Q4 2021 Identiv Inc Earnings Call

Good afternoon, welcome to incentives presentation of its fourth quarter and fiscal year 2021 earnings call. My name is John and I'll be your operator. This afternoon, joining us for today's presentation are the company's CEO , Steve Humphreys and CFO Justin Scopola.

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 guidance, including adjusted EBITDA and free cash flow. In addition, during the call management will be making forward looking statements any statement that refers to expectations projections or other characteristics of future.

Events, including future financial results future business and market conditions and future plans and prospects are 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 <unk>.

Time to time with the SEC.

Including the company's latest annual report on Form 10-K .

<unk> assumes no obligation to update these forward looking statements, which speak as of today.

I'll now turn the call over to CEO , Steve Humphreys for his comments Sir. Please proceed.

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

During 2021, the advanced RFID applications market started to take off and we put in place the technology capacity team and key customer design ins to lead in the market.

We've clearly established leadership as we start the pivotal year of 2022.

This is the year that launches the next stage of Iot devices, as RFID and NFC become embedded in almost everything we touch.

Already this year, we've launched several initiatives for advanced RFID technologies in January we announced our partnership with William for Bluetooth low energy enabled RFID devices launched our industrial grade on metal RFID devices.

Focused on high value use cases in medical and industrial products and announced our industrial grade NFC programmers in February we announced our partnership with NXP for their two two X chips, then enable battery lists condition sensing, making fill level in wet or dry sensing easily in a embedded into any product.

Now there are two themes here first we become the partner that industry, leading companies in advanced RFID and NFC are turning to for advanced solutions.

Second all of these are focused on advanced applications that incorporate secure data sensing tamper authenticity and enabled truly unique product experiences.

We are in this position as we start 2022, because throughout 2021, we built our leadership in the industry and put in place everything we need to support it.

We finalized our major hiring and system capabilities shipped record levels of RFID units and completed our technology and project management platform.

The fourth quarter also showed us two areas, we need to strengthen to really be ready for 2022.

We've now done that which I'll describe in a few minutes, but first here's some metrics from 2021, and our fourth quarter, reflecting the momentum that we built.

For 2021 overall, our total revenues were up more than 19% to a record $103 8 million.

Our unit shipments in RFID were up 36% for the year at 185 million units, showing both growth and our ability to scale.

We exited 2021 shipping over 65 million units in the fourth quarter and annual rate of 260 million yes.

Now this is a key metric our ability to scale past the quarter billion annual unit level.

The second half of 2020 already had major volume growth in RFID to meet demand in 2022 and beyond we had to prove that we can scale to the next level. We went from shipping 136 million units in 2020 to a run rate almost double that going out of 2021.

Now while driving this unit volume step up we also kept leverage in our business with operating expenses up 3%, while we grew revenues 19%.

The RFID unit growth and overall operating expense leverage are our key metrics, which drove 23% year over year revenue growth in our identity business.

Our premises business also delivered strong results. It grew 14% in 2021 more than double the industry rate.

Our key premises growth metrics are even stronger our court federal government security revenues grew 21% year over year and overall our growth in premises accelerated from about 13% in the first half to more than 15% in the second half of 2021.

As we add commercial strength through new products and channel expansion, plus pent up demand from Lockdowns and increased government spending we're confident the 2021 has positioned us very well for 20% to 25% growth in premises in 2022.

On the RFID side in late 2020 , one we more than doubled our sales force and project management team to support design wins.

The key metric, indicating how we're positioned going into 2022 is backlog our total backlog at the end of 2021 was up 45% over our total backlog at the end of 2020 at over $30 million.

Now this the strong indicators that our expected 25% to 30% growth for 2022 for the company overall is on track.

Now looking at Q4, I mentioned that RFID units were up 36% for the full year and in Q4 RFID unit shipments grew even more up 49% over Q4 2020.

Now remember the two for 2020 with the second quarter of a step up in unit shipped particularly to a major mobile device manufacturer. So the comparable is a pretty high bar that that 49% grew off of.

Growing in 2020 to the production levels needed then was a challenge and it was critical that we demonstrated our ability to scale up another step function in Q4 2021.

We made the shipments step up but I also mentioned there are two things we learned in Q4 that we need to get ahead of and this showed us one of them.

RFID is a project based industry. Each use case has its own unit prices and margins and they even can vary over the lifecycle of a project.

The result is margins and unit prices can fluctuate with project growth cycles at our scale. This can change our overall margins in a specific quarter, even as the long term trend of expanding margins continues in.

In the fourth quarter. This brought our margins down even as our units grew very fast we manage the production and shipping met all the demand and took market share we scaled fast, but we didn't balance this with enough offsetting higher margin S. P devices in our sales in the quarter as a result, our overall gross margins declined by about three months.

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At the same time, we were determined to keep our track record of fulfilling every major customer shipment request to our premises customers in the last couple of weeks of the quarter. Our vendor tried to Decommit supply. We successfully worked with them deliver but then had one time extra inbound freight costs and this cost us almost three more percentage points on gross margin.

Now this premises event in particular, we're confident is a onetime event that we will not let happen again.

So we've applied these tough lessons from Q4 in RFID, we've taken actions to keep a more balanced progression on margins. We've put in place real time systems and people with focused ownership. So even when we have an RFID volume step up of almost 50% in a single quarter. We can manage the blended margin impact from a financial and production.

