are needed again, whereas technology products turnover for new technologies now the best metric here is customer retention and and RFID in 2020, we had 100% customer retention.

Developing products for RPT customers can take years. So we have great visibility into the scale of these projects and their long term growth.

Our pipeline of designs is at record levels with particular interest and tag on metal are pass of temperature patches and devices for expensive consumables across everything from appliances medical assays, and even coffee and vaping pods.

I'll need authenticity, but also of calibration and day get data integrity matching for medical and other sensitive applications.

So to wrap up here some metrics from just the last few weeks as Sandra mentioned, we're now over $16 million and new bookings up 60% from the same time last year, we of designs underway or one with over a dozen RFID customers several of the multimillion unit potential.

We've launched cross industry marketing programs to replicate solutions and medical devices luxury beverages pharmaceuticals hospitals schools and the military for.

For example, and addition to our first customer and the pharmacy space of second customer of similar scale is deploying our devices for prescriptions for the visually impaired.

And now and in industry moving this fast every week, we're hitting new milestones and cross leveraging new opportunities, which will keep communicating so you can track our progress and these transformational markets.

With that I'll open the questions and discussion.

Thank you we will now take questions. If you have any questions. Please press star one on your phone now we ask that will posing your question you. Please pickup your handset if let's say on speakerphone to provide opt on sound quality.

Your first question is coming from Jason Smith from Lake Street. Your line is live.

Hey, guys. Thanks for taking my questions just wanted to start with the RFID business can you share what Perry.

<unk> of our revenue RFID is in 2020, and then where you think that can go for 2021.

Standard you want to take that.

I'll take that of the note.

RFID is within our identity business, Jason as you know.

And we haven't traditionally broken that out, but it's a it's over half of the identity business.

And of course, it's the most rapidly growing so it'll certainly be and the range of.

Of two thirds of three quarters of that identity business by the time, we get out go out of this year.

Okay. That's really helpful. And then along those lines, obviously with that momentum it's going to compress gross margin here in the near term how should we think about gross margin trending for this year with three of the different.

Different dynamics within each segment.

Yes, we mentioned and I think we might have put it both in the press release and in day and Sandra his comment.

There were there were two factors there the primary one being when we were ramping up some of these some of the growth and the second half of 2020, we brought in some new equipment new technologies some of the customers had the.

Civic requirements and.

Those sorts of investments largely go into cost of goods sold so that it and near term impact on our gross margins that should recover back to that 40% range over the next quarter or two.

And then and.

And then beyond that.

Both parts of the business are growing solidly and so we expect that over time. The gross margins will continue upward and then longer term.

And we do expect to add more software and value and value added.

As you know and so when you look at the out years gross margins will continue up even above that 40% range, but.

I think that's roughly how it'll go does that does that make sense.

Yeah. That's that's really helpful. And then just the last one for me and I'll jump back into queue. You indicated updating guidance. Once you have more visibility just curious if that's based more on just general macro visibility improving or specific customer orders and just try and get a sense of what are the but the dynamics that could potentially drive upside.

Two the current of range.

Yeah very very good question.

It's because the the major customers the dry RFID volumes are huge and I mentioned and some of the design wins and the designs that are complete.

But of customer can decide the launch it this quarter next quarter or the quarter after.

Just on there on strategy and there on timing, so as we get better visibility into the specific launches.

It's really about timing.

And when that hits.

And at our side some.

Of these big companies and their timing changes by a quarter. It changes our profile by a quarter. So we want to get more visibility. So we have certainty of both the scale and the timing, but frankly, it's more of the timing than anything.

Okay that makes sense. Thanks, a lot guys.

Thanks Jayson.

Once again, ladies and gentlemen, if you have any questions or comments. Please remember to hit star one on your phone.

Your next question is coming from Jeff, Jeff Kessler from Imperial Capital. Your line is live.

And year.

Yep, we can hear you, Jeff you're a little vague.

Thank you Sir.

Is this better.

<unk> better okay. Okay.

A quick first question is.

Hi, My first question is on <unk>.

On.

On the on the on the premises side given the given that it appears that.

