Q3 2021 Identiv Inc Earnings Call
Good afternoon, welcome to Identive presentation of its third quarter 2021 earnings call.
My name is Catherine and I will be your operator this afternoon.
Joining us for today's presentation are the company's CEO, Steve Humphreys and interim CFO and Karen Bauer following management's remarks, we will open the call for questions.
Before we begin please note that during the call management may be making references to non-GAAP measures or projections, including adjusted EBITDA and free cash flow. In addition, during this call management will be making forward looking statements.
Any statement that refers to expectations projections or other characteristics of future events, including financial projections and future market conditions is a forward looking statement.
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 SEC, including the company's last annual report on Form 10-K.
Assumes no obligation to 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 third quarter, we had record revenues of $29 $1 million led by sequential growth in our identity business, 27% and overall sequential growth of 21%. We also generated $2 9 million in cash flow from operations and $2 5 million in GAAP net income or nine cents a share EPS.
In Q3, we also retired all of our debt, giving us a strong balance sheet with $29 2 million of cash and no debt.
We think this gives us the capital strength to drive for industry leadership as our markets take off.
On the growth side stepping up more than 20% quarter on quarter, especially with the supply chain stresses in other challengers robbed us shows the underlying demand strength in our markets. This is why we're confident in our outlook for the rest of the year and for strong growth into 2022 and beyond.
Now I'll go through our key growth metrics, first which made progress across growth backlog cash flow and profitability in.
In Q3, though we also made progress thats, even more relevant in these numbers in a couple of our major RFID opportunities and in developing our RFID team to drive growth in 2022.
So after the metrics I'll update you on those steps and the opportunity for next year.
For our core metrics. In addition to the sequential growth I mentioned, we grew 17% year over year overall, and 21% year over year and our identity business. This is especially meaningful since in Q3 of 2020, we had over 100% growth in our RFID business, making for a high comparable bar.
Even with that high bar RFID units grew 19% year over year for year to date total of nearly 120 million units.
As expected our premises business also grew solidly up 13% sequentially and up 10% year over year, our federal government sales led the growth pace up 16% sequentially on top of the 34% growth last quarter.
Our other key metrics show the progress in our business model as I mentioned positive cash flow in Q3 was $2 9 million a sequential swing of $5 3 million versus last quarters use of cash of $2 5 million and our cash flow improvement of 3.9 over even the seasonally strong Q3 of 2020.
That cash flow is probably the clearest indicator of our businesses strength, so reaching almost 10% free cash flow, while also driving growth and managing supply chain stresses shows the base strengthen our business model.
This was supported by a sequential growth in non-GAAP gross margins from 38% in Q2 to 39% in Q3.
So in Q3, our core business strengthened across revenues gross margins cash flow and profitability, but even with these strong metrics. Our biggest progress in Q3 wasn't in the numbers. Our RFID team made very fast progress expanding and strengthening our already world class team to drive our 2022 growth and industry leadership.
In just the last couple of months, we're on track to more than double our RFID sales team. Some are already on board and summer signed up joining over the next few months. We think we're building the best technical sales team in the industry, including higher from Smart track Omni I D, which is part of H I D. C. C. R. R, which is one of the most aggressive competitors and RFID Han.
The well story, and so and others attracting.
The best talent from our toughest competitors is probably the strongest endorsement of our competitive position you can get because salespeople only go where they'll make more money by selling more.
Now Manfred Mueller and a mere caution Yahoo have both led this team building and they are on the call. If we want to go into more detail later.
Also during Q3 and in the first few weeks of Q4, we've had a busy in person trade show schedule, including RFID Journal Live Iot World MJ Biz, if SEC ISC West and G. S X, we had a central presence, especially at RFID live, which you can see in the picture here, our marketing and sales teams managed all of these in a tight time frame.
While still controlling expenses in the quarter.
Let me turn now to progress in the third quarter in our core growth strategies of new design wins, moving customers through the production cycle and expanding new and more complicated designs.
These all made progress in the third quarter.
So starting with customer launches expansions and ramp up.
Our major mobile device customer increased their marketing emphasis on NFC and on their NFC enabled platform for accessories, we're confident they'll keep growing NFC use cases in 2020 two and beyond the result of which will be added opportunities for us across eco tags metal attach tags and our cloud based authentication platform.
Most relevant for 2022, we also had one of our cannabis related customers placed first meaningful orders.
As we said might be the case, the first movers are coming from the states.
Even though Canada's cannabis industry started out working on NFC RFID solutions, and we think there'll be the biggest single market one of the leading suppliers to the U S. Cannabis market is placing an initial purchase order for $1 9 million units in a frame order for 20 million units. Now. This is just the beginning but it shows that the market adoption is starting.
We will share more information about this in the next couple of weeks, but it's relevant because we've seen this before a first mover then drives others to speed up.
Now to keep you updated on the other major candidates program is also making progress.
Can't disclose customer details, but it's important for investors to track progress so here's the latest.
Because we program RFID inlays for a mobile device customers. This customer has asked us to apply our production scale programming technology to their products, thereby expanding the relationship and integrating further into their solution.
