Q1 2022 Identiv Inc Earnings Call
Good afternoon, and welcome to Identive presentation of its first quarter 2022 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 Scott Fuller.
Following management's remarks, we'll 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 and future business and market conditions and future plans and prospects is all forward looking statements actual results may differ materially from those expressed in these forward looking statements for more information please refer to the <unk>.
Factors discussed in documents filed from time to time with the SEC, including the company's latest annual report on Form 10-K, Identive assumes no obligation to update these forward looking statements, which speak as of today I will now turn the call over to CEO, Steve Humphreys for his comments Sir. Please proceed.
Thanks, operator, and thank you all for joining us our first quarter was a strong start to a pivotal year for our business. We're on track on all of our key metrics and business activities behind the numbers continue to be ahead of our plans our gross margins in particular strengthened faster than we projected up almost 300 basis points over last quarter with non-GAAP gross.
<unk> of 37, 1%.
This was a key goal that we expected to reach mid year and we got there in Q1.
The progress on gross margins is important for three reasons first it reflects broad customer demand. So we can balance our mix.
It reflects the strength of the market itself because higher margin specialty RFID devices are the fastest growing segment driving growth as well as margin expansion third it reflects the strength of our financial systems. We track gross margins on each customer order. This lets us optimize our business model. While also supporting customer account development will go into <unk>.
More details later, but I wanted to focus on gross margin because it reflects key factors, including demand strength customer diversity specialty RFID growth in internal information and visibility to manage our business model as we scale.
Our other metrics for Q1 were also on or ahead of plan revenues in our premises business were up strongly 23% year over year. We again fulfilled every key customer demand. Despite the supply chain pressures, we're all dealing with.
Our identity segment grew 7% led by 13% year over year growth in RFID on track over a high growth comparable quarter in Q1, 2021 that grew almost 60% year over year.
Now more importantly, our backlog at the end of Q1 for shipments in Q2 is up 32% versus the year prior giving us confidence that we're on target for our 2022 plan.
Our unit volumes were 48 million units up 20% versus Q1, 2021, and our average unit prices in RFID expanded up 16% sequentially.
Overall revenues grew to $25 1 million a record for our first quarter and up 13% versus Q1 of 2021.
Our forward indicators grew strongly with total backlog up 24% year over year.
Now in addition to these growth metrics our business model progressed, while increasing gross margins, we held operating expenses tight resulting in EBITDA and net income ahead of plan and solidly on track for the year.
Behind the financial and operational aspects of our first quarter results. We continued our track record of 100% customer retention in RFID and our other growth drivers made strong progress.
These include existing customer launches and expansion new design wins, often with nonrecurring engineering.
And technology launches.
Among existing customers our wide range of customer use cases are growing strongly these encompass several dozen customers in the $102 million annual revenue range. So I would like to highlight some of these with an additional perspective of gross margin on these products in.
In the health care and medical device category projects for test kits and surgical accessories shipped to six different customers all with margins of over 55% and a coupled with margins over 70%.
Wine bottle gas bottle and other intelligent tamperproof devices sold to five more customers all with margins ranging from 40% to 60%.
Hi, and authenticated consumables for robotic cleaners printers in a couple of others with margins in the 40% to 55% range.
So our wide base of smaller growing customers continued to expand with margin profiles that support our expanded margin expectations.
Turning to our transformational RFID initiatives each made progress.
Both of our candidates initiatives progressed as expected the U S is moving faster and we're now getting a very clear view of volume potential we're delivering 50000 units to true green for their retail pilot the.
The pilots now formally set for July with all the systems that the Msos data flows infrastructure deployment and training going on over the next six to eight weeks.
Our solutions expanded to include our specialized dual frequency RFID device and we're also doing all of the converting and data encoding.
This expands our margin by increasing our value add and obviously expands our mode.
Despite the scope expansion, we're on track for a four week delivery cycle to support the retail pilot scheduled.
<unk> also begun rollout projections that give us more specific volume visibility now you might recall that Chriscoe labs bought Columbia care, expanding our customers reach in the cannabis NSO market to 17 states.
Discussions for pricing and allocations are in various stages across all 17 states and.
And specific projected volumes in just the four states of Maryland, Virginia, Delaware, and Pennsylvania are about $150 million annually. This.
This gives us our first bottoms up look at potential volumes overall in state by state detail.
And these states represent about 11% of the populations of the states where marijuana is legal for medicinal recreational use so that translates to a total U S. Cannabis market of about one to one 5 billion units for our devices.
Our customers covers 17 of the 33 states, where cannabis is legal so our specific opportunity with this customer is around 500 to 750 million units now we know thats a lot of data, but it's the first U S volume data, we've gotten directly from the companies in the market talking directly to their customers. So we wanted to share it.
Now the cannabis program in Canada also is progressing with about 2000 of our test units delivered and in test production program are tuning in converting is going well, including hologram inclusion in the finished product which is a new candidate specific requirement we've incorporated.
Now we can go into more details in Q&A, but this billion plus unit program is moving as we expected.
