Q2 2021 Identiv Inc Earnings Call
[music].
Yes.
Good afternoon, welcome to identity presentation of its second quarter 2021earnings call. My name is John and I'll be your operator of this afternoon, joining us for today's presentation are the company's CEO, Steve Humphreys and CFO.
Sandra Wallach following management's remarks, we will open the call for questions before we begin. Please note that during this call management may be making references to non-GAAP measures or projections, including adjusted EBITDA and free cash flow. In addition, during the call management will be making forward looking.
<unk> any statement that refers to expectations projections or other characteristics of future events, including financial projections and future of market conditions as.
As of forward looking statements actual results may differ materially from those expressed in these forward looking statements for more information. Please refer to the risk factors discussed in documents filed from time to time with the S. E C, including the company's latest annual report on form 10-K.
Identive assumes no obligation to update update these forward looking statements, which speak as of today I will now turn the call over to CEO, Steve Humphreys for his comments Sir. Please proceed.
Thanks, operator, and thank you all for joining us in the second quarter, our momentum continued to grow, especially in our RFID business overall, our revenues grew 26% year over year, an acceleration of growth over the 22%. We saw in the first quarter, our identity business continued to be the strongest growth driver growing 27%.
Overall led by 39% growth in RFID.
Our premises business also grew strongly up 23% year over year, and our core systems and software sales and premises were up 29% our federal government sales were even stronger up 34% over last year's level.
Our other key growth and profitability metrics also made strong progress.
We shipped over 41 million of RFID units in Q2 of unit volume growth of 25% over Q2.2020 at our Asp's for 19% higher than last year.
Since the our growth healthy because it's across both unit volumes and unit prices.
Total backlog at the end of Q2.2021 grew 26% versus the end of Q2.2020, and our orders book just in the first 3 weeks of this quarter are up 44% from the year prior.
We also showed even more leverage in our business model expenses in the second quarter were down 8% from Q2.2020, while revenues were up 26% clearly showing expanding leverage from our operating expenses as we scale.
This is even more leverage than we saw in the Q1 expenses were down 6% with revenues up 22 per cent.
Our core growth strategies of getting new customers with new design wins moving customers through the production cycle, expanding new and more complicated designs and bringing second and third generation designs to production all made progress in the second quarter.
So here of some of the specifics of each of those growth drivers, starting with customer launches expansions and ramp up.
Several of our existing customers expanded the number of designs, we've done for them and now of committed to volume orders for the second half of this year on the new designs.
1 major mobile device provider move their latest 2 designs through prototype tests and are now going into full production ramp in Q3 with committed production volumes through the rest of the year.
Also in Q2, they introduced their 2022 designs, which we're now working on supporting our 2022 outlook.
Our eco tags are also being evaluated by this customer but in other product group and our tag on metal tags are being evaluated by a third product group.
So let me give you a couple of updates on other use cases that are progressing.
Now these can take a year of more to reach production ramp. So we're going to report on milestones. So investors can track progress even while they are pre revenue.
The first is our auto injector project, we've completed the prototype designs and these are now in qualification with the customer.
They're working in parallel on IP and regulatory approval of preparation, but getting the prototype design completed and signed off on is a huge milestone keeping us on track for of mid 'twenty 'twenty 2 ramp up volumes of course are still projected to reach over 100 million units.
The cannabis project also made major steps are designed parts done.
The next step is for the finished product provider to prove to the government regulator they can scale fast.
This means showing that they have a stable process. So they're getting the final equipment. This month to demonstrate the required volumes.
Our engineers know the equipment the software very well so we've offered to help them with qualification calibration and proof of scaling.
So progress, but some time will still be needed. The government regulator involved really doesn't want to mandate. This to every cannabis provider in their country and then have to issue waivers if there's not enough supply for the producers to comply.
But the good progress and we've got very good visibility.
Now I won't go through all of the major customers, but wanted to give updates on the since either of them can be transformational for our company there.
There are others in that category for example of the second pharmacy chain for our prescription of RFID devices is continuing their pilot and can he continues to be very happy with the results and.
And we can go into them in more detail in Q&A, if anyone wants or any of the other major projects that were all aware of.
But now let me turn to the longer tail of customers that we haven't talked about so much. These are customers driving our base growth now they won't double our revenues like some of these others can but they add up and some of them could be the unplanned breakouts that also drive upside.
Lastly of course, it's critical for us to serve all use cases to entrench, our leadership and keep out competitors.
So here several and we can go into more detail on any in the Q&A.
Cash stream I is a company that has projects for medical test assay authenticity and use protocols cash.
<unk> flow for waterfield for authenticity and use Dupont also for water filters corvo for drug test kits collect I D for consumer engagement with sportswear MSA for Hardhats and construction site year outlook technology and a current up both in the cannabis supply chain space.
Tap online for consumer engagement across a couple of dozen brands, including Coca Cola T mobile Lipton tea and others.
Helios hockey for sports tracking of performance bullion works for blockchain based gold bullion transactions and tracking Mattel for hot wheels, I'd cards for of physical and virtual consumer experience now.
Now I know I ran through these fast, but the point is to share tangible proof points of the breadth and pace of our design wins the.
