Identiv, Inc. (INVE) Q4 2020 Earnings Report, Transcript and Summary

Good afternoon and welcome to Identiv's Presentation of its Fourth Quarter and Fiscal Year 2020 Earnings Call. My name is Catherine and I will be your operator this afternoon. Joining us for today's presentation are the company's CEO, Jeff [ph] Humphreys; and CFO Sandra Wallach. Following Management's remarks, we will open the call for questions. Before we begin, please note, during this call, management may be making references to non-GAAP measures or projections, including adjusted EBITDA and free cash flow. In addition, during this call, management will be making forward-looking statements. Any statements that refer to expectations, projections or other characteristics of future events including financial projections or future market conditions is a forward-looking statement. Actual results may differ materially from those expressed on in this forward looking statements. For more information, please refer to the risk factors discussed in documents filed from time to time with the SEC, including the company's latest annual report on Form 10-K. Identiv assumes no obligation to update these forward-looking statements, which speak as of today. I will now turn the call over to your CEO, Steven Humphreys for his comments. Sir, please go ahead.

Thanks, Operator, and thank you, all, for joining us today. In our preliminary results, we said we expected to exceed the aggressive growth projections we set in November. Today, we confirmed we beat those expectations. For the fourth quarter, we grew over 30% year-over-year, our RFID revenue grew more than 100% year-over-year for the second consecutive quarter, and we finished the year with backlog for the first quarter of 2021 that was more than double the same period last year. Now the market force behind this growth is that the RFID market has taken off. Huge leaps in chip capabilities at extremely low cost combined with the full embrace of NFC by Apple in its iPhone 12 and iOS 14 open the floodgates of product engineers integrating RFID into their products to create totally new and more engaging customer experiences, project reliability and performance. As the market hit this pivot point, we expanded both our capacity and technical leadership. We drove growth in RFID and with our new product launches and expanded customer base we positioned to grow even faster in 2021. The momentum we generated in the second half of the year, which grew 30% over the first half, showed that 2020 was an inflection point for our business. So, let me share some growth metrics that are carrying us so strongly into 2021. In our RFID business, we shipped more than 130 million units in 2020 and doubled our RFID volumes in the second half of the year over the second half of 2019. We also increased our average unit prices by 20% showing that the strongest growth is in more sophisticated products. That's also where we are the strongest, with over 150 active RFID customers, we're engaged with some of the most advanced early adapters and in 2020 we cemented our reputation as the go-to partner for advanced RFID devices. The other three growth indicators to track in RFID: customer launches, design wins, and technology launches. So here are few of each from 2020. Now we're usually not allowed to use customer names, but we can talk about the product categories where we had customer launches. One that launched and we think will scale to high volumes is in the pharmacy area. Prescription pill bottles that can speak the contents for the visually impaired, and we think this will expand to all prescriptions. Another customer launch was in accessories for mobile devices. With the power of mobile phones, having accessories that are just dumb objects is a missed opportunity. When your phone case, wallet, glucose monitors and other accessories can talk directly to your phone they become part of the mobile platform. RFID is the way to do that unless you want a bunch of wires going from your phone to your accessories. So again, a very interesting category we designed and launch products for that we think will drive major volumes going forward. The third customer launches was in medical consumables where it's critical that a part like a disposal breathing tube is the authentic part to go with the particular manufacturer's ventilator. We supported a customer launch to track the authenticity and usage of breathing tubes for ventilators and ramped faster support near-term demand. The mass markets beyond ventilators of course, every medical device consumable should be RFID-enabled to make sure the right part is used at the right machine and to make sure it's used only as it's supposed to be and then replaced with the genuine part. Another massive and recurring market were the key customer launch in 2020. Now, there are several more, but these are some good examples. Turning now to design wins in 2020. These are designs that