Q4 2021 Data I/O Corp Earnings Call

Good afternoon, and welcome to the data I O fourth quarter 2021 financial results Conference call. All participants will be in a listen only mode. So do you need assistance. Please bring all conference specialist by pressing the star key and zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone well. It's all your question. Please press Star then two.

Please note. This event is being recorded I would now like to turn the conference over to Jordan Darrow Investor Relations. Please go ahead.

Thank you and welcome to the data I O Corporation fourth quarter 2021 financial results Conference call with me today are Anthony Ambrose President and CEO of data <unk> Corporation, and Joel Highland Chief Operating Officer, and Chief Financial Officer of data <unk>.

Before we begin I'd like to remind you that statements made in this conference call concerning COVID-19, future revenues results from operations financial position markets economic conditions, Silicon chip shortages and supply chain expectations estimated impacts of tax reform product releases, new industry partnerships and any other statements that may.

Be construed as a prediction of future performance or events are forward looking statements, which involve known and unknown risks uncertainties and other factors, which may cause actual results to differ materially from those expressed or implied by such statements.

These factors include uncertainties as to the impact from the COVID-19 pandemic, along with continued reopening and recovery efforts within the supply chain and among our customer base levels of orders for the company and the activity level of the automotive and semiconductor industry overall ability to record revenues based upon the timing of product deliveries and installations.

Market acceptance of new products changes in economic conditions and market demand part shortages pricing and other activities by competitors and other risks, including those described from time to time in the company's filings on forms 10-K, and 10-Q with the Securities and Exchange Commission press releases and other communications the accuracy and completeness of forward looking statements.

Not be unduly relied upon data I was under no duty to update any of these forward looking statements now I would like to turn over the call to Anthony Ambrose President and CEO Dan <unk>.

Well. Thank you very much Jordan I'll begin my formal remarks by addressing our 2021 fourth quarter financial and operational performance. So I'll turn it over to Joel for a look at some of the numbers.

We reported strong annual revenue growth of 27% and a doubling of our sales for our new centric security provisioning platform in 2021.

Our performance in the fourth quarter and full year was driven by the continuing recovery in the automotive electronics market solid delivery performance from all of our factories in very challenging conditions and the strength of sales of adapters and other recurring services.

Our growth in 2021 is even more impressive when you consider that an estimated 7 million automotive vehicles are sitting incomplete because of inadequate parts into silicon shortage.

6 million electric cars will be shipped in 2022 up from $4 million in 2021, According to a new forecast by Gartner, representing a growth of about 50%.

This can be very important segment to date Io because semiconductor content per vehicle in an EV is forecasted to be about three times the amount used in traditional internal combustion engine vehicles. This means that we see continued growth of programming requirements for cars above and beyond that 10% to 12% long term growth rate, we mentioned before.

We already have multiple waves of the EV segment, and we're off to a good start in 2022 as well.

2021 was also an excellent year for new customer acquisition.

During the year, we acquired over 20, new customers and customer locations that did not previously purchased eight Io automated programming equipment.

We also had an excellent year for consumables and recurring revenue growth.

Our increasing installed base of <unk> machines from both new and repeat customers provides a recurring and consumable revenues, which supplement our capital equipment sales.

At the end of 2021, our PSV installed base increased to over 390 units up from approximately 330 units at the beginning of the year.

In 2021, we also for the first time sold the system and software license on our new centric platform. We also announced the first upgrade of an installed base PSV machine to add secure provisioning with centrex.

We've clearly validated our technology approach on <unk> with the most demanding customers in automotive intelligence.

Excuse me artificial intelligence automotive.

Industrial metering and other applications.

We continue to support new devices on Centrex and are focused on expanding the marketing and device support in 2022, as we target new customer acquisition directly and through our channel partners.

We've proven in 2021 that we can monetize our software and equipment to.

To serve the needs of our clients, while bolstering our financial position.

As I mentioned earlier total consumable revenue grew for the fourth consecutive year on the strength of adapter sales.