This could mean more revenues from the opportunity and a stronger differentiation for us which is even more important.
We don't think this changes the timing, especially with others already getting rolling but I wanted to give insight into the process of projects like this it's why we're confident in our market and our revenue opportunity.
Similarly, our auto injectors syringe customer is making meaningful progress our.
Our customer recently conducted a board demonstration and review and received board level approval to go forward with the program, which gives you a sense for the strategic relevance of this product.
We think we're still on track for the introduction mid next year and volumes are still projected to reach over 100 million units on an annual basis as we've been able to establish ourselves as a key central technology partner to this customer we've been asked to and are now working on another RFID application of similar size for this customer.
Now as we did last time here, some new and expanding customers. We don't want to go into all the use cases, but you can see adoption is happening fastest in our main focus area of health care and medical devices, followed by consumer use cases, so in medical devices and health care New customers include many fab Zemin's Rangers pharma and <unk> medical.
And as always there are others, we can't name.
Now among those new customers. We can't name are several that are actually using fujitsu's radiation hardened SRAM chip technology, which it turns out is ideal for medical devices that use radiation exposure for sterilization.
Now in addition to these new customers. We also had follow on sales into care stream Chem flow Schreiner group collect I D. Bullion works tap online in a couple of dozen others.
Now these and the many others I went through last quarter, and our 150 plus other RFID customers are the wide base of adopters that will drive our base, 40% to 50% RFID growth with the game changing projects then adding further to that total.
Lastly, and even more broad market initiative is our NFC RFID software developers kit notice, our SDK, which we did launch in Q3.
We've had several thousand inquiries for developers kits that were being selective to whom we send the actual kits because we can only support a limited number of developers at a time.
We think this captures the vast majority of the market because we know most of the serious use cases so.
This should give you a sense for the accelerating RFID momentum underneath the numbers in Q3 and the beginning of Q4, that's now in place to drive our 2022 growth.
In addition to our high growth RFID segment in Q3, our premises segment showed the strength, we expected and we expect to expand into 2022.
This isn't a backlog driven business normally but we exited Q3 with a near record total premises backlog of $2 6 million in premises.
This is a strong signal of the premises business momentum that we see growing into 2022.
Our third strategic focus is on revenue repeatability and predictability.
In RFID predictability is driven by customer retention and a focus on consumable products in Q3, we kept our track record of 100% customer retention in RFID.
And premises predictability is driven by software services and recurring revenues, which remained strong at over 22% of our premises revenues.
So before I wrap up let me mention something I haven't discussed is a factor in Q3, which is supply chain now.
Now were affected by supply and logistics like any hardware and systems business, but we managed to fulfill every customer demand. We have one of the best supply chain teams in the industry. We got ahead of some of the bottlenecks early on and we always have some safety room in our planning.
While we're not immune but our team is doing a great job, we werent materially impacted in Q3, and we expect to keep that track record in Q4.
That'll be clear from a macro perspective, we think the world supply problems will get even tougher in Q4 is the holiday shipments surge competes with all the other demands, but we expect to deliver to our customers needs and to take some market share as our competitors aren't able to.
So in Q3, and the beginning of Q4, our growth profitability and cash flow showed strength beyond the metrics. We made major steps in our RFID organization to drive growth in 2022 and landed in initial cannabis frame order for 20 million units signaling the launch in that category.
We made progress in our major opportunities as well as expanding our broad base of customers and use cases in our key segment of medical devices and health care launch or NFC SDK with huge interest and delivered strong software services and recurring revenues in our premises business. These all made great progress in Q3, supporting a strong finish to 2021 and an even stronger.
2022.
So before getting into the next quarter and our outlook for 2022, let me turn the call over to Ed to hit the financial highlights for the third quarter.
Over to you.
Thanks, Steve.
Steve mentioned, our financial results reflect our continued strength exiting the third quarter with a delivery of sequential and comparable growth in revenues future backlog cash flows from operations and overall profitability.
These results paired with the investments in RFID capacity expansion of the RFID organization and capabilities and our supply chain, we believe position the company to achieve its growth and profitability potential.
We closed out the third quarter of 2021 with $29 1 million in revenue up 21% on a sequential basis and up 17% year over year.
Our reoccurring revenue was stable at 5% of our third quarter revenue and 5% of total trailing 12 month revenue.
For the third quarter of 2021, our GAAP and non-GAAP adjusted gross profit margins were 38, and 39% respectively compared to 37%, 38% in the second quarter of 2021, and 40 and 41% in the third quarter of 2020.
For the trailing 12 month period, our GAAP and non-GAAP adjusted gross profit margins were 36 and 37% respectively.
Gross profit margin changes resulted primarily from the mix across and within our segments.
Our non-GAAP adjusted EBITDA margin was 11% or $3 2 million compared with 11% in the third quarter of 2020 and 5% in Q2 2021.
For the trailing 12 month period, our non-GAAP adjusted EBITDA margin was 6%.