Our auto injector project is still on track for 2020 to ramp up with at scale volumes still projected ultimately to be in the 100 million unit range. We're continuing to work intellectual property agreements, which is fundamental for medical device companies also the critical first 25% of the 20000 unit pilot run have been delivered and signed off.
<unk> is on track for 100000 unit production pilot mid summer.
With this deeply engaged process underway as you can probably tell our relationship is very strong, creating a solid margin price and volume opportunity. That's also on track.
Turning to our devices for prescriptions for the visually impaired through our direct sales and partners. We've now got four pharmacy chains in various stages of pilots and appointments now nobody's as far along as Cvs, but the broad adoption is underway.
As for Cvs, specifically, they are increasing their marketing push I mentioned the joined award we've received and we expect another at RFID Journal live in a few weeks.
This gives the solution more visibility and puts more pressure on more pharmacies to adopt our solution.
Lastly, our largest mobile device customer has a new design ramping right now with higher volumes than we originally expected over 10 million units of that design over the next six months most of their prior designs are continuing resulting in more total demand than we had projected.
So in addition to these transformational opportunities we've got over two dozen nonrecurring engineering projects underway and finished about a half dozen in Q1 I won't go into all of them, but one with major volume potential that we completed in Q1 was for the world's largest multinational clothing producer and retailer we've designed a specialty tag for asset tracking in their store.
<unk> using our best in industry RFID on metal technology. This.
This is now going into pilot in Austria, and Germany. This also got a lot of help from our partnership with NXP. They routed a special wafer to us for development in the pilots really giving us a boost to hit the customer's goals.
With this progress in Q1 RFID is positioned as our main growth driver in 2022 with upside volumes in just a few accounts that can transform our business.
Our premises business also had very strong results growing more than three times the industry's growth rate. So what drove it and is it sustainable.
In physical and converged security, we've always been strong in the federal market last year, we launched actions to strengthen our commercial presence and this really paid off with Q1 premises growth almost entirely driven by commercial markets security has become a priority for every business and institution and our combination of high security and cost effectiveness and.
<unk> solutions from a single vendor delivered growth and market share gains with this strength in commercial markets established we're in a solid position to continue to grow at a multiple of the industry's rate as the seasonally strong federal cycle in the second and third calendar quarters drive growth in our federal state local and education markets.
This gives us high confidence in our 20% to 25% growth expectations for premises in 2022 hitting.
Hitting well in this range in the first quarter, which is always the seasonally toughest quarter clearly has us on track for 2022 if.
If our commercial market strength continues on top of increasing federal budgets for security, we could see premises growth even above our initial expectations for 2022.
In addition to technology leadership, our supply chain management became a real competitive advantage in Q1 across both RFID and premises.
In premises, we're taking advantage of competitor shortages, especially HIV and companies that use mercury hardware and RFID are strong supply relationships gives us an advantage like the leading clothing producer that we're in pilot with helped a lot by NXP supply support.
Our engineering expertise also lets us offer alternate solutions to customers get them accepted and bring them to market far faster than our competitors. The combination of the supply chain strategies, let's just take share in both our segments.
And one last area, we hit hard in Q1 is our technical and thought leadership in our industry. We've kept the fast pace of rewards recognition announcements and engaging in the main discussion forums in the industry. In Q1, We got awards for our Eco tags are tagged on metal devices and I mentioned, the aim joined toward the CBS .
We also launched a podcast series called humans and Tech we've already got 15 episodes up with titles like candidates quality controls from farm to fingertip.
Iot connected collectibles and consumables and securing area 51, so you get the idea they give us a unique social media voice and are pretty technology centric markets and this really builds a reputation as the industry thought leader for mass adoption of RFID based Iot.
So our RFID business is on track with our transformational projects moving along ahead of plan in some cases and volume outlooks getting clearer as the programs progress.
Demand is growing fastest for our specialty RFID devices, driving up margins and unit prices also faster than we expected design.
Design wins are growing with our increased technical sales and engineering teams and our marketing investments are driving even more opportunities that our expanded sales team is converting.
Our production capacity continues to expand to meet the higher demand and our systems are in place to manage customer life cycles, as more and more customers and projects come into our revenue streams every month.
And premises, we proved our ability to take market share aggressively growing at three times the market rate and winning in the commercial market. Just the security is getting more focus and budget allocation than ever and just as the seasonally strong federal state and local government buying cycle ramps up.
So before getting into the next quarter and our outlook for 2022 and beyond I will turn the call over to Justin to review the financial highlights for the first quarter.
Justin.
Thanks, Steve as Steve mentioned, our financial results reflect our continued strength exiting the first quarter of 2022 with the delivery of year over year growth in revenue sequential and year over year increases in gross margins.
Future backlog and a sequential returned to positive non-GAAP adjusted EBITDA.
We believe these results paired with our continued investments in the RFID organization and its capabilities.
So in the company to achieve its growth and profitability potential and the remainder of 2022 and beyond.
We closed the first quarter of 2020 to $25 1 million in revenue, which was above consensus estimates and up 13% compared to the first quarter of 2021.
Trailing 12 months revenue was $106 7 million up 17% versus the comparable prior year period.
The sequential change in revenue.
It was due to normal seasonality.
Recurring revenues came in at 6% of total revenue and an increase of 1% sequentially.