Our operations team continued to deliver within lead times, we've delivered consistently despite persistent semiconductor shortages supply disruptions and shipping challenges.

Our ability to meet customer requirements has resulted in at least one additional customer win versus competition, where we can supply our system and they could not.

Unfortunately inflation picked up sharply in 2021, and we've responded accordingly with the December price increase of about 6% to 8% across our product lines from what we've seen in the market there will be likely be additional increases in 2022 to combat inflation and the associated increases in our cost of goods.

Our R&D team continues to deliver new capabilities and intellectual property.

We have been awarded multiple patents in 2021, and now have about 20 awarded security related patents in the United States Europe and Asia.

We also won a 2021 global Technology award in the category of programming for our centric products greater tool suite.

This technology is next generation for centuries to streamline security deployment definition and management end to end for mass production of Iot and automotive applications.

Moving on I'd like to address the importance of environmental social and governance issues for the company.

ESG is becoming a greater focus of stock exchanges proxy advisory firms and large index funds.

Data I always taken a leadership position in the pre programming industry in corporate governance, and transparency environmental disclosure and operational resilience and board diversity.

Through continuous improvement and sustainable business practices, our company consumes very little energy has minimal emissions of pollutants to air in wastewater and leads and workplace labor safety and business practices.

There are a lot more to say about this in our proxy filings in the upcoming weeks.

At the board level in December we announced the appointment of Dr. Shimon Bohlen as our director Shimon has extensive domain experience has been recognized for accomplishments, including being named top women are influenced by Silicon Valley business Journal and induction into the hall of Fame for women in technology.

Technical knowledge and experience in security automotive and semiconductors combined with outstanding record of accomplishment and public company governance made her an ideal addition to the board.

Earlier today, we also announced that Ed Smith has joined our board, bringing the number of directors on our board to six with five of them being independent.

Our investors have a long relationship with Ed and I'm pleased that he is now bringing his talents to data I O.

We stand to benefit from his proven experience and returning value to shareholders as a CEO of a NASDAQ listed company.

His past experience that included acquiring a selling multiple companies in the semiconductor and electronics distribution area.

As well as professional ties throughout the world to advance our marketing and overall growth strategies.

With their additions to our board, we are now more than ever positioned to leverage our long time global leadership and data programming to grow in automotive and the vast emerging category of security provisioning.

Our collective talent energy and ambition are now singularly focused to accelerate positive momentum from 2021 into 2022 and beyond.

As we look forward I would like to reiterate our long term goals as discussed in our last call.

First the automotive industry sees a decade of 10% to 15% long term growth rate in silicon adoption for the automotive electronics market date.

<unk> is extremely well positioned in this space with nearly 60% of our sales into the automotive electronics industry.

As I mentioned earlier this outlook is further bolstered by the accelerating adoption of electric vehicles worldwide.

The 25 billion unit microcontroller industry continues to add security capabilities and customers are increasing demand for security provisioning, we're enhancing our marketing and support capabilities here to target new customers, both direct and through our channel partners.

We believe double digit silicon growth will lead to double digit data IOL revenue growth over the next decade.

Our centric business will grow significantly faster than this.

We believe operating leverage and scale will drive our adjusted EBITDA growth significantly faster than the revenue growth.

And we see increasing recurring revenue in absolute and percentage terms from adapters and services growing across the installed base.

For 2022, we're planning for double digit bookings growth overall, and another doubling of our centric bookings. We believe underlying demand is strong and metered by silicon shortages and recent political uncertainty.

Recurring revenues will continue to be an important and growing component of our revenue base.

And our operating performance will improve accordingly, with our overall growth as we benefit from our proven historical operating leverage.

Finally, this year is a very special year for data iOS, we celebrate our 15th year in business.

And so we look forward in 2022, we're confident that our industry, leading automotive presence are secure programming technology platform.

A resilient supply chain and strong balance sheet position us to capitalize on the resumption of demand supported by exciting high growth secular trends.

With that let me turn it over to Joel happened Joe.

Thank you Anthony and good day to everyone.

I'd like to start by reviewing a 2021 summary guidance for 2022.