Our Q3 GAAP net income attributable to common stockholders was $2 3 million or <unk> <unk> per share. This.
This compares with income of 0.1 million or one cents per share in Q3, 2020 and income of $2 2 million or nine cents per share in Q2, 2021 which included a onetime gain on the forgiveness of our PPP loan.
We have provided in the appendix today, a 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 identity.
Revenue from our identity products totaled $18 7 million or 64% of our total revenue in Q3, 2021 or 21% increase from Q3 2020.
27% increase compared to Q2 2021.
The sequential and year to year increases were driven by growth across all identity products with additional customer expansion due to our ability to deliver versus competitors constraints supply chains.
Our Q3 2021 identity segment GAAP margins were 28% compared to 24% in Q2, 2021 and 30% in Q3 2020.
The sequential increase in margins were due to a greater proportion of higher margin products in Q3 versus Q2.
The decrease in year over year margins were due to product mix with a higher proportion of lower margin RFID transponder product sales due to the faster growth rates of this category.
Turning to the premises segment. This segment accounted for $10 4 million or 36% of our total revenue in Q3, representing an increase of 10% from Q3, 2020, and an increase of 13% compared to Q2 2021.
The sequential change in revenue was due to the recovery the continued recovery in select commercial verticals like banking and retail along with normal seasonality.
The year over year increase in revenues from our premises segment reflects our growth in sales to the federal government. The rebound in sales of Hirsch velocity software products to commercial consumers and higher sales of video technology and analytics software products.
GAAP margins for premises in the third quarter of 57% were comparable to Q2, 2021 and higher compared to 55% in Q3 2020, primarily due to the mix of products within the segment.
Moving now to our operating expense management, our GAAP operating expenses for the third quarter of 2021 totaled $9 1 million, which were consistent with both Q2, 2021 and the third quarter of 2020.
Our non-GAAP operating expenses adjusted to exclude restructuring and severance costs and certain noncash charges, consisting of stock based compensation and depreciation and amortization totaled $8 2 million in the third quarter of 'twenty, 'twenty, one or 28% of revenue.
This compares to $8 million or 33% of revenue in Q2, 2021, and seven 5 million or 30% of revenue in Q3 2020.
Our non-GAAP adjusted EBITDA was $3 2 million in the third quarter of 2021.
A 0.5 million increase compared to Q3 2020.
And a $2 1 million increase compared to Q2 2021.
Turning to the balance sheet, we exited Q3 with $29 2 million in cash a net decrease of $7 2 million from Q2, 2021, and a $16 9 million increase from Q3 2020.
The key drivers of our cash activity for the quarter were $2 9 million generated from operating activities.
0.4 million provided by investing activities driven by 0.6 million of proceeds received from the sale of an investment.
Offset by <unk> 3 million in capital expenditures related to our continued investment in our R&D facility in Germany, and our Singapore manufacturing plant.
These sources of cash for the quarter were offset by cash used in financing activities of $10 3 million driven primarily by the repayment of all principal amounts outstanding under our EW be revolver of $10 million, leaving us free of debt as we exit Q3.
And our 10-Q filing we will be we will be providing a full reconciliation of our year to date cash flows for completeness. We've included the full balance sheet.
In the earnings release and the appendix.
As we continued to progress through the remainder of the year, we're refining our full year 2021 guidance today with our revenue between 103 and $105 million.
Sharing some metrics as we move into the fourth quarter.
Exciting Q3, or Q4 backlog was 11 7 million up 18% versus Q3 2020.
Our total backlog for all future shipments was also up 51% versus Q3 2020.
And total new orders booked through the first three weeks of the fourth quarter was $7 5 million up 46% over the same period of the prior year.
These trends provide visibility into the business momentum through the balance of 2021 and going into 2022.
As a result today, we are providing initial revenue guidance for the full year 2022 building on the strong base of growth that we have delivered to this point.
Our full year 2022 initial guidance is for revenue between 130, and $135 million, reflecting growth of approximately 25% to 30% year over year.
We will be refining that initial guidance when we report our Q4.
In 2021 full year earnings in March 2022.
With that I will conclude the financial discussion and pass the call back to Steve.
Thanks, Ed.
As our results and our initial guidance for 2020 to show our growth is expanding we expect overall growth of 25% to 30% for 2022, driven by 40% to 50% growth in our RFID business with the possibility that our major programs could drive RFID growth much higher.
In premises, we're expecting 20% to 25% growth with strong margins and increasing software services and recurring revenues beyond 2022, we see overall growth increasing in 2023 at a minimum in the 30% to 35% range again, driven by higher RFID growth rates.
Let me go into the basis for our growth projections and how we're thinking about our base growth that's predictable both in timing and scale and how were projecting transformational opportunities at the core is the 40% to 50% RFID growth. This assumes base growth of our core markets and the wide base of customers. It assumes a measured take off of a couple of our transformational.
Kennedy's but it doesn't depend on any of the opportunities becoming in 2022, the over $10 million revenue drivers that each can easily reach the reason is timing.