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With these controls in place, we expect to make progress towards our gross margin goals, regardless of unit prices of individual devices.

As unit prices increase over the long term that will drive sustained gross margin expansion to be clear in a fast growth project based business like ours quarter to quarter margins can fluctuate, but with an upwards long term trend.

Going forward, we have to be able to manage volume step ups like this because we're building a pipeline of business that we expect to drive step ups in future.

Now one of the main drivers of step up growth applications and a barge and expansion is our expanding pipeline of customers that have contracted with us for paid nonrecurring engineering development.

Nonrecurring engineering or N. R. E is contracted when a customer has specific technical and functional needs engaging in an allergy contract has lots of benefits. It validates their commitment to the project builds a contractual relationship builds project success between our technical teams and usually results in a custom solution that we're in a unique position to fulfill.

It also builds trust doing joint development, so customers are ready to do design refinements and feature expansion Vista.

This supports expanded margins and reduces competitive risk. So we don't do at Erie for the money, we do it for all of these that business benefits.

Now new and are repaying contracts include Rica for smart packaging for Castro oil fanatics for collectibles probate for a range of medical devices seller for white authenticity, a surgical devices company and a dozen others.

These and the other design wins from 2021 are the broad base of design win growth drivers that are at the core of our expected 40% to 50% RFID growth.

In addition to this broad base of growth drivers are major transformational opportunities made progress in Q4 and early this year.

Our auto injector project has progressed on several fronts, we're entering into an N. R. E development agreement with them and we're meeting almost weekly on both the product and their production process. So the core auto injector project continues to be on track now.

Now a completely new project with the same company on a different medical devices come together fast and has already started a 20000 unit pilot run and could result in an initial million unit order as early as this quarter.

These units are in the 20 cent range rather than the much higher asp's for the auto injector, but they have healthy margins.

Most importantly, they got a shipping volumes with a customer integrating us into their supply chain and it's a category that by itself could move to tens of millions of units and potentially over 100 billion units annually.

Continuing with the NR ethane in the cannabis market, we've signed and in our redevelopment agreement with the leading company for the Canadian cannabis market, we designed to customized combination UHF and NFC device. As a result, we got an initial 1.4 million unit order. We're now building. The first 50000 units to run a pilot and systems test I'll go into more.

Details in our 2022 outlook, but so far this is a faster start than we expected. This lays the groundwork for the multimillion unit orders. We expect later in 2022.

Also in the 2022 discussion we will update our recent relationship with true Green in the U S, where we already have a 20 million unit frame order for an even more ambitious device that combines digital singers UHF tracking content authentication tamper production and enables personalized customer engagement.

That will go into more details in the 2020 due discussion, but the net is that for cannabis applications, both the Canadian and U S market leaders are moving forward and we're working closely with them both.

So with these specific customers and projects, making progress we expect RFID to continue to be our core growth driver.

The base customers were established by the end of 2021 and our transformational projects are on track.

We also kept our track record of 100% customer retention and RFID. So as our customers use cases grow we believe we will grow with them.

Now RFID as our main growth driver, but in Q4, we also had strong growth metrics in premises and our overall business.

First premise is usually is down sequentially in Q4, following the government yearend that drives growth in Q3.

In Q4 in 'twenty, one our premises business was up 6% sequentially versus Q3, rather than being seasonally lower.

Another important metric software and services revenue was up 20% in Q4 versus Q4 2020.

Finally, our revenue per employee for all of 2021 voice $315000 per employee up from about $267000 per employee in 2020.

Now the final area, we had to address in Q4 to put us in position for a strong 2022 focused entirely on driving growth and business model leverage where vestiges from the peak of Covid.

In late 2020, the public transit industry was hit hard a.

A few long term crest customers struggled to pay their bills consistent with our conservative accounting policies and to remove distractions from executing our growth plans. We've charged off all of these outstanding receivables, they're mostly from 2020 and mostly in public transportation, it's a onetime noncash expense, but it skews our Q.

For results, we believe we will still collect some of these receivables and will fight for every penny because whatever we collect is cash, but we need to comply with their policies on overdue accounts receivables.

Going forward our transit customers are either on prepayment terms or are now part of much larger diversified public companies.

The business message is that it happened in industries that had a clear onetime impact from Covid shutdowns, we're confident that won't recur both because the industries have stabilized and we've taken a conservative payment policy to companies in these industries.

Now our new CFO , Justin Scarpulla will be on the call in a minute will go into more details.

It's painful for our Q4 GAAP results that I mentioned, our 2021 operating expenses were about 3% over our 2020 operating expenses. This includes the cost of expense. These two expense. These receivables without those charges our leverage would have been even more with expenses basically flat while revenues grew 19%.

GAAP includes them, though and we own our own decisions. So that's how we're reporting them for our ongoing business model for 2022 and thereafter, though we do not expect to see this again.

So in summary, 2021 laid all the groundwork for a strong 2022 as we built our teams retained and expanded our customers grew design wins and at our <unk> and managed another volume step up to meet customer demand.

Our major transformational projects each made progress with most now having designs done or well underway and preliminary orders placed for some <unk>.

Our RFID business is clearly positioned going into 2022 to lead in the huge NFC and advanced RFID market. That's taking off now are.

Our premises business is also on a strong growth cycle to support our overall growth and business model leverage.