And summarize our long term goals.

For the 2021 summary revenue was up 27% from 2020 gross margin was up four points from 'twenty to 'twenty two the high end of our current target range of mid to upper Fifty's.

Automotive represented 58% of sales consistent.

On strong growth.

Consumables were up third up to 30% of revenue a record year.

And we returned to positive adjusted EBITDA.

For 2022 guidance bookings growth in excess of 10% with centric up over 100%.

Automotive to continue as our primary target market with consumable revenues, increasing as a percentage of the total.

Gross margin in the mid to upper <unk> range.

Price increases to reflect economic and market trends.

Adjusted EBITDA growth for the year.

Long term views.

Decade long double digit growth in the automotive electronics semiconductor Tam drive similar growth for data Io.

50% of consolidated revenue from recurring sales goal, which includes software services and consumables.

[noise] centric growth rate continues to outpace the traditional programming revenues as it addresses a much larger market opportunity.

As the world embraces security.

Gross margin target range to increase to above 60%.

Adjusted EBITDA net income and cash flow leverage accelerated by higher revenues and margin improvement.

For the 2021 full year, our financial performance has advanced with meaningful growth in revenues and bookings as well as a return to adjusted EBITDA profitability.

We continue to effectively manage our operating expenses and maintain a strong balance sheet.

While we fund our R&D and growth initiatives now lets review the financial results net sales in the fourth quarter of 2021 were $6 4 million up 29% from $4 9 million in the fourth quarter of last year. We believe the fourth quarter continues to reflect constraints, resulting from customers.

Supply chain silicon part shortages and related order deferment. Nevertheless, our fourth quarter revenues were the highest since 2018.

With revenues coming in at nearly double the backlog level at the end of the third quarter and bookings during the fourth quarter less than revenues for the period you can see that our recurring revenues are providing a meaningful a more meaningful base as industry growth resumes following what Anthony just had described as artificial demand.

Depression, we expect our top line trajectory to improve with higher equipment sales and with it our operational leverage will be magnified.

As a result of inflation.

We announced price increases in the 6% to 8% range in December we plan to stay in front of ongoing cost increases with further increases magnitude could be determined.

Fourth quarter of 2021 revenue growth benefited from higher adapter sales associated with the increased usage of our installed base of machines throughout the world.

Adapter sales, our consumables and what we view to be a form of recurring revenue along with licenses software sales and service and service maintenance revenues.

Recurring and consumable revenues represented $2 9 million or 46% of total revenues in the fourth quarter of 2021 as opposed with.

As compared with $22 4 million in the fourth quarter of 2024, all of 'twenty 'twenty. One net sales were $25 8 million up 27% from $20 3 million in 2020.

Recurring and consumable revenues represented $10 8 million or 42% of the total in 2021 and increased from 8.8 million or 44% in 2020.

On a geographic basis international sales represented approximately 85.3% of net sales for the fourth quarter of 2021, and 89, 9% for the year.

Compared with 89, 7% in the fourth quarter of 2020, and 92, 5% for all of 2020.

Fourth quarter bookings for 2021 were $6 2 million up from 5 million in the third quarter of 2021, and 6 million in the fourth quarter of 2020.

We believe the fourth quarter of this year benefited from Covid recovery and some improvements in customers' supply chain silicon shortages.

Adapter bookings for the fourth quarter continued to be strong at 2.0 million up from $1 7 million in the third quarter of 2021, and $1 6 million in the fourth quarter of 'twenty.

Backlog at December 31, 2021 was $2 9 million as compared with $3 3 million at the end of the third quarter of 2021, and $3 9 million at the end of the fourth quarter of 2020, the lower back log on stronger bookings reflects our planning.

And purchasing process reflects our supply chain.

And our improvements in manufacturing throughput deferred revenues increased to $1 7 million from $1 4 million at the ended the third quarter and $1 2 million at the end of the prior year with the increase primarily related to our PSV system delivered but final acceptance.

It was not yet complete.

Gross margin as a percentage of sales in the fourth quarter was 54, 4% as compared with 47% in the prior year period.