The major projects can more than double the business, but it's this wide base of adopters that will drive our base, 30% to 40% growth for the game changing customers and adding to that total.
Now this is the sampling of the kinds of companies adopting our solutions in Q2 to integrate NFC based RFID into their products.
Most of the use cases are just hundreds of thousands of our low millions of unit volumes, but each of these we can expand in 3 ways.
The first is other use cases within the customer.
The second is improved design and expanded features for next generations of their initial design.
And the third where it's allowed we apply the same use case across the industry.
And all 3 of these approaches can add up to meaningful growth in revenues as well as the obvious competitive lockout.
So hopefully this gives you a sense for the accelerating RFID momentum we drove in Q2.
There are other events, including some really strategic new hires development of our developers kits and more but we'll go into those later.
Now in addition to our high growth RFID segment arch in Q2, our premises segment hit the growth acceleration, we expected and we expect will continue into 2022.
We saw momentum build strongly as shown by a couple of wins, we announced like the deployments at Ross stores, and Banco Azteca Electra in Mexico.
Now electrodes deploying across another 400 stores, bringing their total with our systems to over 2000 stores.
We also saw a rebound of demand for travel industry customers, including companies like Avis budget group and Royal Caribbean.
The point is that even hard hit sectors. Like these are coming back fast and they're investing in security and convenience because their customers and their business models are demanding it.
Now our third strategic focus is on revenue repeatability and predictability.
And RFID predictability is driven by customer retention and a focus on consumable products in Q2, we kept our track record of 100% customer retention in RFID.
We also kept expanding the use of consumables as you heard in appliances syringes drug tests and other use cases.
In premises predictability is driven by software and recurring revenues and in Q2, we grew software services and recurring revenues to 32% of our premises revenues up from 24 per cent of revenues just last quarter.
So in Q2, our growth showed strength across RFID and premises and not just revenue strength, but also the underlying design wins supply chain continuity in what we all know are tough times for supply chains and gross margin expansion of.
Our product launches and key hires design wins and technology launches support of strong 2021 and beyond.
The areas of RFID leadership and growth the federal market and recurring revenues and customer retention remain our focus and these all make great progress in Q2.
So before getting into the next quarter and the rest of this year I'll turn the call over to Sandra to hit the financial highlights for the second quarter Sandra.
As the.
We've mentioned our financial results reflect our continued strength of exiting the second quarter with the delivery of sequential and comparable growth on the topline each of backlog increases improvement in consolidated gross margins and continued operating expense leverage as the results paired with the investments in RFID capacity and capabilities.
Our supply chain, we believe position the company to achieve its growth and profitability potential.
We closed out the second quarter of 2021 with $24 million in revenue up 8% on a sequential basis and up 26% year over year the.
The 26% growth generated Q2 over comparable quarter of 2020 was driven by a 39% growth in our RFID devices with over 41 million units shipped to customers in the second quarter and 23% growth in our premises business powered by a 34% growth in our core federal business.
Recurring revenue was stable at 5% of the second quarter of revenue and 6% of total trailing 12 month revenue for the second quarter of 2021, our GAAP and non-GAAP adjusted gross profit margins were 37%, 38%, respectively compared to 35 and 36% in the first quarter of 2021.
And 40% and 42% in the second quarter of 2020.
For the trailing 12 month period, our GAAP and non-GAAP adjusted gross profit margins were 37 and 38% respectively.
Gross profit margin changes resulted primarily from the mix of cross and within our segments and we continue to expect margins to revert to historical levels within 2021.
The exhibited leverage with GAAP operating expenses, which were down 8% versus Q2.2020, our non-GAAP adjusted EBITDA was 5% of $1.2 million compared with 2% in Q2, 2020 and 2% in Q$1.2021.
For the trailing 12 month period, our non-GAAP adjusted EBITDA margin was 6%.
Our Q2, GAAP net income attributable to common stockholders for $2.2 million or income of $19 per share. This compares with the loss of $3 million or of losses 17 cents per share in Q2, 2020, and the loss of $1.7 million or a loss of 9 cents per share in Q1.2021.
During Q2, we received full extinguishment of the PPP loan obligation and recorded the appropriate gain of $2.9 million adjusted for this nonrecurring gain our EPS would've been a loss of 3 cents per share. We've provided in the appendix today of full reconciliation of GAAP to non-GAAP information, which is also included in our.
Earnings for at least.
Our next slide further analyze the trends by segment.
Beginning with identity revenue from our identity products totaled $14.8 million or 62% of our total revenue in Q2, 2021, which is an increase of 27% from Q2, 2020, and an 8% increase compared to Q1 'twenty 1 the sequential increase was primarily.
We're really driven by higher sales of RFID transponder products and access cards as compared to Q1 'twenty 1 the year over year increase was primarily driven by higher sales of RFID products as well as recovery of the select verticals driving higher sales of the access cards are Q2, 'twenty 1 identity segment GAAP.
Margins were 24 per cent compared to 25% in Q1.2021, as we continue to grow into our investment in capacity and lower than Q2.2020 at 31% due to the change in product mix with the higher proportion of lower margin RFID transponder product sales.