In this industry, we've seen projects move around by six months or more I'll talk later about how we are mitigating. This we think we've got some different leverage points than the industry has had in the past. So we should be able to project and manage revenue pads better.
Right now, though we need to project, what we can see 40% to 50% growth shows a very strong market that we have line of sight to our leadership in the market means will also most likely be the winner when each use case hits an inflection point.
Now I will go into details of how we're driving our core RFID growth, we're already far along building the industry leading organization in NFC based RFID, we're developing early adopter customers in use cases faster than anyone else and we also have a great competitive environment. Just as end users are adopting our strong financial position now debt free with a strong <unk>.
Cash and working capital balance sheet lets us focus purely on execution and driving our unique and massive market opportunity.
I'll focus the rest of my comments on our execution plans for 2022, the driver base growth and that expand the range of transformational use cases beyond this base growth, especially in health care and medical devices. Our expectations for 2023 growth are based on our base 2022 growth continuing plus confidence that some of the transformational.
<unk> will be underway in 2022 and contributing substantially in 2023.
In fact, if these transformational applications contribute for the full year 2023 growth rates could be substantially higher than 35%.
So the structure of our 2022 strategy is the same we've applied for the past two years design wins current customer volume growth and the technologies programs and partnerships to drive growth.
Design wins is our focus our organization is built to drive design wins with early adopters in key use cases, we do this through four strategies chip partnerships technical sales strength engineering, and technology depth and industry design and production leadership.
We've talked before about our deep chip partnerships and our engineering leadership in technical sales I said earlier, we're on track to double our direct sales reach with industry experienced salespeople from the best companies in the industry.
Now experienced salespeople bring with them visibility into almost every design opportunity in the industry with the team of Mir and Manfred are built we think we're now in this position combining that visibility with our full scope design through production expertise, we're able to win designs and then help customers get past the friction that early adopters run into.
The biggest problem in our industry has been customers not having experience running into a roadblock and then sidelining the project despite the business benefits.
Our technical expertise and experience scaling projects lets us get customers passed all these roadblocks. Its basic early adopter customer success focus, which the semiconductor industry has been very effective focusing on an early stage categories. Intel did it early with Cpus and video did it early with their Gpus and we think we're the only company.
Playing it too advanced RFID devices as this market takes off.
So with this best in the industry platform continuing design wins in Q3 more in the pipeline for Q4, and 2022 and with 100% of our current customers staying with us and some expanding designs and volumes, we've got solid visibility into 2022, both from our backlog and pipeline perspective.
We're also continuing to expand our technology offerings. There it doesn't technology programs, we've talked about before so I'll just highlight one new one our partnership with Willie and Israeli based company that recently gotten to $200 million investment from Softbank.
This is the passive Bluetooth RF device company that could be an industry game changer.
Our partnership includes both devices and applications as well as the software platform for product engagement.
Also on the technology front I mentioned earlier, we're extending our SDK to include a cloud based authentication server to validate personalized and then enable customer engagement with any RFID enabled device we've deployed.
To make our technology range really accessible to product engineers, we're also setting up innovation labs and customer experience and success centers now our engineering center in Germany has proven to be a competitive advantage with great people equipment and exciting projects that all draw great talent.
We are planning similar capabilities first in our southern California headquarters and eventually in Singapore. So we will have all major geographies covered now.
Now only Jeep Germany's our core engineering center, but our customer success centers will be meeting at workplaces defined use case opportunities develop project Rois and break any bottlenecks that come up in the design pilot ramp up redesign process.
With the design wins the team customer success focus the technology platform and our partnerships around chips technologies and channels in place. The final part of our strategy is focus.
Our clear focus is in health care and medical devices are customer specific projects around the auto injector syringe blood test assays operating room tools and consumables are the highest margin opportunities, while our standard medical RFID products can scale across customers. These.
These include our you trust her interject for single use or inches you Trust blister check for prescription pill protocol compliance and authenticity you trust him sense for in hospital temperature checking and our prescription spoken content RFID devices for Cvs spoken Rx and others.
We now have medical applications dispense oranges test assays and equipment at home test operating tools and devices prescription Pharmaceuticals high end blister pack pharmaceuticals in hospital disposables like thermometers and others.
We built the portfolio, giving us solutions for almost every aspect of health care from hospitals to clinic to home.
Business development and sales now is the focus to leverage our solutions into every medical early adopter opportunity.
Now we're of course going after high end NFC based RFID applications and consumer experience packaging libraries cold chain logistics and industrial use cases to build our scale and cover emerging markets, but you can see where the long term focus is with our medical initiatives.
Now we're focused on RFID, because that's our core growth driver the premises part of our business is also lined up for strong growth in particular federal state and local government sales look strong as do our software and recurring revenue products.
With a focus on physical security in both the federal government and state and local level, we're seeing great demand strength.
Combined the need for improved physical security expanding federal spending physical health at the state level and infrastructure investments and we see lots of drivers for growth and increasing market share.
Now before wrapping up one other topic I'd like to touch on is our CFO search after screening several dozen candidates we have a terrific CFO, we're preparing to move forward with.