Some of the larger providers of security physical.

Physical security equipment, and the and the and actually more importantly, the access access control providers and the visitor management providers are looking at the second half of 2000, and the 'twenty one as a possible.

And as a possible turning point core for the and industry that's been down since last March.

And.

Are you what are you looking at in terms of what are you. What are your conversations right now with folks who cannot get on and who have been able to get on premises, who haven't been able to really get much in the in the way of revenue growth going on granted you were up.

We're up 5%.

And it would it would appear that and it would appear that now would probably be the the times it's to start discussing.

The types of.

And the types of software and analytics.

Programs that the that the access control people.

We'll be we'll be interested in using if if and when that market recovers and if you could comment on just you know what what are what are kind of the stakes there and what are some of the gating points.

You look at to show that the business actually is going to start recovering on that on the top line.

Yeah, Great question and theirs and theirs.

There's two.

The two aspects to the physical security business.

Our us federal government and as you pointed out has stayed strong and grew 30% and day, there's no sign that that's going to kind of slow down and back.

Should accelerate.

And with some of the priorities of the new administrations that that will keep us growing regardless and then on the on the commercial resurgence.

As you say, it's the question of timing there we're doing a lot of training on our recurring revenue products as I mentioned, we launched basically recurring revenue versions of all of our premises product line through 2020.

So we're hitting the ground with those as well as we'll have another pretty substantial video related launch in the second quarter. This year.

So.

We'll be very lined up from a.

Customer training perspective of dealer training perspective.

We're already seeing some.

Bounce back on the commercial side in places like schools and transportation.

And other areas like retail and hotels are still going to be wait and see.

What day.

The thing we're focusing on right now frankly is on the federal side because that is growing.

Hi.

Very nicely and we think that's going to continue and then as commercial bounces back we think.

We're gonna be it a really good position with a range of products to take advantage of it.

Okay.

You've talked before about.

By the $25 million per quarter.

And the political inflection point for your for your margins.

For the whole company and I'm wondering given.

The given what's going on in your.

On.

On your identity side.

Is there a.

Is there an inflection point just on the identity side, where the margins begin to since youre not youre not talking about increasing opex very much at all for next year is there a of point just on the identity side, where that inflection point might might occur and is there a business mix changes.

<unk> I mean, whether it's whether it's toward the you know of.

Or are there different vertical markets.

That would change the margin picture on identity.

So let.

Let me go after both of those first is on the on leverage in the model Youre right.

And the fourth quarter, our Opex was down I think it was.

4% and revenues were up like 30, so we've clearly hit that point at which we've now you've got some fixed cost and G&A in channel and in R&D and <unk> and as we grow on top of that and we're able to get a lot of leverage out of it and we've communicated previously that we think we can.

And I put 2025% more on the top line, while still holding the the.

Opex line and then even if opex has to go up somewhat and sales and other areas that go with scale.

It'll be a lot less than revenue and gross margin dollars of going out. So that you know in the aggregate view, we do think we've hit that leverage points on our opex level and and topline going above it. So a lot of it throws of the bottom line is as we generate gross margin dollars.

And then on the identity sector specifically.

It's a good point to ask about that because I think we we've gotten through the the very same inflection point all of that build out that we did in our facility in Singapore.

And some of the engineering and we did add some of the technology as I was talking about those are now in place and so we get leverage as we get the top line growth.

Both the.

Both out of our production facility and the out of art and.

The generic and channel. So we think we're at a at leverage points.

Right about where we are now and as we grow through 'twenty, one and certainly as we start to get into that high twenty's per quarter.

And you start to see good leverage.

And in terms of.

Operating margin at that point.

Alright.

Great.

Thank you very much.

Thanks, Jeff.

Once again, ladies and gentlemen, if you have any questions or comments. Please press star one on your phone at this time.

Your next question is coming from Mike Latimore from Northland Capital. Your line is live.

Hi, This is a the dia on behalf of Mike Latimore.

Could you comment on the video analytics growth do you expect the video analytics to grow at a faster rate than the overall premises business.

Yeah. Good question last year.