Turning to the premises segment the segment accounted for $9.2 million or 38% of our total revenue in Q2, representing an increase of 23% from Q2, 2020, and an increase of 8% compared to Q1 'twenty 1.
The sequential change in revenue was due to the recovery of select the commercial verticals like banking and retail along with normal seasonality the year over year increase in.
And revenue from the promise of the segment reflects the rebound in sales of Hirsch velocity software products to commercial customers growth in sales to the federal government and higher sales of video technology and analytic software products.
GAAP margins for the premises segment in the second quarter were 57% compared to 51% in Q1 and 55% in Q2.2020 due to the mix of products within the segment.
Now moving to operating expense management, our GAAP operating expenses for the second quarter for $9.1 million of zero point of 2 million compared with Q1, 2021 and downs of <unk> 8 million compared with the second quarter of 2020, our non-GAAP operating expenses adjusted to exclude restructure.
During the the severance costs and certain non cash charges normally excluded from our non-GAAP results such as interest expense foreign currency loss income tax stock based comp depreciation and amortization and gain on extinguishment of debt totaled $8 million in the second quarter of 2021, or <unk> 33 per cent of revenue.
This compares to $7.6 million of 34% of total revenue in Q1, 'twenty, 1 and $7.6 million or 40% of total revenue in Q2.2020.
Bringing all of the pieces back together, our non-GAAP adjusted EBITDA was $1.2 million in the second quarter of 2021 is there a point of $7 million increased compared to Q2.2020 and is there of <unk> 8 million increase compared to Q1 'twenty 1.
Turning to the balance sheet, we exited Q2, 'twenty, 1 with $36.4 million in cash and net increase of $24.9 million from Q1, 'twenty, 1 and the $23.3 million increase from Q2.2020, the key drivers of cash activity for the quarter were <unk> 7 million generated for.
Net income adjusted for non cash item.
A $3.2 million use of funds invested in working capital to build inventory and pay down the supply chain to belt for any potential disruptions.
Zero point $5 million and capital expenditures of invested in our R&D facility in Munich, and our Singapore manufacturing plant under financing activities. We had $27.9 million net cash provided driven by proceeds of $37.7 million received from the sale of our common stock in a public offering.
And the <unk> 1 million of proceeds from the exercise of stock options offset by a $6.8 million increase in net repayments under our east West Bank revolver of $2.8 million repayment of our last promissory note.
Zero point of $3 million used for tax payments related to <unk> releases.
In our 10-Q filings we will be provided the full reconciliation of the year to date cash flow for completeness. We've included the full balance sheet per the earnings release in the appendix.
As they have continued to monitor the second half of the year, we are increasing our guidance for the full year of 2021 per day with revenue now between 101 hundred $6 million, we will keep sharing metrics as we continue on our growth of attorney.
In Q2, 2021, our Q3 backlog was $14.6 million up 12% versus Q2, 2020, and up 46% versus Q1 'twenty 1 our total backlog for all future shipments was also up 26% versus Q2, 2020 and up 10% versus Q1 'twenty.
1, reflecting the increasing visibility.
Our total new orders book through the first 3 weeks of the quarter of.
Our $6.3 million up 44% over the same period prior year.
Normal seasonality is expected to continue with momentum building quarter over quarter, we delivered on our prior guidance of 20% to 25% revenue growth from the first half of 'twenty 1 over the first half of 2020 with 24% growth.
With that I'll conclude the financial discussion and pass it back to Steve.
Thanks Sandra.
As our results and our higher guidance show, we're growing faster than we expected at the beginning of 2021.
Just as we beat our goals in the first half we think we're in a strong position for the rest of the year with some opportunities that can be transformational in 2022.
That was always the focus on our core business drivers of design wins current customer volume growth in programs to drive growth.
For the design wins in Q2 more in the pipeline for Q3, and our current customers all staying with us and some expanding designs and volumes, we've got solid visibility into the second half of the year and into 2022.
As a result of Sandra said, we're raising our guidance for 2021, we started the year with $96 million at the beginning of the range. We then moved the lower end of the range up to $100 million. We're now moving the top of the range of $106 million.
Demand actually could be higher, but we have to be realistic about the same supply situations that much bigger companies are also dealing with.
So I'd like to focus on the higher end of the range and how we're thinking about that.
We all know about the tight supply chain every business is facing now I want to be very clear, we're meeting all of our customer demand and even some upside which is letting us take share from competitors. That's led us raise the bottom end of our guidance and now at the top end of $206 million. So.
So we're confident of our ability to keep our supply chain solid despite the tough situations facing everyone.
We're also confident of the demand side, both near term and for 2022, we're not giving formal guidance today for 2022, but we do expect some of the specific transformational projects will ramp in mid 2022, driving much higher revenues in the second half of next year and really changing the profile of the overall business.
We also think the chip shortages, we're all dealing with will mostly resolved by next year at least in the chip categories relevant to our business now remember these of course, our RFID and NFC related chips, not necessarily the broader base of chip categories across the industry.
They might even start to hit the usual cyclical downturn right around the time that these large projects are starting to ramp for us in the middle of next year.