Now transitions of financial executives are all of a sensitive so we're being respectful of his current company's processes were not able to name someone today, but we expect to within the next couple of weeks. We will go into details then, but I'm sure the industry and our investors will be impressed by his ability to lead all financial aspects of our business is.
Just a couple of background points. This as a finance leader that's been it with a public semiconductor company through the growth phase from 70 million to $400 million in revenues over just a few years, which is exactly the growth path we're driving towards.
Deeply experienced in systems as well as semiconductor businesses, which are the best Comparables to our RFID business and has operated in $100 million up to several billion dollar businesses. He has also built world class teams and implemented critical financial systems in very intense public and private company environments.
He started his career at a big four accountancy. So he has deep on the accounting side as well as financial planning and operational rigor.
I wish I could say more right now, but this is important enough that I wanted to give very clear update on exactly where we are in the process.
So to wrap up here some growth indicators from just the last few weeks as Ed mentioned, we have over $7 5 million in new orders booked in just the first three weeks of the fourth quarter up 46% versus the same time last year.
As we look into 2022, our total backlog for all future shipments at the beginning of the fourth quarter is up 51% versus the same time last year.
We've gotten our first purchase order of almost 2 million units for a major candidates program part of a 20 million unit frame order.
Our auto syringe customer got board level approval to go forward with the program and our mobile device customer is increasing their focus on NFC as part of their accessories platform, our medical device and health care focus is getting more traction both with a growing range of customers and now a full suite of standard medical RFID devices across syringes pills temperature.
Prescription apps and others.
To leverage this technology and customer progress, we've aggressively expanded our RFID customer facing team, bringing in some of the best talent in the industry.
Security spending is on a long term growth path and our revenue predictability for the company as a whole is strengthening from the growing range of consumable use cases, returning customers and recurring revenues.
So we see the rest of 2021 and 2020 to continuing these trends in 2022, we expect some of these major programs to accelerate our growth even further at some of the revenue multiplying projects fully ramp later in 2022 and into 2023.
We're also confident we will find more opportunities like these with our strengthened team our technology leadership, our developers kits and other aspects of the leadership rebuilding in the advanced application RFID industry as it takes off.
With that I'll open to questions and discussion and as I mentioned before we have Manfred and I'm here on the line also so if they're RFID related questions. We can cover them in whatever depth we need.
So operator, please open the lines for the discussion.
Thank you we will now take questions.
You have any questions or comments. Please press star one on your phone now we.
Ask that while posing your question you. Please pick up your handset speaker phone to provide optimal sound quality.
Again, if you have any questions or comments. Please press star one on your phone now please hold them on the light pole for questions.
Your first question is coming from Craig Ellis with B Riley.
Your line is live.
Yeah. Thanks for taking the question and team congratulations.
On the financial performance and the progress of our business, Steve I wanted to start just by.
Seeing if we could dig in a little bit more to the framework that you talked about in Canada, So exciting development.
High volume since I'm not familiar with that type of border what are some of the milestones that investors should be thinking about with that type of an agreement.
So it'll be the usual.
Finalized finalization of the design process.
And launch plan that they'll have to go through for the product itself and then of course finalization of the prototypes of the pilots and the production ramp up.
And die.
It is actually just beginning order, it's relatively yet as volumes that should be substantially larger than that as we go forward with it.
But I'd say its that first step that should start to break some of the logjam.
Great Nice to see the second question I think I got most of the points around calendar 'twenty twos outlook and.
Nice to see a significant growth that $130 million to $135 million. I think you went on to make some comments on calendar 'twenty, three which I missed so could you just.
Recap, what you said about 20 three's potential growth.
Yes, I am.
Absolutely, we think that that growth base that we go out of 2022 into will.
It will be the platform for growing off into 2023. So we expect 23 to be in the 30% to 35% growth range and then again as I said in 2022, we have the base growth and then we have some of the transformational projects that we think will be coming in but not really driving.
$10 billion plus in the year, they really should be developing in the 'twenty three time frame and so that's why we expect to see accelerated growth on the back of that and then the growth rates in premises, we expect to continue as well.
Opinion guide the overall business model does that fill in the gaps.
Yes that does and then if I could.
Flip it over to Matt <unk> President Amir.
Guys a bit.
The question I had for you is regarding the sales team. So Steve mentioned that there've been a number of direct salespeople added from competitors. The question is when you're bringing folks in from a competitor how long does it take for them to become a <unk>.
Very productive with the different solutions that are that Identive has and the capabilities that identive has from engagement all the way through manufacturing and fulfillment.
And so what should we expect in terms of the timing to their potential contribution to revenues.
Okay.
Yeah, Great question, Greg So in general all the folks that we are bringing onboard are let's say industry veterans that have like 10, plus 15 plus years off.
Industry relevant experience, which means there is CMO ramp up curve when it comes to basically make them familiar with the protocol chipotle with there. So all of them are Hs as well Thats UHF specialists. So from that point of view, we really expect them to hit the road.