For all of 2021 gross margin was 57% compared with 53, 2% for the prior year.

The company incurred in the fourth quarter 2020, and impairment charge in the prior year.

Relating to obsolete inventory, excluding the impairment charge.

Adjusted gross margin comparable was approximately 52, 9% in the fourth quarter of 2020, and 54, 7% for the full year.

Fourth quarter 2021 margins would have been stronger if not for cost inflationary pressures.

This led us to address the higher cost increase the higher costs by increasing prices in December otherwise the higher margins in 2021 resulted primarily from product mix and higher sales volume relative to fixed factory costs.

Operating expenses were $3 7 million in the fourth quarter of 2021.

Down from $3 9 million in the third quarter and $3 8 million in the fourth.

Quarter of 2020.

For the full year totally all total operating expenses were $15 million in 2021, as compared with $13 9 million or $13 2 million, excluding one time items in the prior year.

Yeah.

Yep.

The primary differences in the operating expenses is higher sales volume commissions associated with the channel mix and higher demand for our programming equipment as well as recording performance based incentive compensation.

R&D expense remained relatively stable during running at just over $1 6 million for the fourth quarter.

And $6 6 million for the year as compared with $1 6 million and $6 4 million for the fourth quarter and full year of 2020, respectively.

As we continue to invest and strengthen our products operating expenses have been and are expected to be fairly consistent with the variance is largely pegged to sales commissions due to volume and channel mix and variable incentive compensation.

Taxes during the quarter consisted of adjustments to foreign taxes with no U S income tax.

Net loss in the fourth quarter of 2021, with 205000 or two cents per share compared with a net loss of $1 6 million or <unk> 20 per share in the fourth quarter of 2020.

For the year, a net loss of 555000 or six cents per share in 2021 was down from a net loss of 3.964 million or <unk> 48 per share in 2020.

In all periods, we incurred foreign currency transaction losses and back in 2020, we incurred the substantial one time impairment charge as noted earlier, we had $8 million 621007 shares outstanding on December 31, 2021.

Moving onto the balance sheet days sales outstanding or DSO and receivables collection measure on December 31, 2021 remained at or below our target measure at 46 days.

Net working capital at December 31, 2021 was $18 5 million up from $18 1 million at the end of the prior year.

Inventory of $6 4 million on December 31 of 2021 was approximately 400000.

Higher than at the end of September and almost $1 million higher than at the end of the prior year. This reflects both our anticipation of revenue growth going forward in our continuing efforts to derisk, our supply chain and potential part shortages by higher stocking levels for our key products.

<unk> financial condition remains strong with cash at $14 2 million on December 31, 2021 unchanged from the prior year and on September 30th 2021.

As we typically know each year throughout the course of the year, we accrue certain public company costs and compensation items that are reflected as accrued expenses. These amounts are typically paid in the first quarter of each year.

Overall, we remain very strong financially and continue to have no debt.

Combined with our resilient supply chain strategy. These represent key competitive advantages as the best capitalized supplier and reliable producer in the global programming industry that.

That concludes my remarks, and I'll turn the call back to the operator to begin the Q&A segment. Operator would you. Please start the Q&A process.

We will now begin the question answer session tasking.

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At this time, we will pause momentarily to assemble our roster.

Our first question today comes from Jason Smith with Lake Street. Please go ahead.

Hey, guys. Thanks for taking my questions just curious if you could.

Discuss how what you've seen from an order pattern perspective, so far in Q1 and kind of what gives you started the confidence in that pretty strong bookings outlook for 'twenty to 'twenty two.

Well, Jason I think a couple of things.

Q1 is you always got to wait till the end of March to see Q1, after Chinese new year and stuff, having said that we're off to a good start for the year.

What we see overall go back to our long term thesis about the growth of semiconductors in the auto industry. We.

We don't see that changing.

We see 7 million units left.

Unfulfilled last year, we see unit growth this year of 6% to 7% in auto on top of the per unit.

Increase in silicon So we see the underlying demand really there in automotive and it's just a question of will the will the metering effect of a silicon shortage.