We know everybody's over ordering right now to try to get to the front of the line and anyone in the semiconductor industry has seen this before and it could well result in at least some oversupply.
For us this time it would be perfect. Our main breakout projects like the auto injector other medical devices cannabis scaling up pressure sensors, and others will need much higher and more complicated supply volumes right. As we think there could be an oversupply for at least very good availability.
In the meantime applications like prescriptions mobile devices. The early phases of cannabis and the wide range of other use cases I described earlier will drive strong sustained growth.
Even if the chip shortages don't end will be in a solid position will place the orders to support growth because we have good visibility into what the demand levels will be and if there's an oversupply of mid next year, we could see very strong growth and higher margins as demand and supply are both moving in the right direction for our business in 2022.
So with that context, I'm going to get back to this year in our guidance. We're confident we will meet our demand growth in the raised guidance range.
We preordered the supply in some areas, we think could go over so we're as ready as we can be but it is still possible that some of the excess demand could come from products that we have in order to head. So we might not be able to drive shipments even higher right now.
I want to be clear, we're not saying that we're constrained by supply like some companies were not.
Our business is growing and we're meeting demand for the base of that increased guidance, it's possible that customer requests that come in above our plans or for products that we havent preordered for could be hard to fulfill.
This keeps us in a relatively narrow range for our shippable revenue outlook now if we get demand that's above what we expect it will certainly go into backlog and set us up for an even stronger 2022, but we don't want a set of excessive expectations for shipments in 2021.
We know recovers what we can see but for some very new designs, we might not be able to fulfill upside opportunities on short notice.
Now I know that was a lot of detail and I want to go into some of the growth drivers. We are executing on in Q3 for the rest of the year and into 2022, but ultimately it's reflected in our shippable revenue growth. So I want to put it all in the context.
So turning now to our growth drivers design wins for new customers and expansion of existing customers, which is always the core.
We've got a solid system in place that's proving to be a winning combination so scaling the system in parallel rising our reach across the industry are the keys.
The scale, we're adding people in key areas.
These include project management and engineering to support more design wins were also adding in sales marketing and business development to broaden our pipeline and reach the end users now.
Now we have of high profile as the innovator and industry leader, So we're able to attract the best.
In terms of project managers and engineers, we're adding to our already best in the World Technical teams.
Now anyone intact and knows the great engineers join other great engineers and we're seeing this effect.
Our engineering center in Germany is turning into a huge competitive advantage with great people equipment and exciting projects that I'll draw of great talent.
In the past few months, we've hired strong project managers more engineers and added to our technical and turn team there.
On the business development sales and marketing side because of our business success in our focus on the most interesting differentiated solutions, we're attracting some of the strongest players in the industry.
This week, we announced the hiring of caution the Audi from Smart track Avery Dennison.
And there was the leader of <unk> high end NFC solutions business and he'd been tapped to run an expanded NFC group for the Navy.
Instead, he saw the opportunity to drive the industry's next leader and join Us.
Now there are others that similarly high profiles that we're in the process of bringing on too early to disclose right now, but the people side of our business is fast becoming recognized as the clear best in class.
Now the natural complement to this great people presence is to build the developer and application of community. This month, we're officially launching our NFC developers kit as well as launching our identity RFID community.
Now we had the onboard some of these key people and the expanded team of project managers and engineers before launching the developer's kit.
Developer community has to be engaged with design shared questions answered. We now have the people who are both visible in the industry and enthusiastic to help our developer community thrive.
And other update is that we've designed and started the build process of the multi device automated production system I mentioned last quarter.
This will enable more analog sensors and components to be integrated this drives up average prices and margins strengthens customer retention and increases the rate of adoption of multi sensor RFID subsystems, which is core to our strategy and margin expansion.
So great industry, leading people, our RFID developers getting the community multi device automated production and our expanding pipeline of design wins, our strategic drivers, we think will give us upside over our baseline 2021, and especially our 2022 outlook.
Now I focused on RFID, because that's our core growth driver.
The premises part of our business is also lined up for strong growth in the near term in particular federal state and local government sales look strong as to our recurring revenue products.
With the focus on physical security in both the federal government and at the state and local level, we're seeing great demand strength.
Combined the need for improved physical security expanding federal spending.
So health at the state level and infrastructure investments and we see lots of drivers for growth and increasing market share.
Specifically in the third quarter, we expect the federal government fiscal year end to be especially strong for security overall, and especially for our highly secure platform as well as with our newly launched video intelligence system.
So we're on track, we're extending our competitive leadership with continuing design wins with key industry hires for broader sales and business development reach and deeper engagement with trade Association Influencers and partners community building through our developers kit is the competitive moat in a market that's expanding fast.
Now before wrapping up these comments 1 of the topic I'd like to touch on is sandridge departure.
Over the past 4 years, she's been a great partner in the financial structuring of the business as we've turned it around and build a world class company to win in our nearly unlimited market.
She's moving onto other opportunities and we wish you very well in those in the meantime, she is continuing to be really supportive of the team and our business and.
In parallel we've got of search well underway for finance leader and business partner to support our growth for the next levels.