Very very fast.
A general comment we have really accelerated to bring in all these people into.
<unk> 2021 most most of them because we really wanted to be sure that they are hitting the roads heart right from the beginning all one 122.
A bunch of them are starting basically this week, we have some more following in the months of December with a very very sophisticated training.
Training and and and.
And other sessions to basically ramp them up and all of them of course know a ton of business, but on the other hand, we also are respectful of off.
Our respective technology, and other things and IP issues and related thank so from that point of view.
Really expect them to basically get contribute fast I'm here any more comments from your end.
Yes, I would just add that they do have rigorous 30, 60, 90 day ramp up plan.
<unk> for them to get on Board and then in addition to that a lot of them have that deep channel expertise. So they are familiar with competing with products that are very similar.
The nice thing is they can step really well into the relationships that they have and the ramp up from there. So from that standpoint, we're very very excited and and to add as we grow into 2023. This layer that we built it's also really good foundational layer for any new talent, we bring in because of their senior level experience. They can mentor.
The new groups that come in and also get them up and running.
And is there a particular geographic profile to the folks that you have.
Greg I, just Greg adjustments above to comment on that absolutely. Yes. So we are we are filling some of the gaps here.
North America, where we see some let's say immediate needs for let's say more coverage Latin America is another area, where we are adding there.
There is two folks in in.
The EMEA region, and we are bringing a couple of people onboard in Asia Pac between Japan on the one hand, and then southeast Asia on the other hands and they they basically blend perfectly fine into the remainder of the team that is onboard already so.
Truly doubling the force.
Through the end of the year.
Very good thanks for all the help guys I'll hop back into the queue.
Hey, Craig let me just add to that just to put it put a little more color on it because as you can hear how fast Manfred Namir has it moved we actually accelerated the hiring process.
Our board supported making some additional investment faster and.
And these guys have really brought in some of the industry's best and worldwide.
In the last couple of months. So it really is encouraging and as you can hear from Amir with 30, 60, and 90 day plans in place for each of them.
Execution EBIT, so that's going to be very aggressive because we wanted to front end load right now, even though they're all industry experts make sure that they understand our processes get the lay of the land and other products and then by the time, we're going into 2022 that we really have a wall of hitting the ground running and Thats what gives us some confidence in the growth is having.
Substantially larger team with the expertise that we've got that we think it will really position us for 2022.
And that really is enabled by the confidence we have from the investors the strong balance sheet and the board backing we have that said, yes, you've got the right leadership now go ahead and invest and build the team fast. So I just want to add that context, but thanks for the question Greg.
Yeah very helpful. Thank you.
As a reminder, ladies and gentlemen, if you have any questions or comments. Please press star one on your phone now.
Your next question is coming from Mike Latimore.
Your line is live.
Hi, This is on behalf of Mike Latimore could you give some color on how the demand has been for video analytics.
Sure absolutely.
The premises as part of the business has really in terms of percentage growth rate.
Video is probably the area that is growing at the fastest percentage right we launched.
A practical velocity vision, which is tightly integrated with our velocity physical security platform.
And from a standing start in May I think when we launched it.
We've got something north of a $9 million pipeline.
On the on velocity vision.
It could be eight or 9 billion, but it's of that order of magnitude. So it is it.
It has been very broadly embraced partly for the analytics, but but also heavily for the integrated access and video which is the differentiation of our platform and that's really moving nicely. We think it'll be a driver both of growth and gross margin expansion in 2022.
Alright, Alright, and could you tell me how much did your largest customer contribute as a percentage of revenue.
Largest customer I'd have to turn to Ed for our top 10.
No we didn't have any 10% plus.
Tumors, we didn't have any 10% customer concentration. So there was probably of the order of eight ish percent, but I can get to that in detail.
No one customer exceeded.
10% of total revenue or net revenue.
Alright, alright, great. Thank you.
Thank you.
Your next question is coming from Jason Smith with Lake Street.
Your line is live.
Hey, guys. Thanks for taking my questions. Steve I know you highlighted the health care sector, a lot, but just curious if you could provide some more detail on how the ramp at CBS is going as well as that second customer and then if you've seen any sort of increasing inbound interest from other pharmacies.
Yes so.
The ramp at Cvs is growing nicely.
We expect it it's up to them of course.
Any day week now that they will do a press release themselves and some notification on where theyre going with it. So I don't want to speak for them, but they should be speaking for themselves pretty pretty proactively before long and they are a very methodical.
Let's say pharmacy, an insurance company is as Cvs and Aetna are combined.
But the use case itself and the business is going well.
And we're looking forward to when they actually turn up the marketing juice on it to really drive it.
And then in terms of other interest we talked about another.
Top five pharmacy chain that is in pilots and they're deploying readers as well as.
As well as tags.
And because it's such a small industry I don't want to.
Give too many profiles of others that were in discussions with but as you would expect most of the major players in the sector.
Looking at bringing that capability to market now.
Okay. No. That's helpful. And then one of the big themes for US here in the RFID business has been you guys have the ability to continue to see ASP expansion.