First quarter 2022, GAAP gross profit margin was 36% an increase compared to 33% in the fourth quarter of 2021.
And 35% in the first quarter of 2021.
For the first quarter of 2022 non-GAAP adjusted gross profit was 37%, which was above consensus estimates and an increase compared to the 34% in the fourth quarter of 2021 and 36% in the first quarter of 2021.
non-GAAP adjusted gross profit margin changes resulted primarily from our product mix as well as a focus on tracking and prioritization of higher margin products.
We remain committed to a long term non-GAAP adjusted gross margin target of 40% to 45%.
In the first quarter of 2022, our GAAP and non-GAAP adjusted operating expenses, including research and development sales and marketing and general and administrative costs were 10 9 million, respectively compared to 11, three and $10 5 million in the fourth quarter of 2021.
An eight 9% and $7 6 million in the first quarter of 2021.
Our non-GAAP adjusted EBITDA margin increased 4% from Q4 2021 to a positive 1% in the first quarter, which was above consensus estimates and we are continuing to deliver leverage in our operating model.
We remain committed to our long term non-GAAP adjusted EBITDA margin of 15% to 20%.
Our Q1, GAAP net loss was $1 million or a loss of <unk> <unk> per share above consensus estimates of eight cents per share.
This compared to a loss of $1 9 million or a loss of <unk> 10 per share in Q4, 2021, and a loss of $1 5 million or a loss of <unk> <unk> per share in Q1 2021.
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 those trends by segment beginning with identity revenue from our identity products totaled $14 6 million or 58% of our total revenue in Q1, 2022, which is a 7% increase from Q1 2021.
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 wins, and our ability to deliver product versus competitors constrained supply chain.
The sequential decrease in identity revenue was due to normal seasonality.
Our Q1 2022 identity segment non-GAAP adjusted gross margin increased to 23% compared to 21% in Q4 2021, the sequential increase in margins were due to a greater proportion of higher margin specialty RFID products sold in Q1 versus Q4.
We do believe we have the systems in place to pass through our component cost increases timely.
And this combined with our ability to track and focus on higher margin customers should allow us to sustain and expand this margin going forward.
Quarter to quarter margins can fluctuate, but we expect long term margins trend upwards from current levels as we expand and deepen our existing customer and technology partnerships. We believe the move to more complex devices and relationships with our customers will further strengthen our margin profile for new opportunities any temporary exemptions.
Must be signed off by top management 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 $10 5 million or 42% of our total revenue in Q1.
Representing an increase of 23% from $8 five in Q1 2021.
A 5% decrease compared to Q4 2021.
The year over year increase in premises segment revenue was in our commercial business, which has been a key focus area for us to expand our market share and we did it.
The sequential decrease in segment revenue was due to our normal seasonality.
non-GAAP adjusted gross margins for premises in the first quarter of 2022 were 57% compared to 52% in Q1, 2021 and 54% in Q4 2021.
Sequential and year over year increases were primarily due to product mix price increases as well as operational efficiencies, which was a key area of focus for us in Q1 and going forward.
We remain committed to our long term gross margin target of 55% to 60% in our premises business.
Moving now to our operating expense management, our non-GAAP operating expenses in the first quarter of 2022 adjusted to exclude restructuring and severance costs and certain noncash charges, consisting of stock based compensation and depreciation and amortization was 36% of revenue compared to 37% in Q4.
2021. This resulted in a return to positive non-GAAP adjusted EBITDA in the first quarter of 2022.
In summary, we continue to demonstrate operating leverage in our business, while successfully reinvesting for growth within our current cost envelope.
Now turning to the balance sheet, we exited Q1 2022 with $28 7 million in cash and cash equivalents and restricted cash of $1 1 million a decrease from Q4 2021, we remain debt free and we maintained our strong working capital position and our 10-Q filings, we will providing a full reconciliation of the year to date cash flows.
For completeness, we have included the full balance sheet in the appendix of this earnings release.
As we move to the second quarter, our total backlog for all future shipments were $32 4 million exiting Q1, 2022 up 24% versus Q1 2021.
Which provides visibility into the current business momentum, we anticipate continuing through 2022.
Momentum exiting the first quarter combined with the strong backlog give management confidence that the business is on the right track to meet the company's growth expectations for 2022 and 2023.
As a result, we are reaffirming our full year 2022 guidance today with expected revenues between 130 $135 million, reflecting year over year growth of approximately 25% to 30%.
We are also reaffirming our guidance $4, 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.
As our Q1 financial show our growth continues to expand and margins the strength in fast trending towards our long term operating model margins. We continue to have strong visibility into 2022. So we are reaffirming our 2022 and 2023 guidance today.
This year continues to be all about execution.
With our expanded world class sales team the industry's best engineers to support energy projects and other design wins deep relationships and technical expertise engage with a half dozen transformational programs and ongoing production capacity expansion. All the pieces are in place to drive the vision and targets we set.
This showed our target growth rates already in Q1, and the seasonal nature of RFID programs like mobile devices and consumer products also show our projections are aligned with our results.