we're working on, but haven't scaled up yet. So personal transportation companies -- think bikes, scooters, ebikes, all got very engaged in RFID in both Europe and the Americas. Our patented tag on metal RFID tags for authenticity, tracking and customer engagement are obvious uses. We're also working on tag on metal designs to track tire pressure. So you could just tap your phone to the wheel and get pressure instead of awkwardly jamming a pressure gauge on a tube stem. Another design win was for rapid blood analyzing systems. This application goes on consumable cartridges and both calibrates the testing system and confirms the authenticity and contents for the blood test assay. Again, designs are complete. And we expect to ramp in 2021. Still another category of design wins is with existing customers. Core to our strategy is continuously improving designs to leverage new chip features and price performance from companies like NXP, Impinge, TI and others. With one of our major customers, we shipped three different designs in 2020, but also developed three new designs and at least two of these will be scaling up and going to market in 2021. As we ramp these customers aggressively in the second half of 2020, we made investments in technologies to drive new processes, world-class quality and automation. These investments did impact the margins, but they've strengthened our competitive position. So despite doubling volumes, we delivered to aggressive schedules with quality and yield levels that exceeded our customers' targets and give us competitive advantages we can now apply to all of our customers and prospects. As a result, we expect the margin compression to be temporary and to contribute to faster growth because of the competitive advantages we built as a result. Now our ability to get ever more design wins depends on our best-in-class engineering and production. But upstream of that, it's built on new technologies we're constantly incorporating and designing us new capabilities for our customers. In 2020, we developed a record range of new technologies and chips we're bringing to our customers. The key technology of the launch was passive temperature sensors and patches. This lets you track the temperature of people or things without having a big battery attached -- great technology with tons of use cases. Now one of the most interesting, I think, we launched capacitive sensors integrated in our RFID devices. This senses fluid fill even through glass or other materials. So you can track medicine fills and syringes, serum bottles and anything else. Now, more on the applications later but great technology with lots of use cases. We also launched designs with integrated strain gauges to track the bending and strain of objects whether they're made of metal plastic roofing concrete. Now, another area you'll see having an impact is our multi-frequency devices. NFC and high frequency are great, but the read ranges are usually a few centimeters. Ultra high frequency has range but the readers are expensive and data rates are low. In 2020, we developed and launched combination RFID devices integrating both UHF and HF in a single device. Now there are others and especially devices incorporating new chips from NXP, Impinge ST as well, especially chip makers like Asine [ph], EM Micro and others. So behind the numbers as you can tell, we made a lot of business building progress in RFID in 2020 across customer launches, design wins and technology developments. So, in the other parts of our business, we also built business strength behind the financial results. In 2020, the federal government remains a strong growth driver. Our federal sales grew 30% year-over-year. Driven by our technology strength and by work from home and work mobile demand. We had key deployments at the Department of Energy, Treasury, NIST [ph] FBI and IRS offices nationwide, VA hospitals, multiple secret service facilities, Air Force bases worldwide and lots of others. Now, our third strategic focus is on recurring revenues and customer retention. In 2020, we launched subscription services for our entire physical security product line: Velocity Cirrus, Freedom Cloud -- both of which are our access control as a service offerings -- 3VR Prime video surveillance service and Mobile SID, our mobile identities service. Customers who adapted our service platforms in the fourth quarter included EastWest Bank, La Loma [ph] Medical Center and Acosta Apartments and others. So in 2020, our growth financial showed our strength, but just as important, we got a wide range of customer and design wins and technology launches supporting a strong 2021 and beyond. The areas of RFID leadership in growth, the federal market and recurring revenues and customer retention remain our focus. But before going into our expectations for this year, I'll turn the call over to Sandra to hit the highlights for the fourth quarter and fiscal year 2020. Sandra?