Sure if you want to give specifics, but when we look at your guidance for 2022 does that assume continued ASP growth in the RFID business.
Good question.
The short answer is not necessarily.
Asps will oscillate around and especially with the expanded sales force, we're going to be getting a range of applications and as long as the margins are where we need them. They can be at 80 cents or at 25.
So I want to be careful about setting.
Too granular expectations, and then things are a little bit different I think they are actually going to kind of move around in time. So they can be driven so heavily by one big project or another but that can skew. It also now.
On the long timeline Asp's are certainly moving up and as you see have things like the auto syringe and some of the other use cases those are substantially higher asp's and so over the course of a year plus certain asp's will be moving up but on a quarter by quarter basis, and even first half of the.
But second half of the year.
I can't be certain what the trend line will be.
Does that I'm, sorry, that's a little bit Wishy washy, but day.
I've tried to be as responsive as possible is that fill it in.
It does and that makes sense and just a last question from me and I'll jump back into queue looking at the 2022 guidance I know you indicated that it doesn't assume sort of a significant ramp in some of these transformational opportunities, but if some of these opportunities take off faster than you had anticipated could you at the <unk>.
Very least need it from a supply standpoint.
So there is.
I want to answer it but also not create any concern.
We've got plenty of forward visibility and we've got plenty of very good relationships, but I also don't want to be glib about it.
Always possibilities that if suddenly someone needs 20 million units of a particularly high end multi sensor capability.
Hi.
It's possible that we will have trouble ramping up that aggressively.
We are buying in advance of everything we can think of and we think we'll be in good shape certainly for the for the plant as we got here and for some of the upside.
But as we said when we were guiding this year.
We don't want to have unlimited upside as if theres unlimited supply because that's just not the case, but there is plenty of room in supply and that our ability to work supply chain. So we can deliver a lot of that upside.
We certainly don't think it will be constraining any of our customers abilities to ramp at.
At an accelerated rate.
Okay I appreciate the color. Thanks, a lot guys.
Thanks, Jason.
Your next question is coming from Brian Ruttenberg with Imperial capital.
Your line is live.
Thank you very much so just trying to understand a little bit on 2022 and 2023 as you're doing this ramp on the operating expenses side.
Can you give us some kind of grounding on either as a percentage of revenue or or something or how fast you are going to be increasing.
Those operating expenses.
Yes.
We've been consistent in our board has been consistent that we're excited about the growth opportunity, but you can only absorb so much investment at any given time and we're on a great growth path. So.
The framework, we're applying is about half of the incremental gross margin dollars, we want to throw to the bottom line and about half of incremental gross margin dollars, we'll invest in the business and of course, if we gap up on some of these.
On some of these projects more of that will fall to the bottom line, but in general if you think of our.
Gross margin growth and about half to close the bottom line and half of it is driving the growth that's probably a pretty good framework.
Okay, and then I had another question on cannabis.
Assuming that.
At one point, a $9 million order with another 20 behind it hopefully.
What percentage of your business in 'twenty, two is going to be cannabis related.
So just one clarification there.
The $1 9 million units.
Not yet not dollars right.
So you would have to be thinking yeah and be thinking in terms of ido.
Sub 20 units for these things so just to characterize a little bit.
So.
So what was your question about the trajectory there.
Are you just answered it by giving me the asps on the units for the cannabis.
Are all those one 9 million units going to be shipped in by the end of 2022.
By the end of 2022 certainly.
Bye bye.
I I I believe that in that both that customer and that category.
It'll be a multiple of that number in terms of units as it starts to take off and I want to be very careful at the belief from talking to customers seeing what's going on in the industry.
That's that.
That's not a.
Our forecast that if it varies I wanted to be.
Overly worried about but.
The trajectory would be for if you ask the mirror and his team from the sales discussions they've been in and one of the one of the events I mentioned was MJ Biz, which uses marijuana business.
Our trade show.
That there's a lot of activity going there and I think there will be a multiple of 20 million units total associated with candidacy in 'twenty two.
Great. Thank you.
Okay.
Once 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 Chung.
Your line is.
Okay.
Again, great quarter guys.
Very nice guidance.
Can you get.
Let us update on your capacity and where you expect it to be by the end of the year next year and.
For the RFID side.
Yes, absolutely since we've got Manfred on the line, we might as well go straight to straight to the source there.
Maybe can you hear me off guard.
Yes, now we can yes.
Can you hear me now.
We got you.
Okay very good sorry, sorry, My line, just dropped and I hate to dialing again, so capacity wise, we are heading towards about $180 million. This year. We have we are at about 100 twentyish million units.
As of Q as of Q3.
And have a capacity of just shy of about 200 220 million units as we speak plus we always have the option.
Some outsourcing partners to basically cover peak demand for 'twenty 'twenty. Two we are planning on 285 million units in order to do so we have a.
A bunch of equipment in route already so there is another flip chip machine.
Basically signed off at the manufacturer close by here in here in Bavaria, and then shipping in the month of December and and we already have requested quotes for the next two on top of that so from that point of view in terms of capacity.