Lesson, we certainly think it will lessen throughout the year I don't know if it'll be fully over by the end of the year, but it certainly should be better by the end of the year than the beginning of the year.

Now all my remarks don't include anything about the recent events in Ukraine and Russia.

You know hopefully that gets that gets over sooner. So that's on the automotive side on the security side, we continue to see more and more.

People asking about security and trying to figure out how they can simplify and scale their security needs and for US we have to continue to Stoke the demand creation engine on centrex as we did last year and we're putting a pretty bullish forecast out there this year based on the pipeline and the <unk>.

Installed base of opportunities that we see.

So what we think the demand is there the underlying demand is there there are factors like the silicon shortage and geopolitical events that would tend to suppress that demand, but overall, we're preparing to have the demand be ready to be fulfilled.

Okay. That's really helpful and just a clarification on the gross margin I would look for 'twenty 'twenty. Two you mentioned mid to up for 50 per cent range do you think you'll be able to hang in that range every quarter. This year or is that for the full year.

That's a full year.

Margin outlook.

Our sales are lumpy enough. So that we can have some pretty wild.

Movements.

Volatility standpoint, but for the full year, that's that's what we're thinking yes.

Yeah, and then Jason you know you know the margin can change, whether we sell something direct or through a channel partner. We also can deal with currency fluctuations in the quarter, depending on where which subsidiary has inventory when an order was booked all that stuff tends to cancel in the wash for the year, but on a quarter to quarter basis. It adds.

A little more volatility.

Okay that makes sense and then just the last one for me and I'll jump back into queue.

Just curious how you're thinking about the supply chain, obviously, it's tight for everyone and I guess, specifically, how many of your customers pushed back on the price increases.

So I think two questions there.

I think most customers understand the price increase theyre seeing the same silicon increases that we're seeing they're seeing the same rate increases we're seeing they're seeing the same.

Steel and aluminum increases that we're seeing.

So I think fundamentally nobody likes a price increase but I think they all understand it.

The supply chain again, we got out in front of this mass a little over a year ago.

With the decision to extend our purchase commence.

As shortages come in and literally new ones come in every day, it's given us the time to work them. So that their impact is not felt on the production floor and I'll give you a good example.

If we if were out six months on a key product.

And that someone comes in and says well now our lead times have gone from four weeks to seven months.

You know we have time to work that issue because we've got some inventory on board and as Joel noticed we've extended our increased our inventory by about $1 million.

To support the ramp and we focus that inventory on our products that we believe will be around for quite some time.

So the supply chain I think it's having a bigger impact in our customers their ability to wants to add capacity to support their growth as determined by their view of silicon capacity.

Some customers are telling us that they want to buy more and they'll be ready to buy more as soon as they get comfortable with their silicon commitment.

So I think it's really impacting our customers more than data I O. As I mentioned earlier, we believe we got one order directly attributable to the fact that we could support a customer and a competitor could not.

Okay that makes sense. Thanks, a lot guys.

Thanks, Jason.

Our next question comes from John Swanson with Mountain side capital. Please go ahead.

Hey, good afternoon, guys and congratulations on a good quarter and a good ramp into the next fiscal year, Jason touched on a lot of the questions around the supply issues I'll just bore down if I could are there any particular areas where the bottlenecks are still severe that you believe I think Anthony you mentioned your whole call put air quotes around the word hope that.

The supply chain issues, either before the end of this calendar year, but any potential any bottleneck areas that we should be focused on and that you're trying to work through right now.

John Nothing in particular, I mean literally.

You come in and talk to our operations team every day, you would get a different answer to that question depending on you know.

Which which supplier comes in and says Oh, we just extended lead times or Theres, a new price or.

For example, our freight forwarder got had a cyber security incident. So no property moves for a few days you know.

Stuff like that is happening all the time.

And it's under the covers because our operations team is.

He is very experienced and we do have this resilient supply chain, we can build in Redmond, we can build in Shanghai and the reason our customers have not seen an extension of lead times.