Now we face some issues in Q4 and fix them, we put in place systems to control financials. When we have step ups in RFID unit growth and eliminated the last carryover effects of shutdowns, especially in the transit industry. We think this puts us in position both operationally and from a balance sheet perspective for strong consistent leverage growth in 2022.

So with that I'll turn the call over to Justin to go through our financial results in more detail then we'll look at 2022 and beyond.

Thanks, Steve as Steve mentioned, our financial results reflect our continued strength exiting 2021 with the delivery of year over year growth in revenues and future backlog.

We believe these results paired with our continued investments in the RFID organization and its capabilities position the company to achieve its growth and profitability potential in 'twenty to 'twenty two and beyond.

We closed the fourth quarter of 2021 with $28 5 million in revenue up 15% compared to the fourth quarter of 2020 and in line with our normal seasonality accident in 2021, our full year 2021 revenue was $103 8 million up 19% compared to the full year of <unk>.

'twenty and near the midpoint of our guidance.

For the fourth quarter of 2021, our GAAP and non-GAAP adjusted gross profit margins were 33% and 34%, respectively compared to 35% and 36% in the fourth quarter of 2020.

For the full year, 2020 , one our GAAP and non-GAAP adjusted gross profit margins were 36, and 37%, respectively compared to 39% and 40% in 2020.

Gross profit margin changes resulted primarily from our product mix increased freight and logistics costs and the continued investment in technology and manufacturing processes and systems to meet the near and long term project profiles of our customers.

Specifically in the second half of 2021, we ramped up projects with RFID customers and made investments in technologies to drive new processes increase automation and boost manufacturing speeds to support an annual run rate of 260 million units.

These investments have been fruitful and we will continue to contribute to the company's growth in the current year and the years ahead due to the competitive advantages created as a result.

We remain committed to our long term gross margin target of 40% to 45%.

GAAP operating expenses, including research and development sales and marketing and general and administrative costs were $11 3 million in the fourth quarter of 2021 compared to $8 9 million in the fourth quarter of 2020.

As Steve mentioned GAAP operating expenses in the fourth quarter of 2021 included a one time expense totaling $2 3 million for the expensing of aged accounts receivable from our balance sheet.

Without this one time expense operating expenses were 9.0 million nearly flat compared to Q4 2020.

We have tightened enforcement of our accounts receivable policies and procedures, including weekly reviews of outstanding balances credit limits prepayment arrangements and move into credit holds quickly and timely and a high growth environment like ours, implementing and maintaining strict financial controls systems and policy discipline.

My top priority as CFO I am confident we have taken the necessary steps and we will continue ensuring rigorous controls as we scale.

Our full year GAAP operating expenses increased 3% and demonstrate our continued efforts to drive business model leverage.

Our Q4, GAAP net loss was $1 9 million or a loss of <unk> 10 per share. This compares with a loss of <unk> 7 million or a loss of five cents per share in Q4 2020.

Excluding the $2 3 million expense of aged accounts receivable net income would have been $4 million.

Our full year GAAP net income was $1 6 million or <unk> <unk> per share compared with a loss of $5 1 million or <unk> 34 per share in 2020.

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 $17 5 million.

Or 61% of our total revenue in Q4 2021.

Our identity segment generated 62% of our full year, 2021 revenue or $64 7 million or 23% increase from 2020.

The year over year increase in identity revenues was primarily driven by higher sales of RFID transponder products.

These increases were driven by current customer expansion new customer win.

Our ability to deliver versus competitors constrained supply chain.

The sequential change in revenue was due to normal seasonality.

Our Q4 2021 identity segment GAAP margins were 20% driven primarily by product mix and the rapid production step up in transponders.

Our full year 2021 identity segment, GAAP margins were 24% compared to 28% in 2020.

As previously mentioned our decision to Opportunistically grab market share resulted in very rapid growth from customers in the early stages of their RFID deployment strategies.

Consequently, resulting in a higher proportion of lower ASP RFID units sold.

Order to quarter margins can fluctuate, but we expect long term margins to trend upwards from current levels as we expand and deepen our existing customer and technology partnerships. We believe our increasing in our <unk> business as we move to more complex devices and relationships will only further strengthen our margin profile.

We have implemented a vigorous review process for all new opportunities to ensure that our higher margin goals are being met and any temporary exemption must be signed off by top management at should we deem a relationship to be strategic to the future success of identity.

We remain committed to our long term gross margin target of 35% to 40% and our identity business.

Now turning to the premises segment. This segment accounted for $11 million or 39% of our total revenue in Q4, representing an increase of 22% from Q4 2020.

For 2021, our premises segment generated a 38% of our full year revenue or $39 million, an increase of 14% from 2020.

The year over year increase in premises segment revenues reflected the continued strength of our federal business and select recovery in other verticals.

GAAP gross margins for premises in the fourth quarter were 53% compared to 56% in Q4 2020, primarily due to the mix of products within the segment and short term expedited freight fees.

Within premises, we have taken steps to ensure that any increase in freight and logistics will be passed through to our customers going forward. We have systems in place to proactively adjust these costs and prices.

We remain committed to our long term gross margin target of 55% to 60% in our premises business.

For the full year 2021 premises GAAP margins of 55% were comparable to 2020.

Moving now to our operating expense management, our GAAP operating expenses for the fourth quarter of 2021, which included the onetime write off of aged receivables totaled $11 3 million compared with $8 9 million in Q4 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 $10 5 million in the fourth quarter of 2021 or 37% of revenue.