Thanks. As Steve mentioned, our financial results reflect our business strength exiting 2020 and have us on track for double-digit growth in 2021 and beyond. These results are all in range of the preliminary results announced February 9 with revenue, non-GAAP adjusted EBITDA, and GAAP cash flow from operations at the high end of the ranges and GAAP net loss within $0.1 million of the range provided. We closed out the fourth quarter of 2020 with $24.8 million in revenue, up 31% compared with the fourth quarter of 2019 and flat with the third quarter of 2020 which reflects strength versus our normal seasonality exiting 2020. Our full-year 2020 revenue was $86.9 million, well within the original guidance issued in January of 2020 before COVID-19 altered the world economies. Exceptional growth in RFID more than offset temporary revenue declines in premises as compared to our original pre-COVID guidance. For the fourth quarter of 2020, our GAAP and non-GAAP adjusted gross profit margins were 35% and 36% respectively compared to 40% and 42% in the fourth quarter of 2019. For the full year 2020, our GAAP and non-GAAP adjusted gross profit margins were 39% and 40% respectively, compared to 44% and 45% in 2019. Gross profit margin changes resulted primarily from investments in technology and manufacturing processes and systems to meet the short and long-term growth profiles of our customers and also by the mix of products. As Steve has previously said, we expect margins to revert to historical levels. Specifically, we ramped high growth RFID customers in the second half of 2020 and we made investments in technology to drive new processes, more automation and even higher manufacturing speeds, consistent with our already industry-leading quality and performance. These investments have already contributed and will continue to contribute to growth in the current year and years ahead because of the competitive advantages created as a result. Our non-GAAP adjusted EBITDA margin was 6% in the fourth quarter and 5% in the full year 2020. Our Q4 net loss was $1 million or a loss of $0.05 per share compared with a loss of $2.1 million or a loss of $0.12 per share in Q4 2019. Our full year GAAP net loss was $6.2 million or a loss of $0.34 per share compared with a loss of $0.13 per share in 2019 or a loss of $2.2 million. And our cash flow from operations was positive $3.6 million even after our investment of $0.6 million in capital expenditures, non-GAAP free cash flow was $2.9 million positive in the fourth quarter alone. Because of our operating leverage on the expense line and because we manage working capital prudently, we achieved our commitment to shareholders to deliver positive non-GAAP free cash flows exiting Q4 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 analyzes trends by segment. Beginning with premises, the segment accounted for $9 million or 36% of our total revenue in Q4, representing an increase of 5% from Q4 2019. This reflects the recovery of this segment delivered exiting 2020, leading the way against the backdrop of total year results. For 2020, our Premises segment generated 39% of our full year revenue or $34.2 million, a decrease of 19% from 2019. The quarterly and annual changes in revenue from the Premises segment were due to fluctuations in sales of various product lines as customers adapted to the pandemic and other macro factors. GAAP margins for Premises in the fourth quarter were 56% compared to 52% in Q4 2019. For the full-year, Premises GAAP margins were 55% compared to 53% in 2019. Turning to the Identity segment. Revenue from our Identity products totaled $15.8 million or 64% of our total revenue in Q4 2020, a 53% increase from Q4 2019. Our Identity segment generated 61% of our full-year 2020 revenue, or $52.7 million, an increase of 25% from 2019. Identity revenues in both the full-year and the fourth quarter were primarily driven by a higher sales of RFID