Because of all those factors.

And at some point I think they do appreciate it but the the macro environment. We believe from what we read and we read the same sources everyone else can read we think it just gets slowly better throughout the year.

Theres not going to be one time, where you wake up and go Oh today, we've announced that the silicon shortages or over it's just gradually we expect that we will see fewer shortages fewer demands for increases fewer rescheduled fewer.

Your issues with freight forwarders, etcetera, etcetera, and it will slowly get back to normal, but don't expect someone who just pronounced that it's over at some point.

Okay. Thank you a couple of other just brief questions if I may.

Inflation you meant you've talked about the price increases in December just is there a broader impact on your business.

That we should be aware of and that you're trying to work through.

No I think I think we talked about it we're trying to catch up to the increases in Cogs that we saw throughout the year.

We're not the only one in our industry.

Able to understand from public announcements and other research that you know most of our competitors have also put through a price increase we're seeing price increases in programming centers.

This is just an industry wide phenomenon everybody's understanding it.

It is interesting because you have to be a certain age to remember what inflation can do and.

We'll see what happens overall in the global economy.

My message to investors is we're on top of it.

We will we will respond quickly were not locked into doing this annually, if we need to do it more than once a year, we will do it on in terms of selective increases.

If it turns around.

We don't have to do any further increases that would be great too.

But we've had to put in place some systems on monitoring pricing.

Almost continuously on our supply chain just to make sure we're not getting any surprises.

Got it and just one last one if I could you've had some excellent additions to your board of directors. So anything in particular that was driving those additions.

Well I think.

As I mentioned in my prepared remarks.

You bring in someone both both new additions bring in additional external perspective.

Our target markets.

In automotive security.

Both are experienced and public company governance.

We've had a chance to work with our cash the very broad net.

As I mentioned, we started a process and I want to thank our head of our nominating and governance Committee Sally wash slow for really driving an excellent process here over the past year.

And.

It's just a case, where we think we're bringing in some new thinking some broader domain expertise I'm at the same time, we've had some excellent stability on the board and.

A number of our board members have been serving for a long time with distinction.

Yeah.

Great Congrats guys best of luck this year.

Again, if you'd like to ask a question. Please press Star then one.

Star then one to ask a question.

Our next question today will come from David Cannon with Cannon wealth management. Please go ahead.

Hi, good afternoon, guys congratulations.

Hey, Dave Thanks, Dave.

Yeah first just comment on Ed Smith.

Congratulations we were actually investors and S N T X.

Got it and the opportunity to meet with him and get to know him and he's a rock star and again congratulations on having them join the board I think it'll be a great addition, very excited about that.

In the prepared remarks, I missed a couple of things some a little bit under the weather today policies.

Uh huh.

I had a medical procedure, so excuse me some sounding a little little bit loopy here, but on the recurring revenue. It sounded like you gave a guide or target of where you see it can.

Can you just reiterate that both I thought you said over 50%.

And then the bookings growth you sort of gave directional guidance can you just reiterate that for me. Please yeah for the long term goals in view of the company and this is out five years, our goal or view of the future is that we would like our consumables and recurring revenue to be at 50%.

Of our consolidated revenue. So that's that's a longer term view, but that's directionally, we're aiming with regard to bookings. We said that for 2022, we were looking for growth in excess of 10% with centrex up over 100%.

And then from the standpoint of our long term view is we believe that there's going to be a decade long double digit growth rate in the automotive electronics semiconductor and that's going to drive similar growth for data Io.

Okay, and then so to just drill down on that commentary a little bit.

<unk>.

That directional guidance. If you will is it is it partially based on orders quarter growth or bookings growth that you've seen thus far in Q1, I mean, we're almost two thirds of the way through did that book did did the bookings.

Momentum in Q1 carry through and give you the confidence to come out with that data point for that yes that guidance further.

So David let me comment on so on the long term items I think we've been we're reiterating what we said.

I believe multiple times before look the auto electronics industry is growing it's a long term bull market for silicon adoption. We program. The silicon we are the largest automotive silicon programming company, 60% almost of our business goes into automotive electronics.