We're also fortunate to have a very strong finance and accounting team in place that will keep doing the terrific job supporting our growing business.
Lastly, we will also be appointing an interim CFO in the next few days, we will bring us an extra level of strength and professionalism, making sure we don't Miss a beat on our business progress, while we're finding the right long term finance leader.
So to wrap up.
Here's some growth indicators from just the last few weeks as I mentioned earlier, we have over $6.3 million in new bookings in just the first 3 weeks of the third quarter up 44% versus the same time last year.
We have designs underway or 1 with over a dozen more RFID customers, we're launching cross industry marketing programs to replicate solutions and medical devices prescriptions bicycles and personal transportation controlled substances like alcohol and cannabis and others.
Federal spending is clearly growing fast and is always strong in Q3 for their fiscal year end.
And our revenue predictability is strengthening from the expansion of consumable use cases, returning customers and recurring revenues.
We see the third quarter and the rest of 2021, continuing these trends supporting our projection of higher growth for 2021, and likely even higher targets for 2022 as growth expands and as some of the revenue multiplying projects fully ramped during the second half of next year.
So with that I'll open the questions and discussions, but let me also mentioned, we again have Dr. Manfred Mueller with US Renzi RFID business of course, and this time. He is actually in the conference room with US since traveled from Germany has opened up so.
So if there are RFID related questions, we can cover them in whatever depth we need.
So operator, please open the lines for the discussion.
Absolutely. Thank you ladies and gentlemen, the floor is now opened for questions. If you of any questions or comments. Please indicate so now by pressing the star 1 on your Touchtone phone pressing star to remove you from the queue should your question be answered and lastly, posing your question. Please pickup your handset. It for this thing on speaker phone to provide optimum sound quality. Please hold.
While we pull for questions.
And it looks like your first question is coming from Craig Ellis from B Riley FBR Gregg your line of life.
Thanks for taking the question and congratulations on raising the high end of the revenue.
The revenue growth target to share to $106 million.
Steve I just wanted to ask a clarification related to that in your comments around <unk>.
Supply in shipment capability with the point on shipment capability, but the shipment capability exists about the 106 million level or was the point that it exists to some level beyond that but if there are upside orders that come in between here and the end of the year you may not be able to meet those those upside orders just given the.
The strength of that happened the business already.
Yeah, it depends on the mix Greg it's the very good question.
The way I pointed out Theres, some new design that we haven't got orders in.
Parts in order for it because the design for <unk>, just finished not that long ago, and if we get excess demand for that that's something that with the current lead time, youre not going be able to meet but up to that $106 million. If it's the right products that we are ready for which there could be.
And for in some of the categories, you've got good visibility to but yes, we can and certainly.
In that range well above the bottom of at end of.
That 106 range.
We've got we've got coverage and the outlook. Let me Yeah got it also has the effect.
The man for Don wants to add a little more color to that.
Sharply.
Planned well ahead of the game already and we feel pretty comfortable right. Now. So we are in particular when it comes to the IC and chip vendors, we're staying very very close touch with them, whether it's NXP infineon if.
Any of these guys. So from that point of view of that AR. That's for sure. So we've put in orders already like 5.6 months ago. So from that point of view, we really tried to plan ahead as much as we can so from that point of view.
There is always something that could happen, but we are pretty well prepare simple.
Got it and then Steve I wanted to go back to the points that you made when you were talking about strategies and the base of customer sets and just get a little bit more color on you know.
The customers like care stream and carefully and Dupont.
And corvo et cetera.
How big of those customers in aggregate.
And some of them are very large entities.
So what's the potential for those customers become much larger than either of calendar 'twenty 2 and beyond.
Yeah, that's what I tried to say there and I know it was talking pretty fast through a lot of things I don't want to go too deep with too many use cases, because it'll it'll confuse people, but the point there was.
That any of them can be a few hundred thousand dollars for a few million dollars.
They're not going to be $20 million debt that can really change the business, although some of them and conceivably could if they if they turned to that unexpected breakout.
But the point is that's where a lot of the growth is coming is the.
In lots of half a million dollars of couple of million dollar customers high end.
And.
Get a broad.
Broad tail of those and that's driving a lot of the core growth does that answer what you were getting at.
Yep that gets at it Steven and then lastly, I'll just shipped.
For the longer term question that I had before hopping back in the queue.
And that is a nice to hear increased confidence that some of the large projects get going around the mid 'twenty 2 time frame.
Can you talk about where you feel like you've got the greatest visibility with those and where you have the greatest confidence debt.
1 of more of those could can begin to ramp.
We've got good confidence in most of them.
It's always been a matter of timing and process.
So I tried to give some color on candidates where they are getting.
Getting machines in the end if they can prove scalability they've got a regulator who is ready to flip the switch and go but also of the regulator doesn't 1 of Blackeyed for telling everybody go do this and then they don't have enough supply.
<unk>.
I could go into each of them that way, but as you can tell from the health of that that's not something that's going to not happen, it's going to happen and the question is timing.
Similarly, with the auto injector as I talked about last time <unk> got a team on it theyre investing on it they're working on IP. The designs of accepted and same thing it's the.
Could be.
It's not going to not happen.
So.