transponder products as well as higher sales of smart card readers Our Q4 2020 Identity segment GAAP margins were 22% compared to 29% in Q4 2019 and our full-year 2020 Identity segment GAAP margins were 28% compared to 35% in 2019. As previously mentioned, due to very rapid growth of customers in the early stages of their RFID deployment strategies, which are driving our higher proportion of RFID revenues. Now moving to our operating expense management. Our GAAP operating expense for the fourth quarter was $8.9 million, a decrease from $9.3 million in Q4 2019. Our non-GAAP operating expenses for the quarter totaled $7.5 million or 30% of total revenue compared to $7.7 million or 40% of total revenue in Q4 2019. For the full year, our total GAAP operating expenses were $37.1 million, an increase of $0.4 million from 2019. Our non-GAAP operating expenses for the full-year were $30.7 million or 35% of revenue compared with $31.3 million or 37% of total revenue in 2019. We held our non-GAAP operating expenses flat during 2020 by successfully re-investing for growth within our current cost envelope and do not expect to increase non-GAAP operating expenses for 2021. As we've discussed on prior calls, we strongly believe that we have the capacity to support at least 20% more revenue within our current operating cost structure. Bringing all the pieces back together, our non-GAAP adjusted EBITDA was $1.4 million in the fourth quarter of 2020, a $1.2 million increase compared to Q4 2019. For the full year 2020, our non-GAAP adjusted EBITDA was $4.4 million. Turning to the balance sheet. We exited Q4 2020 with $11.4 million in cash, a net decrease of $0.9 million from Q3 2020 and a $2 million increase from Q4 2019. The key drivers of our cash activity for the last quarter were $3.6 million of positive GAAP net cash flows generated from operations, $0.6 million in capital expenditures invested in our Singapore manufacturing plant, under financing activities we used $4.1 million in cash, $3.3 million was used to pay off the term loan facility, $1.2 million to reduce the promissory note and $0.3 million was used for tax payments related to [indiscernible] license. And lastly, there was a small $0.3 million positive impact of foreign currency fluctuation to reconcile to our GAAP cash flow. In our 10-K filings, we will be providing a full reconciliation of the year-to-date cash flows. For completeness, we've included the full balance sheet per the earnings release in the appendix. Due to the operational momentum exiting the fourth quarter of 2020, today, we're updating the guidance previously issued on November 10, 2020 for the full year 2021. With total new orders booked in 2021 as of mid-February exceeding $16 million or a 60% increase over the comparable period in 2020, we are updating the lower end of expected revenues for Fiscal 2021, to $100 million, up from $96 million. Because the adoption of RFID technology and consumables accessories and short life technology products is in its initial stages this early in the year, it's difficult to forecast a potential upper end of the range. As we develop better visibility into the second half of the year, we will be able to more accurately assess that number and we will provide updated guidance as appropriate. Normal seasonality is expected to continue with momentum building quarter-over-quarter and we continue to have strong confidence in our guidance for 20% to 25% revenue growth in the first half of 2021 over the first half of 2020. We are also confident that our double-digit growth expectations are on track and we believe that full-year revenue guidance may still be somewhat conservative considering the current business momentum. With the strength from operations and limited capital expenditures required to scale for growth, we expect to stay non-GAAP free cash flow positive for 2021. This concludes the financial discussion and I'll pass it back to Steve.