We understand that industry.

That's really where the the long term double digit growth that we've talked about several times. It comes from I think for the year. We're just sharing with you our targets that we established back.

Back in late December .

I'm not going to comment specifically on Q1, one way or the other as I said earlier I mean.

There is nothing in our start which would indicate.

One way or another that we're going to change our guidance for the year.

The Q1 typically you know you've got to get through March because that's when everybody is back.

But as I said earlier on the call I like where we are right now.

What I don't want to do is get into the habit of looking at you know a weekly bookings or things like that and tweaking the long term numbers.

We arrive at the long term forecast based upon what the silicon guys are telling us what our customers are telling us that.

What you can read as well in and look at all the data sources on the adoption of EV.

Which spikes the growth in automotive semiconductors.

The the only thing on the long term area that we have to think about it could give us pause on a shorter horizon are things that suppressed demand.

As you know shortages.

Such as geopolitical events.

<unk>.

We really have no impact on the geopolitical events, we can't influence that.

What we've done is try to influence our own behavior on the silicon shortages to make sure we're prepared to satisfy demand that's out there and hopefully our customers have done the same thing.

The demand is there we believe its there.

We'll see it materialize and hopefully as the silicon shortages abate throughout the year.

That picture becomes even clearer for everybody.

Okay and then.

The comment the commentary about centric you know growing.

Over 100%.

Was it a seven figure business in 2020 , one are still six figure.

We haven't broken out the centric revenue yet Dave.

We're not going to do that most likely this year, but it was more of a comment on the momentum we've seen in the business and our view of what we can do in 2022.

Okay and then.

Joel can you comment or give us some little a little color a little more color on.

The recurring revenue and the margin profile there.

How it compares to our systems.

Yeah, it's it's you're saying, it's going to grow to ultimately over 50% of the business is at a 60% gross margin business or is it below.

You don't below systems.

It's mixed but on average it will bring up to above the current high.

High fifties right. So we feel good about that and helping our 60% longer term goal.

Okay and then also if you could just throw in a comment about centric and the margin profile.

So <unk> is a little harder to say so when you look at the pay per use piece.

It's a very high margin.

Because of the way that that's you know some depreciation and things like that.

If you're selling a citrix machine, that's generally something where depending on whether theres pay per use aspects or software licensing aspects.

It would be different generally a higher margin profile, but it would be very hard at this point to really narrowed that down to our forecast.

Okay, but is it.

It is higher whether whether it's by.

Hardcore system, it's still higher than the overall.

I think Dave to kind of summarize Joes point.

More recurring revenue and more centric is favorable for the margin.

Okay.

And then last question and I'll go back into queue I noticed that total operating expenses were down year over year, a little bit I think it was a little over $100000.

Is that something youre going to hold the line on I would love to see you guys as our.

Revenues increase you know start to show the leverage inherent in your financial model.

So should we will that pretty much remain where it is.

Or.

Are we going to see a opex creep throughout the year.

You know I I really I'm trying to model something thats relatively flat with the exception of anything that has to do with some inflationary pressures and the fact that sales volume in particular channel commissions and the mix.

Can make a pretty big difference in our expected operating expenses, yes. So Dave think raises thank you know probably not going to add too much head count and then.

With revenue growth as always the growth in.

The sales.

Fences and.

Uh huh.

Commissions and other performance.

Performance based compensation.

Understood.

Alright, well good luck guys I'll speak to you next call.

Thanks, Dave.

Ladies and gentlemen, this will conclude our question and answer session.

I would like to turn the conference back over to Anthony Ambrose for any closing remarks.

Well thank you.

No further questions before we close the call I'd like to thank everyone for joining us today and their support.

Sure.

We look forward to participating in the Maxim group second annual virtual growth.

<unk>.

Investor Conference in late March before our first quarter report in late April .

We'll also be at embedded world, which was planned to be for March that will get pushed to the second quarter and for those of you that normally intend embedded world you've probably seen the change in the schedule there with that I'd like to conclude today's call. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.