Now another metric we track is our backlog and committed customer buying forecast in RFID and committed forecast come in industries like mobile devices. They don't issue purchase orders until they are ready to load their supply chain, but they give very firm forecast several months out.
Combining our backlog with these firm forecast the balance of our RFID revenues for this year are over 85% covered that.
That means we only have to close new business of about 15% of our year's budget in order to reach our targets and that's a pretty good position to be in with two thirds of the year still to go.
In fact about 95% of our next six months RFID plan is covered by this metric we.
We of course plan to do a lot better and drive much more into 2022 and 2023, but in terms of near term goals. It reinforces. The 2022 is all about executing our plan.
The key parts of our strategy and our resources are solidly in place backlog and pipeline are building in our customer demand is in a great position to reach our targets.
So with that framework I'll focus the rest of the call on how we're executing against our plan.
As an overview of our plans, we hosted an investor Webinar a few weeks back if you weren't able to attend its on our website and it lays out how we're enabling RFID based Iot growth what that means how we fit in and how it gets us to our target business model and scale.
So design wins are at the core of it all if we lead in design wins customers will always go to the company. That's proven they can deliver that brings more scale more experience in IP more reputational leadership and more of a moat around our lead in the market. It's a classic first mover advantage that expands as the market grows which we've already established and we think.
We're expanding.
So turning to some design wins in addition to the ones I've mentioned before like the recast Royal Fanatic seller and graph deal. We've also got energy project going for ebay life fitness through probate Irobot, a medical device for orthopedic surgery, the world's largest provider of casino chips several industrial applications.
Well different million dollars plus medical testing products across both humans and animals high end consumables for general appliances spanning everything from coffee pods to high end refrigerators systems and a lot more.
So as you can tell from these descriptions our growth drivers are in high margin high ASP devices for Iot applications.
From a vertical perspective, our focus is medical devices and healthcare specialty retail and industrial applications. These categories with their higher margins and high switching barriers are becoming our main growth drivers.
Turning to our other strategic lever our partnerships are delivering growth opportunities beyond what we expected at the beginning of the year. Our chip partnerships are important but at this time I'd like to focus on a category that can transform RFID Iot devices.
This is ultra low power passive and even active Bluetooth RFID devices.
Now, we can't disclose specifics, but we've done some very interesting joint development in this space and there will be announcements at RFID Journal live in Las Vegas in a few weeks that we think could be game changing.
Embedded devices like ours do take a while to get designed in and deployed but getting it on the ground floor with technology. That's got lots of uses and that nobody else has is a key way, we cement and expand our long term leadership in the industry.
Now interesting programs are also launching with partners like collect I'd wise key Peel Amtrust link and others and we can go into those in Q&A, if there's interest.
The third leg of our execution is our growing profile as the industry thought leader I mentioned some of our awards our podcasts, but thats just a sample at RFID Journal lives were chairing three different sessions will be accepting the aim award for spoken Rx together with the Cvs team and rough for two more awards. There. We're also expanding our NFC developer's community with <unk>.
<unk> support from our expanded design team.
Now I'm not going to go into detail about capacity and the build out of our sales and engineering teams, we've covered that before and hopefully we've proven our ability to build best in class teams fast and to add technically cutting edge prototyping and production capacity, but we can go into either of those areas in the Q&A. If if we want some more details to be covered.
And one thing I do want to address is supply chain because it's top of mind for every business and investor. We continue to meet demand and I mentioned earlier that we're taking share from competitors, who can't get supply or can't design and implement alternative technologies fast enough.
We expect this environment to go on throughout next year, it's actually been an advantage for us with the proactive RFID orders, we placed and the fact that we have our own hardware and owned production means we have much more flexibility than anybody who outsources, which most of our competitors do.
When we do have to pay premiums we have the systems in place to pass through costs, including an appropriate margin. So our overall margins sustain or expand.
And customers. These days are very willing to cover the costs and appreciate our ability to supply even if it costs more or if they have to accept alternative designs. We did this in Q1 and expect it will remain part of our business model for the foreseeable future really.
And one benefit of the supply chain challenges is that if inflation becomes part of our macroeconomic reality, we're set with the systems and the customer relationships to sustain and expand our margins even in an inflationary environment.
So that's the execution picture for RFID business, we're confident that our execution is best in class across our design wins partnerships industry leadership capacity scaling team expansion supply chain. This gives us confidence in our plans for growth gross margins and operating margins through 2022 and 2023.
Turning to premises we covered most of the growth drivers in the opening comments with our strength in commercial markets established in Q1 as the seasonal buying cycles in government hit in the middle of the year. We are seeing signs that budgets for security will continue to grow in particular for highly secure end to end platforms. In this category. We are the clear leader.
As a result, our velocity vision products is getting traction in both government and commercial customers with a couple of real lighthouse customers likely to deploy in this quarter and next.
Additionally, our latest update the velocity enables true AI in converged security implementing network global integrated operations, which creates holistic data centricity across the system and this is really the key to machine learning enabled predictive and proactive security.
So with all of these growth drivers and already seeing the momentum we'd expected, we're confident of the 20% to 25% growth in premises and see signs that it could be even more in 2022 and 2023.