So much of our video business is in retail hotels and some other areas.

It was that it actually had some pressure.

But we've got in particular, we've got some product launches and we launched our video surveillance and the service.

The platform the end of last year.

So we do think that's going to be.

On a pretty a very positive contributor to growth, especially on the commercial side because.

Making sure that there is no loss of shrinkage.

And facilities is getting more important more and more important for retail and warehouses.

The use cases across everything from schools and federal government.

And are more and more important that they be integrated with the rest of the security system and we're also seeing more customers that want and integrated.

Video analytics and access control system, rather than two different.

Two different platforms. So I think that is going to be a growth driver for us it'll.

It'll be a.

Wait and see in terms of some of the verticals like instead of like retail and I.

And hotels when they come back.

But some of the other sectors, we're already are already coming back and investing certainly schools certainly better government some of the state and local governments.

Alright, great grit and or is that any plans of acquisition on gods.

I'm, sorry acquisition of <unk>.

General or.

And general engender.

Have any interest in making any acquisitions in the near future.

We are we aren't targeting anything specifically, we've got our hands full frankly, managing our own growth.

And focusing on that.

We'll we'll always stay open to two opportunities there, especially.

If there's.

The opportunity to strengthen our leadership and RFID that always something we should be looking at.

Hi.

But we've got a full portfolio of technologies and products, we've got our channel and place and we're just getting our scale. So we have a predisposition.

Predisposition to.

Execute with what we've got.

Because.

We think thats the high ROI activity.

And and it does keep us pretty you're pretty busy I don't want to say never because and if something happens and it comes out of the blue.

And you wonder where that came from but our focus is on execution and and delivering the business opportunity in front of us.

Alright, alright, that's it from my side. Thank you.

Thank you.

Once again, ladies and gentlemen, if you have any questions. Please press star one on your phone.

Your next question is coming from Jeff Kessler from Imperial capital.

Your line of five high.

Thank you.

One of the areas, where you just you just talk you just talked about the access control and video integrated and one of the things that's going on and the industry right now is.

<unk> is the dramatic consolidation of companies that are trying to get the video and access as a service out there in one fell swoop.

The guys like Bravo and ricotta and people like that are you know of combining with the <unk>.

Either.

The basic the basic cloud access with their video with their video cohorts or vice versa and I'm wondering.

Is there co-opetition.

Is there a cooperation or is this pure competition the.

And the end of the.

Where do you where do you stand as it provider.

Of of of.

Of ups of.

And as one of the sub systems for these guys.

Do you are you able to participate with others in this area or is this is this basically you going up against.

And going up against these companies.

So I, we have a range of products as you know Jeff and.

And I think there's more co op petition in the U S M B range, where.

We do have some discussions about OEM and technologies and the integration and all of that in the enterprise and certainly in our core federal government.

Base, we think we got such a strong position that its peer competition, we're not going to give up any of that and we think there's some real advantages do not just the you know everyone does connectors between access control and video, but actually having a fully integrated system.

Gives you a lot of additional capabilities. So that for example, the personnel database that the access control system has the.

The integrated with it and the standards on percent accurate all the time, making that available to your video event. Instead of video just thinking of bunch of pictures, but you know who your employees are and what they're supposed to be doing and where they're supposed to be doing it.

And an integrated system. There are some real advantages of that and we're not going to concede that the to anybody quite frankly.

Okay.

Great. Thank you very much I appreciate it.

Certainly.

Again, ladies and gentlemen, if you have any questions or comments. Please press star one on your phone now. Your next question is coming from Jay Chung Your.

Your line is live.

Hi can you hear me okay.

Yes, we hear you.

Perfect.

And talk about the billions of billions of unit opportunities out there I was just wondering if you'd give an update on your capacity and what the plans on I guess for the future capacity built.

Sure.

We added a day.

And the capacity through last year and in particular, even the early this year.

So we've got capacity for about 50%.

Over the volumes, we did last year, but the nice thing about capacity is.

It's very scalable for us adding another.

The 30% to 50% capacity to what we did last year is about 600 to 700000 Euro machine.