I think.
All of the ones that we've talked about in the past and again without taking all of our time re going through all of them.
Are still on the path we expected.
And roughly on the timing, we expected, which we've always talked about that way so.
Which 1 would I handicap as the most likely to go forward.
Its hard to day, because I honestly think most of them will go forward if not all of them.
And which 1 will come in first that's what's harder to say because of quarter here quarter. There I suspect, Canada will will ramp up.
Then the question is how fast it will ramp and of the floodgates will get totally open but as you know on the on the pharmacy side, we've already got 1 in full production and another 1 in pilot.
So so they're already starting to ramp so I think.
There's not 1 or 2 that I would handicap it first through the gate.
And there is certainly none that I would handicap, the saying lower probability.
Got it that's helpful color, Thanks, stew and Sandra congratulations thanks for all the help along the way.
Thank you it's been a bunch of working with your credit.
Okay. The next question today coming from it.
I'm sorry.
I was just saying thanks, great. Thanks go ahead. Okay. The next question is coming from Jason Schmidt from Lake Street, Jason Your line is live.
Basically you might be muted, we're not the not hearing you.
Is that better.
Got you know Yep Yep, Yeah. So I know, Steve you mentioned that Youre not seeing any supply chain constraints on your end, but just curious of the overall tightness out there if you've seen some programs and projects get pushed sort of indefinitely by some of your customers.
So first to clarify we are seeing plenty of supply chain.
Aggravation.
Because we're getting ahead of it as being very aggressive.
Uh huh.
And.
And doing everything needed to keep it open and going the we've been successful in keeping it open going but it's not for lack of.
Dozens of people in Singapore, and Germany, and elsewhere fighting for it so.
Hi, there.
There is a lot.
Of the pressure in the system there.
And what was the other part of your question.
I'm just curious if you've seen some of your any projects or programs from customers their timetables get shifted just because of their inability to get other components.
Yes, it's a good question, we worry about that I always and we have heard some saying we can't get the the other part and therefore this might slowdown, but then they then they pause and think you know what we don't know when things are going to open back up on other components and they're all fighting to get the other components. So almost all of.
This delta and say you know what we're just going to go ahead and order yours, and then if theres something slower that the that comes in at least we will be ready and locked and loaded so the net net.
Is that that we haven't seen that happen we've had some conversations about it not in any of the major projects. The major ones are all running on their own timelines.
And some companies like some of the mobile device companies, we work with they have so much power in the marketplace that frankly, they don't seem fazed by this so it's not affecting the core of our business at all.
It is the conversation that day.
There's a lot, but it seems like it nets out equally neutral and positive do you want to add debt to that metric.
Jason the.
The first 1 is we have some flexibility with some parts on our end. So whenever there is a possibility to switch from a dedicated chip or IC true.
The related 1 with similar of the same functionality, we really try to coach our customers through debt and give them the possibility of when the shortage.
Part of <unk> to better move on for part B. The other thing is we really try to scrub things up from the.
The chip market out there with distributors and so end of lot of customers are very willing to pay more for it so not only debt. There is some prices increased by the IC vendors, but even if you can't find Ics.
They rather don't wait until like February March from the also next year, but get it right now.
And that's and that's really and that's really important to know and another important comment on that topic as a whole.
Yes, we've seen from some challenges on the customer side, but we also have seen a lot of projects in the lot of customers from competition reach out to US now because everybody is struggling so from that point of view.
We're seeing a lot of projects basically coming to our surface, which we havent had visibility in the past so it's the.
It's a great opportunity for us right now.
Okay. That's really helpful and just looking at the pharmacy opportunity. When do you think that second customer could exit sorry of that pilot stage and I guess relatedly given that you do have 2 pretty sizable customers you're working with have you seen increasing interest from other pharmacies.
Out there.
First on the process through so the first 1 took us almost.
Almost a year in pilots and then of course any of these pharmacies. They all have thousands of pharmacies.
And so the rollout of they've got to get them supplied everywhere in all of the permits strain. So it can take 8 months to a year.
To get that through the pilot and the month after that to deploy and ramp up so.
The great thing about these projects is once they are going day don't stop and they just growth, but they do take time so.
I think the again that sort of mid next year timeframe, maybe a little earlier, but debt, but in that timeframe is the.
Is the appropriate way to think about it again to ramp up to 2 aggressive scale there already continuing to consume.
<unk>, but but no.
The the Tenex scale of they can get to.
Okay, and Steve are you talking with additional pharmacy customers or potential customers.
Yeah, everybody at this point.
Pretty much every major player in the industry and some of the online.
Participants are.
We are looking at evaluating.
Some kind of a project like this sometimes through.
Go direct to some of the and some through integrators and third parties, the rehab, but but I I would be surprised if there are any.
Debt arent looking at it by now.
Okay I'll jump back in the queue. Thanks, a lot guys.
Thanks, Jason.
Once again, if there are any remaining questions or comments. Please indicate so now by pressing star 1 and our next question is coming from Mike Latimore from Northland Capital. Your line is live.
Hi, This is other the on behalf of Mike Latimore.
Could you talk about the students use case when could we expect the FDA approval for the students use case.