Now before wrapping up I'd like to comment on a couple of macroeconomic trends and why we think we're well positioned to continue on or above our plan, even if some macroeconomic risks happened around us.
One risk of course is recession.
We think we're well positioned to grow through a recession. Our growth drivers are very resistant to recession medical devices of course, but also cannabis, which just like tobacco tends to sustained demand even in recessions.
Federal government budgets also are very recession resistant so our core growth drivers in the sectors that are an increasing part of our highest growth business are actually very strong verticals if recession does hit.
The other issue, we think we're positioned to do well in is the semiconductor cycle, we've all seen the boom and bust cycles in semiconductors and there could be another bust.
We would actually benefit from that if chip prices drop our cost decline, which in the past is supported faster RFID adoption and margin expansion.
I already explained why we think demand will stay strong in our key verticals. It's also possible that some of the chip vendor support for US now is because they see the same trend that we will be growing in the solid demand verticals right when they need demand so they're supporting us now to be better positioned if a bust comes.
So at least for those two macroeconomic risks recession or semiconductor downturn, we believe will be very resilient and if anything we will benefit in growth gross margins and strategic importance.
So to wrap up we've detailed how we're executing against our plans our industry position and our base execution gives us clear line of sight to our 2022 goals and position us for 2023.
We expect some of the revenue multiplying projects to ramp later in 2022.
As we've done today, we will keep updating on tangible progress milestones to confirm the solid position, we have in each opportunity as well as confirming and refining the scale of each.
Our first quarter has set the pace, we wanted and in some areas is moving faster than we expected we will keep updating our outlook and guidance as the business progresses, but the progress on growth gross margins strategic initiatives and the favorable industry conditions for us are very encouraging as we go into the rest of 2022.
So with that we'll open the discussion for questions and again, we are joined for the Q&A by Dr. <unk> <unk>, our COO and GM of identity and a mere cushioning YOD EVP and GM of our transponder business. So if they're RFID related questions. We can cover them directly with our leaders driving the business I'll now ask the operator to open the lines for questions operator.
Sure.
Thank you we will now take questions. Thank you, ladies and gentlemen, the floor is open for questions. If you have any questions or comments. Please press star one on your Touchtone phone.
Pressing star to remove you from the queue should your question to be answered.
Lastly, while posing your question. Please pickup your handset up listening on speaker phone to provide optimum sound quality.
Please hold while we poll for questions.
Once again Thats Star one if you have a question or comment.
Okay.
And the first question is coming from <unk> Schmidt with Lake Street Capital markets. Jason Your line is live.
Q1 results I know you mentioned prioritizing some products in Q1, but was there any demand do you actually couldnt fulfill.
No there wasn't.
Watson unfulfilled demand.
Frankly, there were some orders we held back because prices are going up in Q2.
So there was some of that.
But nothing that was that that was the supply chain related to that that's what you're asking.
Okay. That's helpful and just looking at the clothing opportunity. This seems to be sort of application you guys haven't really played in a big way in the past just curious with this was a customer using a competitor competing technology or a competitor's product.
Or if this is sort of a new initiative.
And I guess Relatedly, how should we think about the potential size.
Yes, I'll turn that one over to Amir because he has been working it for them.
From the trenches.
Thanks, Steve.
A particular retailer.
They are not new to RFID, but they are new to custom RFID for specialized application.
Specifically this is for the asset management within their stores and they needed a specialized tags for.
Adherence to basically on metal.
And that was why they turns villa and they are right now looking at it at a pretty rapid ramp to 10 million units and we're just basically looking at when that strike time its been at homes $10 million, let's start it could be even much more outside.
Okay.
And then just the last one from me and I'll jump back into queue gross margin had a nice snapback here in Q1, I know you said you achieved that midyear target earlier than expected, but should we expect gross margin to at least remain stable here in Q2.
All right.
Yes, we feel we feel that.
Gross margins should remain stable throughout the rest of the year.
Okay perfect. Thanks, a lot guys.
Yes.
Jason.
Okay next we have Anthony Stoss with Craig Hallum. Your line is live.
Hi, guys.
I'll Echo my congrats on the impressive snap back in gross margins really nice to see that.
Steve.
Sure. It sounds like you continue to have a ton of design momentum I'm curious if you have.
The figures in front of you I E number of new customers, perhaps that you entered into design wins in the current quarter also I'm. Just curious if you could share any thoughts on just the complexity of some of these new designs, especially in.
Kind of slated for 2023 Youre thoughts on Asps, maybe in 2023 or 22.
Additional detail we definitely helpful. Thank you.
Yes, I'll, let take a crack at that and then I'll pass it over to <unk>.
<unk> to comment on on the first thing of specific design.
We get.
Between one and two dozen.
New design coming into the pipeline.
We see more we will start to expand the engineering team, but we don't report the specific number because it is going to fluctuate quarter to quarter and one design might be for $1 billion opportunity. Another design might be for a 50 million unit opportunity. So.
We want to be careful with that.
Anchoring too much on that specific number but.
The expansion of the design.
The number of designs going through the team is definitely the relevant part.
So let me yes.
So you also one on Asps.
We do expect that those will be expanding over the course of the year, but on a quarter by quarter basis again, I think they will generally expand but it can be it can fluctuate quite a bit as one big customer or another.