This compares to $7 $5 million towards 30% of revenue in Q4 2020.

For the full year 2021, our total GAAP operating expenses were $38 4 million, an increase of $1 3 million from 2020.

Our non-GAAP operating expenses for the full year were $34 2 million or 33% of revenue compared with $30 7 million or 35% of total revenue in 2020.

In summary, we continue to demonstrate operating leverage in our business model in 2021 by increasing our topline revenue while successfully reinvesting for growth within our current cost envelope.

Now turning to the balance sheet.

We exited Q4 'twenty to 'twenty, one with $28 6 million in cash of $17 $1 million increase from Q4 2020.

We remain debt free and we maintained our strong working capital position.

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

Momentum exiting the fourth quarter of 2021, combined with a strong backlog give management confidence in the company's growth expectations for 2022 and 2023.

Sharing some metrics as we move into the first quarter exiting Q4 2021, our total backlog for all future shipments was $30 2 million up 45% versus Q4, 2020, and total new orders booked through the first month of Q1, 2022 was $12 million up 43% over the same.

Prior year period.

These trends provide visibility into the current business momentum going into 2022.

As a result, we are reaffirming our full year 2022 guidance today with expected revenues between 130 and $135 million.

Year over year growth of approximately 25% to 30%.

Management also is reaffirming its guidance for 30% to 35% year over year revenue growth in fiscal 2023.

Normal seasonality is expected to continue.

With that I will conclude the financial discussion and pass the call back to Steve.

Thanks, Justin.

Our 2021 results and the activities behind the numbers have us positioned for expanded growth in 2022.

With the strength in the advanced application RFID and NFC market in the team and customers. We've established we're confident in 25% to 30% growth for the entire company led by 40% to 50% growth in RFID.

The transformational projects are moving forward with our position more entrenched in each our design wins expanded fast with more in our engagements than we've ever had our existing customers are all staying with us and are growing strongly we've established ourselves in leadership roles in nearly all of the relevant trade and industry groups, which further drive sales opportunities as we're better known as that go to.

Two for advanced NFC applications, we've established solid partnerships with the technology leaders in advanced RFID, including NXP will get collect I D blue bite and others. We've augmented these partnerships with their own technology initiatives across tag on metal authentication servers application developer kits and more we took actions to make sure sudden <unk>.

<unk> growth in RFID is managed financially as well as operationally made sure there arent balance sheet exposures kept our track record of delivering on every customer request, regardless of today's unreliable supply chains and held our cash steady while expanding our team.

Now our strategic priorities for 2020 to remain the same first as our top priority RFID growth driven by design wins current customer growth technology partnerships and industry leadership, our second strategic priority is our federal government growth and our third strategic priority is expanded software services and recurring revenues with our teams financial resource.

And tight financial controls in place and with our pipeline growing 2022 is all about execution on these priorities.

Our first design win focus is our transformational projects in the opening I mentioned, the NRA commitments from our auto injector and cannabis customers I should add that our largest already deploying customers, including one major mobile device customer and our prescription customer.

Also engaged in NRA contracts with us early on.

I also gave some updates earlier about both cannabis and the auto injector and related projects. The measurable point to highlight in both is the design progress and initial orders already in place earlier than we'd expected.

Now for the cannabis market in Canada, the dual technology UHF and NFC device. We designed for our customer is an ideal solution. This design plus the pilot run order for over 1 million units that I mentioned has us on track for production volumes ramping in Q3 Q4.

These initial production volumes will cover the base demand, we're expecting in our 2022 plants.

Beyond this additional volume would be upside.

The customer continues to project a market opportunity of over 1 billion units, but we're not projecting higher revenues into our 2022 or 2023 expectations until we can confirm timing of the larger ramp up.

Also in cannabis I went into some detail earlier about our progress with true green, mostly for the U S market. The product. We developed together is exactly aligned with our advanced RFID strategy and our recently launched authentication server and we already have a framework for 20 million units in place from triggering.

The auto Injector project also continues to make progress. In addition to design refinements, we're developing an IP agreement together another clear sign of their commitment to our technology.

In addition to this flagship project I mentioned earlier the third use case for the same company. We did a fast design turnaround our design outperformed our competitors and as a result, we're already working on a 20000 unit pilot run.

So I won't repeat the details, but the point is we're on track with this customer for for our 2022 plan with some areas moving faster than we planned.

Another transformational project is RFID tagging for prescription pharmaceuticals.

The initial Cvs use case for the visually impaired is continuing to grow well.

Now they won't let us disclose unit volumes, but one metric we can share is on the programmer side.

We've deployed RFID programmers to nearly all of their pharmacies now either this quarter or next we're deploying about 3000 more programmers for them they won't do that or wouldn't do that unless they needed their pharmacists to be able to issue more RFID enabled prescriptions and they can do already so deploying additional readers certainly as an indicator.

The demand is.

Is moving above where they initially deployed for it.

So our transformational customers are already establishing their baseline demand to support our 2022 outlook.

They continue to bring their plans forward that'd be upside, but the key goal to get them on the deployment path is happening.

And that it should be a matter of time until the full opportunities reached in each case.

So these are the very large opportunities are key for our company to get much larger than we are today.

Now in fact, most of the core growth that drives our expectations for 2022 are among existing customers and some of the smaller new ones that are near term with faster ramp cycles. These have progressed, well and can deliver some upsides of their own but the main implication is that they set the base growth for our business.