Thanks, Sandra. As our revenue growth, cash flow and backlog clearly show, we've got strong momentum setting us up for 20% to 25% revenue growth in the first half of 2021 and a strong year overall. We expect our growth this year to be driven by the same three strategic priorities that drove our growth in late 2020. Our strength is the premier provider of sophisticated NFC-enabled RFID products, federal government expansion, and improving predictability by increasing recurring revenues and expanding customer retention. Now, RFID is the main growth engine for 2021 and it's the core technology underneath most of our products. So, I'll focus mostly on it on this call. The key thing to understand is exactly why did our RFID business double year-over-year in both Q3 and Q4 2020 versus 2019. Is this sustainable from a market perspective? And can we keep our leadership and market share growth? The main reason for the huge growth is that the market itself is growing explosively and it's just at the beginning. We shared the vision with NXP, Impinge, Nvidia and others that every physical thing on the planet will have a digital existence. RFID is the way this happens. Tiny low-cost chips with highly tuned and optimized antennas, system software and security that are embedded in everything we interact with. This is software reaching every physical thing on the planet and RFID enables it. So, syringes can track if the exact right amount of medication is built into them and dispensed into the patient. Your refrigerator can tell you when the filter needs to be replaced and make sure it's an authentic replacement that's put in and working. You're running shoes can sense how many steps you've taken. Your phone accessories can work together intelligently with your phone to create experiences and applications we've never had. Governments contract the quality and authenticity of cannabis [ph] products for compliance, and especially for tax collection. Every temperature-sensitive medicine can be tracked and made sure it stayed within a safety parameters and not spoiled. And every blood test assay is authentic and matched with the right blood sample. These are examples and some of the ones I mentioned earlier that give you a sense of the market scale. Over 30 billion syringes used annually worldwide; 20 billion prescription bottles annually; over 5 billion consumables used in major appliances annually; 6 billion athletic shoes sold annually; 1 billion packets of cannabis sold annually in just one country; 13 billion phone accessories; over 15 billion temperature-controlled medical shipments and over 20 billion automated blood test assays used annually. In a few sentences, that's potentially well over 100 billion units annually. Now, I won't take more time on more examples, but just obvious other use cases get to a market size of hundreds of billions of units. Competitive pressures will force adaption across every sector as technology gets better and cost drop until nearly every physical thing has a sensor augmented integrated digital existence. RFID makes this happen. So why is Identiv winning? Because we enable the amazing digital capabilities of the chips to work in the messy analog world of antennas, power harvesting data conversion and security, They have to go on shoe, in a syringe, embedded in the hair of a doll, then they have to communicate through RF and harvest power from the radio signal over the phone or reader to run the chip. They have to do this totally reliably, while the thing is dropped washed stuffed in pockets and generally exposed to the real world. We make that part work. We design the systems, the antennas, software security and physical form that connects the chips, accesses their incredible capabilities, manages the RF communications and power conversion and creates the platform for the digital experience, all in harmony with the physical experience of the product. We're the bridge that brings digital chip capabilities to all the product engineers trying to get the benefits of RFID and embedded sensors into their products. We make this happen with our huge library of designs with patents like tag on metal and with trade secrets we've developed working with the most advanced early adapters in their industries. We deepen our value and competitive vote [ph] by providing both the devices themselves and the readers and programmers to personalize and read the RFID devices, Whether it's in a pharmacy or any other place where RFID is read or programed, our readers are among the most widely deployed for NFC and high frequency RFID programing and reading. This gives us both credibility with our customers' engineers and the flexibility to add features and software value that providers of just RFID devices can't add. We then work closely with our customers' engineers and with the chip vendors to build a very tricky analog bridge and system to make it all work across RF. With very high reliability, high data security and optimized power transfer, the end user gets a delightful engaged interaction. Our designs make the difference between an inconsistent awkward [ph] interaction and almost magical totally reliable and durable experience. Then because we own our own production facilities, we go directly to prototypes, pilot runs, ramp up production and deliver with extremely high quality even for the most complicated devices. But almost always happens next is the customers' engineers want to improve the product either from what they've learned or because our chip partners come out with new chips, new features, new price points. So we run another design prototype pilot production process. Now, we'll keep leading it because in this market of thousands of designs and hundreds of billions of units, there are huge [ph] first mover advantages. We have a unique design through production and redesign platform that keeps customers with us as they drive more capabilities and better performance into their customer experiences. This will keep accelerating driven by the chip vendors, Moore's Law speed advances and by competitive pressures created when any digitally enabled product is launched, it will pressure others to keep up or lose their market. So with that perspective on the core driver of our growth, let me close with a couple of specific metrics to watch and comments across our business. In RFID, we'll keep updating on customer launches and design wins and the use cases that we can replicate across an industry. These are the core drivers of growth in our continued market leadership. In the area of federal government expansion we expect the 30% growth in our federal business to continue as the new administration emphasizes physical security and cyber security. With our product superiority, we expect to continue to grow our share even in a healthy spending federal government market. Among recent wins than the federal government, we're securing the Secret Service headquarters, field offices and all the places basic here [ph]. Our security leadership also is behind some rather urgent delivery orders we recently got for the U.S. House of Representatives in the capital. And we'll share more wins and expansions throughout 2021. The third strategic priority for 2021 is increasingly predictable revenue. I mentioned the full range of recurring revenue products we've launched in our Premises product lines. In RFID, most products are either consumable or short life technology products. So the key to revenue predictability is getting designed in and then very high customer retention. Our orders recur as consumables are consumed and are needed again or its technology products turnover for new technologies. Now the best metric here is customer retention and in RFID in 2020, we had 100% customer retention. Developing products for our RFID customers can take years, so we have great visibility into the scale of these projects in their long-term growth. Our pipeline of designs is at record levels with particular interest in tag on metal, our passive temperature patches and devices for expensive consumables across everything from appliances, medical assays and even coffee and vaping pods. All need authenticity but also calibration and data integrity matching for medical and other sensitive applications. So to wrap up, here are some metrics from just the last few weeks. As Sandra mentioned, we're now over $16 million in new bookings, up 60% from the same time last year. We have designs underway or one with over a dozen RFID customers, several with multi-million unit potential. We've launched cross industry marketing programs to replicate solutions in medical devices, luxury beverages, pharmaceuticals hospitals, schools and the military. For example, in addition to our first customer in the pharmacy space, a second customer of similar scale is deploying our devices for prescriptions for the visually impaired. Now in an industry moving this fast, every week we're hitting new milestones and cross-leveraging new opportunities, which will keep communicating so you can track our progress in these transformational markets. With that, I'll open to questions and discussion.