Has demand moving along so I think as it turns out this year, it'll probably be generally expanding.
But yes, but that.
Won't always be the case as you go quarter to quarter.
<unk> do you want to talk a little bit more about the design wins and <unk>. If you want to come at all.
Sure, Steve maybe I'll take it first.
I'll start on the ASC side.
Having a standard is going up it's probably not a fair assessment because the ratio.
It's really all depends on it depends on the complexity of the antenna design.
Designing in and definitely the chip capabilities that we're using so as you move up the chip capability matrix.
She is going to go up and then it's going to be higher priced finished that.
Looking at the energy projects overall.
We've been prioritizing the Q E <unk>.
Based upon what's going to move first and then also dependent on when availability for certain chips are going to be so sometimes the NII designs that we're working on are focused more on a complex ship that may not be rolled out and really been mature enough in the market. For example, we have one that we took on this this last quarter and it's not going to be ready.
Q1, 2023, so what we're doing is we're working really close with the supplier to make sure that when they do launch.
We have the first access to the prototypes and then we can be the first to really trailblazers with that technology, So NRT and the quantities just echoing what Steve is saying there are vast and wide from a volume standpoint, but also they are in the priority queue based on when the demand is going to pick up and then also when we are going to really be able to deliver.
The optimal results for the customers.
Alright.
Yes, yes.
<unk> with regard to the question related to the complexity of the design wins I mean, they I would say there are decently complex, but that's what we are living and breathing. So from that point of view, there's not that many out there that can do it in most most of these guys know where to go to most of these kind of opportunities also are directed to us by some of the chip vendors.
Because we can deliver accordingly, and there is one particular element that is adding complexity more and more going forward, which is the programming and coding requirements for some of the higher end Ics that are.
Very popular in the midterm.
And then if I could sneak in one more for Steve or maybe a mirror.
On your 3% to 35% revenue growth goals for next year working closely with NXP. As you have are you confident that you're going to have ample supply to kind of hit those targets from what you see right now.
Yes. We are also because there is the diversity is certainly NXP is core to it and.
Yes.
We ordered well ahead this year and we're doing the same thing in fact, we're already ordering through most of 2023.
But also you get a diversity of chips and some of these designs to sometimes its infineon, sometimes that sometimes it's other specialized win so we've got both that.
That gives us some confidence that we can fulfill that demand with the growth on it because of that diversity of supply as well as ordinary ahead as well.
Pretty supportive partners.
Because it gives us an allegation games right now a question of how much they're going to route to U S and we're getting a pretty favorable allocation treatment and we sure think that's going to keep going into 'twenty three.
I think you really really want to add anything to that.
Yes.
Just the line that we have our Q2s and tier threes behind NXP as well and what we've done is for art.
Really our macro customers.
Honed in and made sure that they are starting to cross qualify other Ics backups. So if there is an unforeseen situation, but we don't get the right level of allocation, we have a backup in place and then they are ready to go with that and kind of define what's already been kicked in.
Thanks for all the color guys.
Okay. Okay. Okay. Thanks, Thanks, Tony.
Okay next we have Mike Latimore with Northland Capital Your line is live.
Yes. Thanks.
Steve I think you gave a number.
95%.
The RFID revenue covered in backlog and committed does that is that the number is that the right.
Number and is that a little bit.
<unk> number I don't want to call them <unk>.
That's a new number.
And thats over the next the next couple of quarters.
Six months specifically.
And yes, it's a new number to give some visibility because backlog represents some of it but a lot of it is that.
Both both good and challenging sometimes with the forecast is that we will get the forecast and then.
These mobile device companies that they up their forecast they fully expect you to deliver to it. So that's the part that debt.
That can go from there, but yes. The point is that it really is doing a production doing a design doing the engineering.
The team that <unk> built.
Filling the pipeline quite nicely.
Yeah.
Is that number improved year over year.
Did you track that number last year.
We haven't we've just started tracking it partly with the flight situations to make sure that we're looking.
Actually that six to eight quarters out to make sure we got coverage not just.
Backlog in <unk>.
We need to cover backlog firm forecast and.
The new deals that they're hunting and bringing in so we've been focusing on that much more of the last couple of quarters.
Yes.
And then the backlog growth of 24%.
That's a little slower than last few quarters I guess can you just sort of general color on that change.
I think just a.
Number of our customers do a firm forecast versus backlog.
And that.
As you can do the math of backing into it.
The growth that we've got there is that much in forecast backlog than the forecast, but they've gone up a fair bit.
So that's another reason for giving the combined number because we've got the visibility, but some of the customers that are more forecast driven than backlog driven are giving it to us that way.
But our experience has been that.
The forecast numbers tend to be the baseline that we get and then and then they ramp it up from there.
Yes.
And then I think your.
You mentioned sort of normal seasonality, which would imply a second half growing.
Well over 30% I guess, one am I interpreting that correctly and then two.
What would be like is that broad based acceleration or is there a couple of key projects that really hit in the second half.
It is actually broad based.
Hi.
There's seasonality that comes into it when you get the consumer.
Product and we talked about closing earlier in <unk>.