Among these design wins that are moving into production or a COVID-19 test kit manufacturer, who just issued a four and a half million dollar Po for supply across 2022 and into 2023, a robotic cleaner manufacturer has issued a 2 million unit order for a new design collect ideas expanding their sporting brand lines in the major global soccer clubs for new does.

Signs have been completed for another consumer brand company one.

One European customer in the medical industry. It was about $2 million in 2021 and already for 2022, we have orders in hand for revenues of about $2 $9 million from this customer.

Now there's of course, some upside, but 45% growth is a good start to have in backlog already from one customer.

Now there are a couple of dozen companies in this category customers at meaningful scale and growing fast. It is the core reason that our backlog coming into 2022 was up 45% versus a year ago. Our orders for the first month of this year also are up 43% over an already strong order period last year showing continued growth momentum.

The result is that we have over 60% of our 2022 RFID plan already covered with billings backlog and run rate business.

Also among our current customers or mobile device customer is continuing to grow and to support NFC is core to their technology platform strategy in our baseline scenario, we expect them to grow around 10%. This year, if they expand into other use cases and drive their platform more aggressively that creates upside.

Now I could go through lots more companies like Angel graphical coach procure and Johnson controls, but you get the sense now.

Now another thing you'll notice is that these are almost all new names. The ones. We've mentioned before are still with us contributing to our growth as they grow.

They also don't have to be huge already contribute a lot to our growth.

For example, another medical device company is coming from a sub 100000 dollar base in 2020 . One they are expecting to triple This year, and then grow next year to be more than $2 million a year.

Now let me give you one specific example of the sort of company in this last category smaller companies with use cases that could expand massively come.

A company called graphical is of graphene based biosensor device in France.

Theyre biosensors have a lotta uses all enabled by RFID devices.

On their website they have a great demo video showing use cases like smart wound bandages that can track if a wound is oozing fluids or healing well without taking off the dressing to check every time.

They have lots of other use cases from rapid biotechs to smart dressings, and you could devise decide for yourselves, how big the market will be but in their video you can see how central our RFID devices artillery solution.

That with multiple medical use cases like Graffeo, we know that some of them will take off they have unit volume potentials in the hundreds of millions or billions of units and our RFID devices are core to their delivered value that's.

Now that's just one example of a design win that could scale meaningfully.

Our partnerships are a third strategic growth driver the partnership we announced with Willeit has opened a range of projects. They have a few dozen prospects in their pipeline and as these move into production will be in position to supply and then to ramp the use cases across each industry.

The partnership with NXP around their very low cost sensor enabled two two X DNA RFID chips is just is unique.

The built in capacitance sensor is perfect for fill level in depth sensing think of everything from diapers. They tell you when they need to be changed to lotion bottles that tell you when they're getting low and need to be reordered and hundreds of applications in between.

Fill level in refill insights for both consumer and industrial uses is another category that clearly can be billions of units.

Now our focus on RFID reflects the massive scale potential of that market for 2022, our premises business is contributing strongly also the market itself is growing as a technology refresh cycle kicks in combined with deferred demand from Lockdowns and an emphasis on physical security combined with digital systems.

We expect our growth to be above even this positive market growth cycle, because government demand is very strong our integrated physical security platform as the most complete in the industry and fast growing sectors like prop tech federal and local governments education infrastructure and others have the most critical need for complete solutions.

This is happening as lots of competitors of hollowed out their solutions outsourcing their firmware hardware and other components right when customers want confidence that overall security systems are seamless secure and easy to manage.

Because of our depth as a complete technology provider and our strength in some of the highest growth segments. We think we're in a solid position to deliver 20% to 25% revenue growth in premises with some upsides, especially in the federal government and our integrated video intelligence and access solutions.

So as we came into 2022 with strong growth you can hear from these details that we now have visibility to our growth expectations for this year and beyond we have a strong growth engine, but we also learn things we absolutely have to manage across our business model. When we have to deliver sudden growth step ups. We're confident that we now have them all in place positioning us.

For accelerated growth consistently improving margins and expense leverage that'll be clear our top priority is growth in an emerging market like this keeping leadership and expanding market share is critical to building value as the market reaches scale, we've got potentially revenue multiplying projects on track in 2022 that we have to keep focus on.

And a growing base of design wins that we have to keep supporting and driving that's how we're building a business that's uniquely valuable and this nearly unlimited market.

So with this focus from account specific progress to partnerships and industry wide leadership you can see why we think we're set to lead the advanced RFID and NFC industry to grow fast and ultimately to a much bigger scale.

We have the backlog and pipeline in place to deliver on our 2022 plants and the industry reach and team already built to expand our leadership across the market.

That's why I open my comments that 2022 is now all about execution we.

We have the business elements in place and the market itself is clearly taking off with use cases that are transformational.

So with that we'll open the call to questions and.

And I also want to mention that we also have on the line are Dr. Manfred Mueller and a mere cushiony Audi who are the real architects and the drivers behind our RFID business. So.

So if you have questions about that part of the business, we can get it directly from the people who are driving it forward.

So operator, please open the line for questions.

Thank you we will now take questions. If you have any questions or comments. Please indicate so by pressing star one pressing star to where we're moving from the Q should your question be answered.

Lastly, about posing your question. Please pickup your handset listening on speaker phone to provide optimal sound quality. Please hold while we poll for questions.