Thank you. We will now take questions. [Operator Instructions] Your first question is coming from Jaeson Schmidt Lake Street. Your line is live.

Hey guys, thanks for taking my questions. I just wanted to start with the RFID business. Can you share what percentage of your revenue RFID is in 2020 and then where do you think that can go for 2021?

Sandra, do you want to take that? I'll take that as a no. So RFID is within our identity business, Jason, as you know. And we haven't traditionally broken that out, but it's over half the Identity business. Then of course, it's the most rapidly growing. So it will certainly be in the range of two-thirds to three quarters of Identity business by the time you go out of this year.

Okay. That's really helpful. And then along those lines, obviously with that momentum, it's going to compress gross margin here in the near term. How should we think about gross margin trending for this year with sort of the different dynamics within each segment?

Yes. We mentioned in the -- I think we might have put it both in the press release and in Sandra's comments -- there were two factors there. The primary one being when we were ramping up some of the growth in the second half of 2020, we brought in some new equipment, new technologies. Some of the customers had specific requirements and those sorts of investments largely go into cost of goods sold. So that is a near-term impact on gross margins. That should recover back to that 40% range over the next quarter or two. And then beyond that, both parts of the business are growing solidly. So, we expect that over time, the gross margins will continue upward and then longer term. We do expect to add more software value and value added as you know. And so when you look at the out years, gross margins will continue up even above that 40% range. But I think that's roughly how it will go. Does that make sense?

Yes, that's really helpful. And then just a last one from me and I'll jump back into queue. You indicated updating guidance once you have more visibility. Just curious if that's based more on just general macro visibility improving or specific customer orders? Just trying to get a sense of what are the dynamics that could potentially drive upside to the current range?

Yes. Very good question. It's because the major customers that drive RFID volumes are huge and I mentioned some of the design wins in the designs that are complete, but a customer can decide to launch it this quarter, next quarter or the quarter after based on their own strategy, in there on timing. So as we get better visibility into the specific launches, it's really about timing of when that hit and at our size, some of these big companies, their timing changes by a quarter -- it changes our profile by a quarter. So, we want to get more visibility, so we have certainty at both the scale on the timing but frankly it's more of a timing than anything.

Okay that makes sense. Thanks a lot guys.

Thanks, Jason.

[Operator Instructions] Your next question is coming from Jeff Kessler from Imperial Capital. Your line is live.

Thank you. Can you hear me?

Yes, we can hear you, Jeff. You're a little vague.

Okay. Let me see if I can just set this. Is this better?

Much better.

Okay. My first question is on the Premises side. Given that it appears that some of the larger providers of physical security equipment and actually more importantly the access control providers and the visitor management providers are looking at the second half of 2021 as a possible turning point for the industry that's been down since last March, what are your conversations right how with folks who haven't been able to get on premises, who haven't been able to really get much in the way of revenue growth going? Granted, you were up -- you were up 5%. But it would appear that now would probably be the time to start discussing the types of software and analytics programs that the access control people will be interested in using, if -- if and when that market recovers. And if you could comment on just you know, what are the kind of the stakes there and what are some of the gating points that you look at to show that the business actually is going to start recovering on the topline?

Yes, great question. And there is two aspects to the physical security business for us. Federal government, as you pointed out, has stayed strong and grew 30% and there is no sign that that's going to slowdown, in fact, it should accelerate with some of the priorities of the new administration; so that will keep us growing regardless. And then on the commercial resurgence, as you say, it's a question of timing there; we're doing a lot of training on our recurring revenue products. As I mentioned, we launched basically recurring revenue versions of all of our premises product line through 2020; so we're hitting the ground with those as well as we'll have another pretty substantial video-related launch in the second quarter of this year. So, we'll be very lined up from a year customer training perspective, a dealer training perspective; we're already seeing some bounce back on the commercial side in places like schools and transportation, other areas like retail and hotels are still going to be wait and see but the thing you were focusing on right now, frankly, is on the federal side because that is growing very nicely, and we think that's going to continue. And then as commercial bounces back, we think we're going to be in a really good position with a range of products to take advantage of it.

Okay. You've talked before about a $25 million per quarter inflection point for your margins for the whole company. And I'm wondering, given -- given what's going on in your -- on your identity side, is there a -- is there an inflection point just on the identity side where the margins begin to -- since you're not -- you're not talking about increasing OpEx very much at all for next year. Is there a point just on the identity side where that inflection point might occur? And is there a business mix change; I mean, whether it's -- whether it's toward -- are there different vertical markets that would change the margin picture on identity?

So, let me go after both of those. First is on leverage in the model; you're right. In the fourth quarter our OpEx was down, I think it was 4% and revenues were up like 30%. So we clearly hit that point at which we've -- where you've got some fixed costs in G&A in channel, in R&D; and as we grow on top of that, we were able to get a lot of leverage out of it and we've communicated previously that we think we can put 20%, 25% more on the top line while still holding the OpEx line. And then, even if OpEx has to go up somewhat in sales and other areas that go with scale, it will be a lot less than revenue and gross margin dollars are going up. So that's in the aggregate view; we do think we've hit that leverage points on our OpEx level and top line going above it, so a lot of it throws the bottom line as we generate gross margin dollars. Then on the Identity sector specifically; it's a good point to ask because we do about that -- because I think we've gotten through the very same inflection point. I'll let build out that we did in our facility in Singapore, and some of the engineering ads that we did at some of the technologies I was talking about; those are now in place, and so we get leverage as we get top line growth, both out of our production facility, and out of our engineering and channel. So, we think we're at leverage points right about where we are now and as we grow through 2021; and certainly as we start to get into that high 20s per quarter, you start to see good leverage in terms of operating margin at that point.