So.
It's a device use the extension and youre going to rapidly exceed my knowledge of FDA approvals are they there.
For the experts on it but there's a there's a filing that isn't a bullish the for example, theres not a medical device trial involved in it it's an existing medical device all approved it just needs.
A extension on the metrics.
I'm not into all of that the answer more of it the way it's going to be designed is.
Ideally avoid FDA approval, because it's just like all of you wrapped around an existing syringe and.
And it's just like offering additional services and has looked kind of be interfering with the way how like medicine of whatever it's going to the appliance. So from that point of view that book necessarily but Henry Park there. So.
Yeah, I hope this answers to your questions.
Alright, alright, fine and could you give some color on what can we expect the gross margins in the second half of the year could we expect 40% day jumbo gross margins.
I think gross margins.
It will be more in the consistent with.
Where we are now.
More again, if youre talking about non-GAAP gross margins that youre talking about in the 38% to 39% range.
Because even as we are making sure we're delivering everything there are some purchase price variances theres. Some logistics cost as of few other things that are going to keep I think keep.
The supply chain under pressure will be delivering.
But and we might we might find that you get all the way to the 40%, but I think theres going to be some small pressure on gross margin through this year.
For us like any company.
Alright, Alright fine no further questions. Thank you.
Thanks.
Okay. The next question is coming from Jay John J. Your line is live.
Alright, thank you for the opportunity to ask questions.
Congratulations.
Sandra I hope you have of.
Great for you I had the view.
And then just on the RFID side.
Can you give us your next step in planned capacity.
For this year and next year.
Okay.
In terms of capacity right now we're in the mid $200 million range of units.
We're not adding it.
A ton of capacity right now per se, but what we're doing is we're swapping out some of our older equipments for some newer equipment and that will add.
10 to 20 million unit increments on some of the equipment because of the newer stuff can handle the the more critical processes faster more effectively so we will be moving that volume up from the mid 2 hundreds to the 300 million unit, but it's really when we see.
The the demand side come through for some of these larger projects that will start to add in.
Couple of more meaningful piece of equipment that the next 100 million unit capacity.
I see and you mentioned mid next year as being part of the other times when some of those larger programs come into play Hum volume of back to the capacity.
To accommodate part.
Relatively quickly around 4 to 5 months.
But ordering of machine getting it in getting it qualified ramping it up.
He is roughly the timeframe and.
And if you think in terms of.
3 quarters of millions of euros.
For for <unk>.
50 to 75 million unit, that's roughly the way to think about how we add capacity.
It's great to be clear of that parallel it doesn't need to be 3 to 4 months for each 70 million units, we can get 3.3 machines in at.
$100 million, the 200 million years plus.
Oh, that's great.
And then I know you spoke about the second pharmacy, that's up on CBS.
I noticed that my local CBS.
They now all have the spoke of in Iraq.
A quarter ago, I don't think the only a few bid for.
The rollout now complete or is it still ongoing at UBS.
Yeah.
It is complete.
And I think that mean every CBS they might have left it out of some but it should mean every CBS.
And as the and as we.
<unk> before they seem to be expanding the marketing beyond just visually impaired to all customers and the.
That's a great way to get more of your prescription information without having the to read all of the fine grades on the paper.
Okay.
And then moving onto the paint the side I noticed on the job boards that right now at least the.
The majority of the current employee searches are up for the types of side, but this means that you're pretty much hardware you wanted on the RFID side and then also does it mean that the public society, a bunch of growing faster than the expected.
Premises is growing faster than we expected that's true.
And but we do have hiring going on on the on both side.
We are we're still recruiting activity on both the premises and RFID RFID, sometimes is more targeted if you're trying to pull the specific.
A person out of the targeted company.
That might not be abroad, a position that you post and advertise out there so I soften more rifle shot.
I see.
And then what the new hires that you did already in the plan to make in the second half.
What sort of Opex level should we think about going forward and what sort of revenue level kind of out the port.
So.
Revenue level.
We think debt that.
Debt, we should be able to support <unk>.
30% to 50% more based on the level will be at going out of the year. We do think that will be we'll be adding something of the order of 10% the opex.
To drive that 30% to 50% on the top line.
The bus great leverage that's great to see.
And then.
In the script, you mentioned 20 to 22 of couple of times.
And.
Without giving guidance can you just give your thoughts on I guess.
It is shaping a bunch of <unk>.
'twenty 1 do you expect growth to accelerate from this year.
I think the at the mid point of view of about $18, 5% to 6% revenue increase for this year with other programs coming online should we see a pretty.
Would that be if your hurdle for net for 2020.2.
Yeah. So the.
Sandra is shaking her head out of me as well.
We arent, giving 'twenty guidance, but but but but of course, if you. If you look at the the derisking.
The arithmetic of everything we're adding 1 would think growth above what we did in 'twenty, 1 is reasonable but tender all of the I'll, let you answer that.
We'll be giving full guidance in the November earnings, but I think what Steve said is the reasonable assumption.
Okay, Great and then finally.
I think first half of 2020.
Adjusted made a series of actions to conserve cash and maintain a bunch of the flexibility due to the pandemic.