Once again Thats Star one if you have a question or comment.

Okay. Our first question is coming from Brian Rutenberg from Imperial capital. Your line is live.

Yes, thank you very much and thanks for all the color.

So the first question is on the recovery of gross margins and <unk>.

2022.

We feel very confident as to you about revenue growth.

How quick are we going to see the recovery from fourth quarter to first quarter. It sounds like half of that recovery pretty much comes automatically from freight.

And then maybe you can talk a little bit about where we should see kind of sequential growth.

In terms of gross margins and should we be getting back to kind of 2020 levels or something like that.

Yeah, Brian .

Im glad you brought that up as the first question because that of course is our.

Our absolute focus.

Amir and Manfred are driving the business so effectively we've got to be controlling the internals and the mix.

So that's reflected as we go forward, so I hope and I will turn it over to Justin to address as well because he as you can imagine I've been immersed in this but we do expect it to be progressing.

Regulated sequentially you can see in one quarter bounce all the way back it's going to be over the course of the year that we're.

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Sure.

We're expanding margins as we go forward.

We certainly expect as you say progression right as we get into the first quarter.

And the main thing is we need to make sure that we have consistent progression.

Going forward.

It is it is a balance because you have big opportunities that can come in and we've got to satisfy them.

And we can balance amongst.

The only aspect of your the caution you're hearing and as you know.

We want to be cautious on these things and not overcommit on anything there will be an immediate improvement.

There will be.

Sequential progression towards our target gross margins.

There'll certainly be some fluctuations along the way as we go but we will make sure. They are going in the right direction, Let me get let me, let Jeff and add some color to that specifically.

Sure as Steve mentioned I think that we we do have a path for Q1.

A few of the items that we said were very specific they were drop ships and stuff that we could.

Make sure we eliminate going forward and as we go throughout 2022, I believe and I strongly feel that each quarter.

Margins will continue to recover.

Great. Thank you very much.

Thanks, Brad.

The next question is coming from Mike Latimore from Northland Capital markets, Mike Your lines life.

Alright, great. Thank you.

Yes, I guess just on that topic, a little more.

So is.

Are there areas, where customers were once they get to a certain volume they automatically get a price discount or is this truly a situation where you.

We have a new customer coming online to get the share to get that market or that customer you need to give them a certain price can you just elaborate a little more on that.

Yes, good question.

Cause some.

Some customers do want the step downs as you go further but as we've talked about in the past even with our our big mobile customer who of course is that normally built in we've been very effective at new designs that take them off of that price down steps. So for us in fact, the tightest margin is.

Early.

Project win sometimes there's new technology, we've got to put in.

And we're amortizing that earlier on over a lower volumes the margins tend to expand over time with that with projects for us.

First Bob because of volume and learning curve and second off because we get them too.

<unk> scaled their design and make it more.

Complicated in that respect so.

That's that's the profile that we typically see.

We've got Manfred on M. D of course is immersed in this and in the market.

Let me, let me turn it over to Manfred as well to your comments on.

The.

The gross margin profile kind of over the life of the customer Manfred.

Yeah, I think it's absolutely right. The way you just described it Steve.

On the other hand of course, we did we did address the topic of mix, having some impact on the margin here and there you also have Uh huh.

Kurt about the let's say the volume shipments so with some substantial growth in terms of like like the overall output there.

We also addressed various markets that we're like in the in the lower ASP.

Area and that that was basically one of the drivers there on top.

Some of the seasonal Q4 O clock topics that base get dropped down the margin, whether but shipment or whether it was purchase price variations here and there. So from that point of view, that's basically what we have seen.

We are addressing things also with regards to price increases so it's not just that in days like this.

This dropdown.

Because not only we are passing on some of the component increases that we have seen we also tried to basically use that type of let's say opportunity to adjust the pricing out there in particularly wherever the market is allowing us to do so.

Okay. Thanks.

In terms of I'm.

Sure.

Sorry go ahead Mike.

Yes, just I guess the other one would be.

How influential or these transformational deals.

The backlog growth can you just reported are there they are kicking in in a material way yet or does that pick up.

Yes, good question.

That backlog is I mean, some of it of course Cvs is already in there.

Our bulk customers already in there.

Mentioned, a $1 4 million unit order.

Yep.

The medical company, but most of it is not so that 60% of our business that's in.

Billings backlog and run rate doesn't include.

Then that'll be added in.

Tom.

Okay.

Thank you.

Once again, if there are any remaining questions or comments. Please indicate so by pressing star one on your Touchtone phone.

Once again Thats Star one if you have a question or comment. The next question is coming from Jay Chang from he's a private investor one moment Jay Your line is live.

Great. Thank you.

First on the RFID capacity another Bang right.

Hello.

Hello.

It looks like <unk> line has dropped let me see if I can get them back out Q1 moment.

If there's someone else in the queue you could certainly let them in the meantime, but yeah. It was just wanted to make sure it wasn't us.

Okay I'll place, let's see here we've got.

Nickel Manny from B Riley Securities Michael Your line is open.

Hi, I'm here. This is Michael money on for Craig Ellis. Thank you for all the color in the prepared remarks, and also for letting us ask a couple of questions.

So my first question is on the company's ability to execute given that they've done a great job in executing versus some of the supply constrained peers, especially with its quick project turnaround.

That's led to a lot of share gains as you mentioned so to what extent is that embedded in the full year 2022 guide or to what extent did that drive upside to it.