Mobile devices of course, there is malone launches that that happened in the second half of the year. So there's a lot of things that drive that seasonality plus.
<unk> doubled that sales team over the course of.
Really the last few months of last year, and so that sales team is building a pipeline and that pipeline. It takes two to three quarters to convert so you've got that driving it as well and then lastly, you've got seasonality in federal government and the government buying cycle.
That's driving it too so theres a number of factors that debt.
<unk> always drive our seasonality, but if anything there.
It's increased purely by the increase in the sales team at a sales cycle.
Or do you want to add anything to get to that as well.
Talking a lot about your sales team.
Sure Steve.
Just to add color from Q4, we had our highest level of.
NRG project.
Those are projects typically.
Cycle, we usually take nine to 12 months to really see some level from.
From design to prototype some level of delivery to the customer what we're seeing from a lot of the design feedback through this last quarter is that we have.
We're approaching the right level of second half of the year some of the.
Actually hit some true volume.
And there are multiple work streams. So it's not one or two eggs in the basket that we're going to be banking on its really a broad scope hitting our main segment focuses but theyre going through the standard cycles from really true design, all the way through to volume.
Okay.
Yes. Thank you.
Thanks, Mike Okay.
The next question is coming from Brian remember with Imperial Your line is flat.
Thank you very much two quick questions first of all back to the gross margin real quick.
We should see a seasonal drop in the fourth quarter is that correct on the gross margin side.
No well versus Q3 or about yes versus Q3, so if we're holding things let's say.
<unk> Park is 36% for first second and third quarter will there be a drop.
A little bit in Q4.
I don't.
So okay.
Okay.
Okay.
We don't usually give quarterly guidance, but flat.
Okay.
Okay No no that's great color. Thank you next.
The next question is on the access control side, maybe Steve.
When we spoke I think at ISC West you are launching some new card readers.
Sure.
Compatible with some of the larger competitors out there can you talk a little bit about traction that you've gotten in that area and what you see happening.
Yes, and the reader area in particular, there's been a lot of traction.
<unk>.
And it.
It's coming of course out of the grille at Hyatt for the most part HIV for three different reasons. One is supply they've had a real challenge supplying and we've been filling that in very aggressively.
Number two is there their proprietary technology, which.
Customers, who are just getting more and more sensitive to being locked in.
Two proprietary technology, obviously inter operate with areas as well as everything else.
And then.
Number two number three.
Is.
The fact that.
The interoperability with the back ends with with all of the.
Panel is a lot.
A stronger with US and then the other thing is we are actually starting to OEM our readers.
And two out of the top.
Three non Hirsch Act.
Active control companies will be Oems our readers.
One already is.
Another one will be bringing them on in the next couple of months and so we'll be selling readers through.
Three out of the top where access control companies and.
Obviously, the most competitive reader too.
The biggest provider out there right now.
Would you talk a little bit more about that in the future in future calls on Whatsapp.
Kind of traction youre getting specifically in that access control area, because I don't believe you've historically talked about that.
Yes, yes, we talk about it but.
Less so, but yes, we certainly will keep updating and as you heard in this update we focused on it.
A little more we want to keep our focus on RFID and the growth driver there but.
But there is really interesting stuff going on in the physical security side on our product side and on the market is.
Really very receptive to exactly the way we're positioned.
And this access control offering here with the card readers and that's growing what kind of percent, 20%, 30%, 40%. It sounds like it's going from a small base too.
Okay.
Or at least a dramatic increase.
Yes, we've actually always had a good position in readers.
But I think youll see growth.
The product lines that we're seeing so we now are the only company that has readers access video and credentials all across and you can buy the whole thing from one vendor, but theyre also interoperable, so youre not tied in and.
And that we're finding is there is a very effective selling value proposition I mentioned in the.
Comment.
We're going to have a couple of lighthouse accounts.
The major airports and some others.
We will be reporting on it and I'm sure, we'll let us be doing case studies on it and in those cases, it will be the whole platform that I'm talking about an integrated capability and a step up in level of security.
Well as is very cost effectively.
Well, we'll have a lot to say about that.
Great. Thank you.
Thanks, Brian .
Okay next we have Craig Ellis with B Riley Craig Your line is live.
Yes, thanks for taking the question and congratulations on the nice execution and appreciate some of the additional information.
But you provided especially around those customer concerns confirmed orders.
I wanted to start by just enquiring about one of the projects that you mentioned the mobile customer 10 million unit project can you provide some further color on on what's different about that project versus some of the others and is there other activity at that customer that is possible.
This incremental.
One that you are working on.
So I'll touch on it and then I'll turn it over to a demand for it to comment as well and so.
Design number nine I think for this customer metric can correct me and so what I was just highlighting with the new design and the ramp up of that and that the projections look more than we expected while I think several of the other designs are still running as well. So we expect to continue to do.
More design and more growth and it seems like the devices. These are going into are getting pretty good traction.
So.
Yes.
It seemed like it was worth highlighting and particularly the second and third quarter you tend to see.
Seasonal growth cycles with them as well and it's a particularly strong one so that was the context there Matt do you want to add some commentary on there.