And lot of them to pay.
We've definitely shares instead of cash.
Now that your cash level is much higher your balance sheet looks great.
Business itself, it's a much firmer footing.
Are there any parts of go back to paying the salary and cash or or the last day with a shared and for the record I apologize I just spoke of your compensation the chairs.
Yeah.
What was the last part.
The I pod you that you still get your compensation in shares versus the cash.
Okay, Yes anyway I'll answer thank.
Thank you.
I'll answer the first part I have no intention to shift to cash compensation.
Okay. That's all of it here. Thank you so about the stick with the equity compensation.
Okay.
Thank you so much.
Okay.
Okay, we have a follow up from Craig Ellis from B Riley FBR. Your line is live.
Yes, thanks for taking the follow up Steve I just wanted to go back to the end of June announcement. The signaled some some strength that was brewing in the enterprise part of the premises business and clearly you're talking about.
The continuing today of the question is really on how the the premises business mix will shift as we go from this year to next year with so much of the shares year to date strength of at least driven by federal government that remaining strong why is it reasonable to think the the engagements that you have in federal court.
What would persist next year too.
From from the engagement that you're seeing in premises how long does it take for different types of projects to really.
Come to revenue level, and then to scale up to.
To be.
Cereal things and how does that play out with the mix of business between those 2 parts.
Yeah. Thanks for the follow up on that Greg to comment.
Comment, yes, we do think premises will be growing on the other hand, RFID, which grew 39% in this quarter is growing faster. So it's just that it's just the simple fact that you will have.
We'll have mix moving that way.
Which is great because that's the fast growing part of the business and we're investing in it and we expect it to continue to grow fast and accelerate but the premises is growing.
Growing somewhere our premises business is growing somewhere around.
4 plus times the for the market growth and we think we're going to keep taking share of that way.
And federal government.
You know, it's no secret there's a lot of spending.
Going on especially in cyber and physical security for the federal government and most of the most people with knowledge and we certainly believe we have the most secure platform.
For for a better facility. So I think that will continue to grow and grow strongly and growth much faster than the than the premises market.
The time cycle.
There's 2 things that drive federal growth 1 of the expansion of current deployment.
The deployment. So we're in all of the federal court houses the eye or out of the FBI.
Most of the secret service secured locations and the number of others TSA.
Et cetera. So.
They are massive deployments and there is growth driven as they go across more facilities and they go deeper into or they upgrade their facilities. The higher security infrastructure. We also have launched our video intelligence platform and so they can expand there.
The access security into physical sorry video surveillance and video intelligence and then the question I think of the core of what Youre, asking which is how long it.
<unk> actually take that of relatively new.
That can be anywhere from 6 months, which can.
What happens when there's.
Urgency around you've had of appointments to our year and of happening and you talked about the full RFP process multiple bidders.
Objections, and everything else that comes along with it but the the near term growth is coming from.
More urgent short term projects and from expansion of but a lot of the departments that were in right now and we're in.
The dozen different department of agencies across the federal government, so lots of room for growth there.
Got it thanks for that and then Sandra.
Ask you 1 on gross margin so it sounds like just given some of the incremental costs that go along with the operating in the environment that we're in that will be enough of high <unk> gross margin range, 38% to 39% in the back half of this year, but I know the business, we'd like to get back into that 40% range. So so the question is this as we look at.
Back to historic levels 40, the 41% of 42%.
Can you talk about some of the the puts and takes of getting there if not this year then as we go through calendar 'twenty 2.
Yeah, I think through calendar 'twenty, 2 we're going to see some of the extra costs and logistics costs that we're seeing now subside, we're going to see the expansion of our subscription and cloud offerings and premises, which will give us the gross margin expansion and we will continue to see our transponder business.
Really grow into the capacity that we've put in place. So we expect both segments to continue.
Continue to move up in the 'twenty 'twenty, 2 and we should be firmly about the about the 40% for that year.
Got it.
Thank you both.
Thanks, Greg.
At this time. This concludes the company's question and answer session. If your question was not taken you may contact identity Investor relations team at <unk>.
And the E at Gateway IR Dot com.
I'd now like to turn the call back over to Mr. Humphreys for his closing remarks.
Alright, Thanks, I will make this the very short because we're almost back of the top of the hour, but but thank you all again for joining us this evening the sits.
The very fast moving industry, you and every week as you can tell we're hitting new milestones launching new products programs, bringing on people. So we will keep up the communications you can track our progress over time in these the fast moving market.
It will be at a number of investor events.
Over the next day couple of months.
We've got Canaccord B Riley Gateway Colliers.
Lake Street and people are all coming up.
And then also for anyone who's following the RFID industry RFID Journal live in Phoenix.
The 26 of the 28th of September will be going on that's the main RFID event of the year. It's in person and so anybody you add the interest there and carries the to meet with the there of course, we will have a very meaningful presence there we'd love to.
See you there and show you through some of the things that we're doing both ourselves and in the industry. So any of those events. Hopefully we can we can see you and keep you up the speed with the the business as the progressive. So thanks again. Thank you all for joining us and have a very good evening.
Thank you for joining US today, you may now disconnect.