You mean, the rapid responsiveness on design.

We typically do.

And your ability to look to deliver.

Deliver as well while other peers cannot.

Yes, good good good point.

On on both first off yes, the design side.

The huge advantage theres actually another company that I.

It didn't.

You didn't mention because they're there.

Their name.

It's too sensitive, but we did a quick designed for them had basically double the read range and some other performance.

Superior results to what they had before.

And.

Did it in literally week and a half.

And that that is really core to our <unk>.

<unk> and debt.

I'm going to let them comment on that a little bit too because manfred <unk> built that team.

It does that quick part and then I'll come back yet I can follow up on the second part of your question Amir would you mind commenting on.

The design and development cycles.

Yeah, sure Steve and highlight.

What we're really focusing on right now is that the team is growing their targets are really on high margin business in this high margin business basically.

The underlying factors are at that specialty applications. So we need to take in and be really rapid and agile in the designing of the requirement and.

And we built a very nice foundation through Q4 of our highest quarter of design wins all in one now many of them are picking up but we're keeping a really keen eye of what the forecast would look like and working very closely with the suppliers to ensure that we can react and respond as these ramp up now a couple of them are picking up.

We're seeing good traction in the indicator is not just the success of the first and the second one actually coming in for a similar product that they might run at tandem with what we have in the queue. So we were responding really quick to the requirements and that's really a testament to our engineering excellence, but the second component to this as we're keeping an eye.

On what the visibility and the forecast needs to be so we can ensure that we could ramp up as quickly as they want to India in the coming year and these plans have been extended now into 2024. So we have almost two and a half year right now run rate.

We want the sales folks to grow within the region and what targets they should be focusing on so everything really coincides together.

Okay.

And then Michael to your the second part of your question about the supply constrained environment has been an opportunity for us because we are able to fulfill better than some.

The answer is really yes, and yes.

We had a.

Non deal Roadshow discs.

A discussion di as Youll recall.

Not long ago, and we talked specifically Manfred they talked specifically about the fact that we've got about 100 million units ordered and.

Supply already allocated to backlog, but 130 million more coming in on order that we've ordered a headboard that puts us in a really advantaged supply position and then the third part is I don't want to overly.

I named names or.

Right.

Oh over a certain certainly in order to get one of our vendors in trouble, but NXP.

NXP has been a very supportive partner to us and there is quite a crunch going on there they are juggling a lot of things.

But when we have had upside requirements they've been very supportive of those upside requirements. So we're actually able to fulfill some things even beyond what we've preordered and what we've got on hand.

Because we have some pretty good relationships there. So I hope that does that answer your two questions.

That's fantastic color. Thank you. Thank you very much and if I could just squeeze one more about.

Concerning premises. So we've seen number of good signs of enterprise recovery is underway and it seems like a lot of verticals are undergoing.

Upgrade cycles that you alluded to in your comments.

So how do you get when you look out at the course of the year or how do you think that the pace of the enterprise recovery will play out maybe in the first half of the year versus the second half.

It's already on a good pace.

On the premises side as well.

The second half of the year of course always the stronger third quarter as there is always very strong because of the government year end.

We certainly see government spending only going in one direction.

And you know.

We also find you never want to profit from things like this.

But but when there's conflicts and other concerns in the world security spending and especially physical security spending tends to go up people are more sensitive to it.

Many people proposed programs.

They're there.

We're generally pushed right through so we're seeing a lot of activity I mentioned prop tech.

Airports education institutions critical.

Critical infrastructure ports transportation all those areas as you would expect that day that you want to make sure our secure and operating well even in an uncertain environment.

We're seeing lots of RFP activity as well as programs. We already had underway that are that are coming through and getting deployed and we're seeing very little remaining.

Friction in going out to sites and getting installed there's virtually none of that anymore.

Everybody is that open end and deploying at this point.

Great. Thank you very much.

Sure. Thanks, Mike Okay.

Up next we have J, John private Investor J. Your line is live.

Hi can you hear me now.

Yes, yes, we can okay perfect.

So first on the RFID capacity I know the run rate was 260 million units, whereas the capacity now and what will it be by the end of the year.

Manfred would you like to take that on directly.

Yeah, I can't comment on that so it was 185 that we delivered last year.

Capacity right now is roughly 220, the outgoing capacity.

By the end of the year entering 2023 is $350 million.

We don't pull in additional equipment, which is an old already so I won't for example, with a machine.

Men manufacturer in Germany. This week, we are basically releasing and doing the site approval for the next piece of equipment, which is gonna be arriving Singapore.

About two or three weeks and the next machine is already ordered for like July arrival and another one is <unk>.

In early 2023 again with the possibility of being pulled in.

So there is.

Go ahead, all the equipped so again.

Oh, sorry go ahead please.

Yeah. So all the necessary capacity is going to be lined up so capacity is not going to be the issue right now.

Okay, and then just supply chain team has done a great job in making sure your customers orders were all filled.

Especially when your competitors were unable to do so.

I believe that's the case in both segments.

As vendor theaters and they see how well you accommodate your customers do you see your allocations from your vendors increasing significantly this year.

Yeah actually that's a that's a good.

Good behind the scenes reality and the answer is yes.

I mentioned.

P.

And again, they're balancing lots of demands.

But they've been very supportive and we expect that to continue.

They really like the nature of.