We are really planning full steam in order to basically to cover the growth scenarios for the coming year.
Great. Thank you and then for either Steve or Mac Brett.
Thank you allowed to discuss.
How many other transformational opportunity are there that's 100 billion revenue potential.
Earlier that the company you're working with on the auto injector has another project that might be comparable to that but there would be more like that.
Can you discuss them.
There is there is.
And they are in various vertical so health there is certainly more than a handful, but I also have projects that we're working on in the smart packaging area.
Where you have a tens of millions to start with and then hundreds of millions thereafter. So there is certainly a key.
Couple of real projects in terms of the projections for us.
We are let's say I tried to be conservative and just hit one or the other.
Because those alone would already basically meet the necessarily volume requirements for 2022, and then and then beyond but please rest assured the pipeline.
Is about five to seven ex of the revenue that we need to be delivering in the transponder business.
Awesome.
And then maybe just more immediate term.
I noticed that the gross margin under I do semi side moved from 20.
4% to almost 20% if I'm doing my math right. This coming this past quarter in Q3.
Is that first can you talk about what drove that and then two but the sustainable or.
This should grow going forward.
I wasn't sure I caught all of that Jay you're breaking up I'm.
I'm, sorry, I'll repeat it.
If I'm doing my math right. It looked like the IV side of the business.
The almost 28% gross margins.
Q3, and that was a pretty nice improvement from my lunch. In Q2 was wondering what drove that and is that 28% level that is sustainable or could it actually be improved upon.
So.
It's mixed as always almost always E. I mean that case and so we had some higher margin products in there and then identity overall.
It's been a genuine generally trend upwards as we've talked about but it is going to fluctuate depending on mix and Manfred talks about some of these rail projects.
As those kick in if they're higher gross margin Delta gap it up if they're lower gross margin.
I'll move it closer to that so.
You will see us continuing to move around in the upper 20% gross margin and then as you go towards the end of next year and we have a.
Some of these larger and much higher gross margin projects going.
And then I think youll see it breaking through 30% sustainably and going into the mid Thirty's.
Okay great.
And then obviously you laid out the opportunities in RFID pilot a lot of people from the industry, how about your competitor a competitor like HIV or some untracked holiday responding.
Ill defer that to Manfred as well there because they're dealing with it right on the street.
So first smart treks, not responding anymore, because they were acquired by <unk> to be very precise here yes.
In general we are very very respectful when there is noncompete clauses. So we tried to not trust we try to we will not be let's say breaking the law in any of these regards many of the former smart track.
People for example, they have been with other players in the meantime, so from that point of view as you can imagine whenever there is acquisitions going on even very good people have to have to leave an organization or the very very good people leave voluntarily and go for other endeavors.
And that's basically what we pick them up.
And indeed HIV is another example, there also heavily acquiring same thing there.
They have a lot of talent out there, which is both employed with them and which was employed with him. So from that point of view I wouldn't say, it's easy to find the right people, but the sheer speed, we basically put to the table in order to fill all of our openings.
Should be giving you an idea on how successful we are in that regard.
Okay great.
And then just on the physical side.
You mentioned that both the <unk> three is going to be around 30% or so, but that's what the whole company.
You see the sustained growth from a physical tour.
Plus for the foreseeable future or is it something where you see a big bump up now and then it'll kind of Peter out too.
Single digits.
Yes, good question.
In the spirit of also respecting everybody's time.
If we can make this the last question.
Thank you.
Great, but actually no we expect it to sustain that 20% to 25% growth.
See a certainly a several year secular growth pattern.
Our illustrious federal government is not going to stop stop spending, especially for for security applications, which are uncontroversial.
And <unk> securities just become very fundamental physical as well as cyber.
In every business work and we have a really good total solution everybody is trying to consolidate vendors. These days as well. So we think we're pretty well in our sweet spot. So we expect to be growing above market for.
For the next few to several years.
Great. Thank you so much.
Alright.
Thanks Jay.
Yeah.
Thank you. This concludes the company's question and answer session. If your question was not taken you may contact Identive Investor Relations team at I N V E Gateway IR Dot com.
I would now like to turn the call back to Mr. Humphreys for his closing remarks.
Alright, Thanks, again, and thank you all for joining US. This evening as you can tell things are developing very quickly in our industry and certainly our company itself.
And we're very excited about the path ahead of US we will try to make sure we're continuing to communicate with the investor community as all of these opportunities develop.
And in doing that we'll be at the Stifel Conference next week.
Fuel of course Ladenburg. The following week also we have a Washington DC Open house on December 9th, which investors are welcome to come to him to talk to some of our customers as well as some of our engineers and then we'll be at the Imperial Capital Conference in New York in mid December and possibly a couple of others. So we're going to try and keep the <unk>.
Direct communication flowing as as we primarily focus on driving the business forward, but also keep everybody aligned as we're going forward. So thank you again and thanks for joining us and have a very good evening.
Thank you for joining US today, you may now disconnect.
Okay.