Machine, we've already got the facility build out so we have that so it's really we can scale up capacity now on a yes on a part of you pretty linear.

<unk> linear basis.

Well beyond where we are right now, but even right now we've got capacity for about 50% over where we were last year.

Right, that's great to hear and then there seems to be a chip shortages and the industry. I was just wondering how you on mitigating that and making sure you'll be able to fulfill your client orders.

Yeah, Yeah, Yeah very good question.

And of course it is.

The first off it's all under control and that's the bottom line of it.

But it's pretty pretty hairy out there right now so what we're doing because we have pretty good customer we have very good customer relationships. They understand that if they are of launch that has to happen and the.

Fall and if the chip vendor is giving you of 26 week lead times that they have to place those orders.

Six months before and they're gonna have a ship and its and its not us.

And we're not forcing anything bad debt, but we have to do that.

And that's one thing the other thing is we have really good relationships with the chip vendors and.

And die.

I don't want to.

Anybody, but we're we're wherever theres availability and they arent going to cut short you know someone who is really critical or has a committed delivery.

We're able to get access sometimes shorted and the lead times that you're hearing about so that actually allows us to bring some value to our customers. Additionally.

And then against the minutes of the trusted relationship when we can do a little better than what they're hearing out of the marketplace. Because we've been in the industry is taking off right now, but we've been working on it.

For for years and so the relationship we built over those years.

The people who've been and it through thick and thin.

Turning to each other in times like this so we're able to manage it on.

On a on a plan ahead and order ahead basis.

And then also with some of the relationships I think we're doing better than average on that.

That's great to hear and then lastly, just on the new hire more vice president of marketing and lead down can you give us some of maybe some what's the focus of the more on RFID or the more on the premises side and then maybe some of her first couple of projects that you plan to tackle it.

Good question, it's boats and that's one of the reasons we loved it leaves background is she she was at the Honeywell. So of course, you know big systems building controls things like that that apply to premises.

But let her longest and was at Intel So she understands semiconductor marketing, which is very similar to RFID marketing, where you got on market to engineers getting them to adopt and design and then she also started out her career on.

On Capitol Hill and of Senators office. So she knows the government so you've got someone who knows government.

The infrastructure and chip.

<unk> and and she has the whole spectrum.

Are you using some of the digital tools. He is also very much the digital native.

She can get down and I keep saying, she and the marketing team that she's leading can get down to targeting you know people in the building.

The verticals very specifically engineers, who are active in medical device design and she can just target them drip.

Send specific messages and.

And gauge.

<unk> already re Architected, our marketing platform with the new our new automation platform sheet re architected, our web store and re Architected our website.

And and really is.

The changing or.

The leverage we get out of marketing as a go to market and lead generation tool. So as you can tell I can hardly say enough about it but really well aligned with where we want to go.

And frankly with the bit of the the the sales and the marketing mix that we haven't been so strong and we've been very technically driven and.

And technical sales driven and having actual.

The very well targeted leverage the digital marketing now is the tool that is going to contribute to our growth that the we haven't had so much before.

Thank you so much.

Thank you.

Again, ladies and gentlemen, if you have any questions. Please press star one on your phone now.

There are no further questions from the lines at this time and this concludes the company's question and answer session. If your question was not taken you may contact Identive investor relation team and I and the E Gateway IR Dot com I would now like to.

The turn the call back over to Mr. Humphreys for his closing remarks.

Alright, Thank you and thank you all for joining us today and now we've gone a little bit long so.

Just to wrap up this is obviously a fast moving market and so we will keep regular metrics and updates coming out to track our progression as we get some of these design wins as we build of backlog and and other progress and will also be setting up and analyst and investor briefing focused on RFID.

To go into some more depth about some of the use cases of the design wins and some of our unique technologies and.

And also to look at the some of the related companies like the chip companies that are also driving this market. So.

And so we'll we'll set that up as a little bit more in depth discussion and then that then would of been appropriate for an earnings call. Like this so thank you all for your time and looking forward to talking again and have a very good evening.

Thank you for joining US today, you may now disconnect.