The projects and use cases that we've got going and they want to be behind them and very supportive of them. So I expect that to continue and that's the same for several of our vendors.

And.

The same on the on.

On the premises side.

But by virtue of being a credible supplier.

Filling in more of our products for four more customers and therefore people are selling through rest and vendors to us know that we're growing our market share and we're the ones. They want to support. It then starts to become a law.

That's helpful feeling prophecy.

Interestingly the other thing we're doing.

<unk>, which which also helps on gross margins and this is now openly communicated.

At March 1st across the board for our premises business, we implemented a 10% price increase.

And it was.

Perfectly well received because we have been very supportive with our our customers. They know it they everybody reads the papers about how hard it is and when you put through a price increase.

I appreciate that.

Worked with them.

Up to now and they understand that it needs to be done so our business can stay healthy. So yes, I think we're in a decent position from a supply perspective.

Better than our competitors and our vendors are working with us on it and that therefore also allows us to start.

Expanding our gross margins in the most straightforward way, which is by raising price.

That's great.

And then I assume that's enabled you to take new customers from your competitors.

One how meaningful of an impact where are these new customers and then two do you see those customers now going back to the old suppliers or are they staying with you and be ordering from you.

You know when you when you work with the customer in hard times.

They tend to stick with you because everybody needs reliability.

And even if they need to pay a little bit more for it.

Yes.

It hurts more you know I think.

Financial optimization, sometimes.

It looks like algorithms and that works when everything is.

On a consistent.

Environment and everything stable everybody knows that we are not in stable times, and who knows when we will get back to stable times, and so being willing to put value on reliability and relationships and commitments as well as great technology and great solutions.

I think everyone from Cfos on down are accommodating that kind of situation. So no the customers that we won back.

That we won.

I think youre going to stay with it we're already in there of course I'm talking about other products that we can do with them. They are starting to look at expansion of capabilities.

And then that allows us to look at higher gross margin products.

Okay, Great and then.

On the plant to guidance.

I noticed you were maintaining it from last quarter.

Whether it's new projects new <unk>.

Customers bookings higher allocation from the sub suppliers. It seems the momentum it's only accelerating from four months ago, So might we didnt guidance improved as well.

And it's and it's purely as we've talked about before we really need to see it in our hands.

Four we're going to raise.

Expectations.

<unk> with some of these projects and can move around and suddenly moves by one month and it moves out of one quarter into another we think we've got it well covered.

Certainly we've got a well covered for 2022 in our opinion.

But we don't want to raise that until we have a raised number really well covered.

So hopefully I appreciate that.

Okay, and then and then on the call are just reiterated your overall long term gross margin target of 40% to 45% for the entire company and then $35 40 for the IV side, and then 50% 60% for the parasiticide.

What level of sales, which would be to reach gross margin targets for each segment and what would be the resulting EBITA or operating margins.

Yeah. Good so interestingly it not so much a level of sales as it is getting to the getting to the mix, it's partly scale.

But it's largely mix as we get that.

Things like the <unk>, the high end auto injector and <unk>.

Yeah, and a dozen other projects that you were talking about our pipeline of energy projects bigger than they've ever been and that's where the gross margin is big and as that becomes a bigger part of our mix.

Margins expand so I'm not trying to avoid the yet.

The question yet but.

But certainly when we're looking at a $200 million revenue range that mix should be in place, but I think it could be in place earlier than that as we as we drive the mixed properly.

And then on the premise decided that 55% to 60% you don't have to go far back in our.

Results to see that we've been in the 57 plus percent gross margin range and premises already so we are at the scale.

That can be achieved.

Achieved its again its a matter of mix.

And.

The margin on the mix, there, but mixed becomes more stable and more consistent as you gain scale, but all of those numbers yet.

Sure.

Our touchable from where we are right now frankly.

Okay.

One more in I know, we're out of time, but.

You reiterated the guidance for 2023 of 30% to 35% revenue growth.

How much visibility do you have that you feel confident that you can be steep.

What seemingly is an aspirational goal.

Well, we have visibility to that and in fact with the pace at which some of these bigger deals are moving through.

If anything the 23 number I, we're feeling more confident about.

I just wouldn't make sense to be moving 23, and not moving 22, but if you look at all of these we have been and then when you look at that pipeline again I can't throw out all the names that are there, but you can hear from when manfred interfere or talking about.

The pipeline we're building it in the projects we've got underway.

That.

That isn't aspirational at all of that.

That's as much line of sight you can have.

Oh.

All in all we're talking about it at this point is that it.

10 months out to nine months out so it's that it's something that we have.

Decent visibility to things can always change, but yet but certainly.

We're as confident about that it's ever and and you're right. We have run over so I'm getting.

Getting the waves that.

Great. Thank you so much.

Okay. Thanks for your time.

At this time. This concludes the company's question and answer session. If your question was not taken you may contact Identive as Investor Relations team at I N V at Gateway IR Dot Com I would now like to turn the call back over to Mr. Humphreys for his closing remarks.

Alright, Thank you and thank you all for joining US I know, we've run over and and it's very busy time for everybody but.

We really appreciate the support for the company and we're certainly going to continue to drive it forward and continue to communicate out we have some other investor events coming up and we'll keep communicating.

As transparently as we can as the company moves forward, but we're certainly excited from a business perspective and that committed to keep making progress on the overall business model. Thank you again for joining us.

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

Yeah.