It is basically twofold Craig its first is just a continuation of the relationship with the fourth program that we are ramping right now and again that steep rightfully stated we're hitting 10 designs very soon with them and then with some of the let's say previous ones, which tip.
<unk> has a.
A lifetime of like two to three years still in production, we're basically adding all the new ones on top so it's a very very nice run rate growing at steady state.
That's real helpful color guys.
Question I have is for Justin So I wanted to come back to gross margin maybe push on it a little bit so great to see the strong progress quarter on quarter and I think equally impressive. What the result was the detail Steve that you provided and Justin that you provided around the various initiatives that are driving gross margin improvement. So the question.
Really relates to that with.
With the company, having a number of different levers and with it so focused on gross margin expansion why would gross margins be flat sequentially from here why wouldn't the initiatives that the company is working on result in rising gross margin through the year.
Sure. So I think if youre looking at premises in Q1 as a percentage of total revenue.
Came in around 42% of total revenue, we expect that will go to more historic levels of 3900, 38 percentage and it hasnt overall higher margin associated with it so as we start to balance that out as I said it takes a lot of it we expect it to.
Being a lower margin, we're saying overall total company margins.
We're going to be relatively stable.
So hopefully that gives you the color.
Got it and I did notice the premises fourth entered a very strong 57%. So good for the team on that front.
The second question that I have that's more the middle of the income statement.
<unk> still be with you there may be a mere piece here, but the increase in operating expense quarter on quarter can you just help us with the degree to which and this is excluding the charge in the prior quarter, but.
Organically how much of the increase would have been increased sales for some of the global opportunity pursuit, that's underway versus things like FICA or.
Or.
Typical.
Annual comp increases et cetera.
And what yes, just asking out with Opex as we go through the rest of the year flattish from here or would there be upward pressure in any area.
Yeah.
So.
The vast majority of it is in sales.
Sales engineers that categories, you would expect and we did that hiring in the fourth quarter of last year. So you would expect that tend to be normalized through the year.
And so there will still be a little trending up as you go quarter to quarter to quarter as.
As we continue to add in some of these.
Customer facing areas.
But but at a percentage wise lower rates I think that's the right way to say it and Thats, what im talking about numbers that should be turning it over to Justin to comment on that so please clarify anything I got.
I think.
In Q1, if youre talking about Q4 to Q1, Steve really hit on it it's a full quarter impact Q.
Q4 hires we did have a few Q1 hires as well that will be reflected in that as a full quarter impact in Q2.
Particularly in R&D and SG&A, we had a <unk>.
Travel is up so COVID-19 restrictions are coming down so just looking line by line and some of our Opex. We are seeing an increase in travel and we're getting back onto the the tradeshow front and seeing some some pressure on opex.
In that area as well.
Sure.
Got it and then if I could.
Steve you did a great job going into detail on the.
The opportunity that you have in Canada, the best I'm talking about.
All of the different ways that you are engaging both in the U S and in Canada, and really scoping that opportunity. My question is this as you're engaged with U S entities and in Canada.
Look to you like RFID is going to be the only way they implement their tracking and some of their assurance and security and control or would there be other technologies that they are also looking at from which.
RFID wood, what have been remaining percentage up.
The solution.
Yes, let me turn that over to Amir because he has been working the closest with them. So maybe we'll get a straight for him since he is on the phone.
Sure. So the indication and trends are really that they're all in on RFID and the reason why is the.
<unk> legacy technologies with Barcodes, they required line of sight and what they've seen is it volume ramp and as they start to burden the supply chain more and more these readers that they have in place right now they have to require that each package or each vial as they go through the supply chain, they're basically position.
Right. So they are leading the barcodes and a proper format with RFID. They eliminate all of that because it doesn't require a line of sight and even if it's embedded no matter, what positioning with package or Bob there'll be able to have that traceability behind it and then they are also getting the second half of the value, which is really the consumer side of it with the authentication knowing who.
The consumer is and all of the post purchase benefits of it. So the indication is that really that theyre all in on RFID and it really touches on both side supply chain and the consumer side.
Got it thanks team.
Thanks, Greg.
At this time. This concludes the company's question and answer session. If your question was not taken you may contact Identive Investor Relations team at <unk> at Gateway IR Dot Com I would now like to turn the call back over to Mr. Humphreys for his closing remarks.
Alright, Thanks, operator, and thank you all for joining us this evening.
To keep connected with our progress we've actually got several events coming up in the next couple of months.
We will of course be a major presence that RFID journal live in Las Vegas in a couple of weeks.
And then you went who can make it out there it really is a good way to get a sense of it.
The industry and how it's moving and also our position in the industry.
Among the investor events, we'll be at the B Riley conference on May 25th in La.
The Craig Hallum Institutional Investor Conference is June 1st which is virtual.
And then the Stifel Cross sector insight conference on June seven in Boston So.
We are trying to get our business opportunity message out there fairly proactively.
And it will also probably do some other investor outreach events and we'll certainly keep you posted as debt.
As we implement those and of course, please reach out to <unk>.
Mr Relations or Justin if you have any other questions. Okay. Thank you everybody for joining us and have a good evening.
Thank you for joining US today, you may now disconnect.