All right. Great, thank you very much.

Thanks, Jeff.

[Operator Instructions] Your next question is coming from Mike Latimore from Northland Capital. Your line is live.

Hi, this is Aditya [ph] on behalf of Mike Latimore. Could you comment on the video analytics growth; do you expect the video analytics to grow at a faster rate than the overall premise business?

Yes, good question. Last year, because so much of our video business is in retail, hotels and other areas; it was -- it actually had some pressure. But we've got -- in particular, we've got some product launches and we launched our video surveillance as a service platform at the end of last year. So, we do think that's going to be a pretty -- a very positive contributor to growth, especially on the commercial side because making sure that there is no loss or shrinkage in facilities is getting more important -- more and more important for retail warehouses. Used case across everything from schools and federal government are more and more important that they be integrated with the rest of the security system, and we're also seeing more customers that want an integrated video analytics and access control system rather than two different platforms. So, I think that is going to be a growth driver for us. It will be wait and see in terms of some of the verticals like retail and hotels when they come back. But some of the other sectors were already -- are already coming back and investing, certainly schools, certainly federal government, some of the state and local governments.

All right, great. Great. And is there any plans of acquisition on goods [ph]?

I'm sorry acquisition in general or somewhere specifically [ph]?

In general, in general. Do you have any interest in making acquisitions in the near future?

We are -- we aren't targeting anything, specifically; we've got our hands full, frankly, managing our own growth and focusing on that. We'll always stay open to opportunities there, especially if there is an opportunity to strengthen our leadership in RFID, that's always something we should be looking at. But we've got a full portfolio of technologies and products, we've got our channel in place, and we're just hitting our scale; so we have a predisposition to execute with what we've got because we think that's a high ROI activity and it does keep us pretty, pretty busy. I don't want to say never because -- and if something happens and it comes out of the blue, you know -- you want to know where that came from but our focus is on execution and delivering the business opportunity in front of us.

All right. All right, fine. That's it from my side. Thank you.

Thank you.

[Operator Instructions] Your next question is coming from Jeff Kessler from Imperial Capital. Your line is live.

Hi, thank you. One of the areas where you just -- you just talked -- you just talked about access control and video integrated, and one of the things that's going on in the industry right now is, is a dramatic consolidation of companies that are trying to get video and access as a service out there and one to swoop. I mean, guys like Bravo and Ricarda [ph], and people like that, combined with either video -- their basic -- the basic cloud access with their video -- with their video cohorts or vice versa. And I'm wondering is there co-op petition -- is the cooperation or is this pure competition? In other words, where do you stand as a provider of -- of one of those subsystems for these guys? Do you -- are you able to participate with others in this area or is this -- is this basically you going up against -- going up against these companies?

So, we have a range of products as you know, Jeff, and I think there is more co-opetition in the SMB range where we do have some discussions about OEM-ing technologies and integration and all that. In the enterprise and certainly in our core federal government space, we think we've got such a strong position that it's pure competition, we're not going to give up any of that and we think there is some real advantages to not just -- you know, everyone does connectors between access control and video, but actually having a fully integrated system gives you a lot of additional capability. So that, for example, the personnel database that the access control system has deeply integrated with it, and it's 100% accurate all the time; making that available to your video events instead of video just being a bunch of pictures, but you know who your employees are at what they're supposed to be doing and where they're supposed to be doing it in an integrated system, there is some real advantages to that and we're not going to concede that to anybody, quite frankly.

Okay, great. Thank you very much. I appreciate it.

[Operator Instructions] Your next question is coming from Jay Chung [ph] your line is live.

Hi. Can you hear me okay?

Yes, we hear you.

Perfect. You talked about the [indiscernible] unit opportunities out there. I was just wondering if you give an update on your capacity and what the plans are I guess for future capacity build?

Sure. We added capacity through last year, and in particular, even early this year; so we've got capacity for about 50% over the volumes we did last year. But the nice thing about capacity is it's very scalable, for us adding another 30% to 50% capacity to what we did last year is about a €600,000 to €700,000 machine. We've already got facility build out, so we have that; so it's really -- we can scale up capacity now on a pretty linear basis, well beyond where we are right now. But even right now we've got capacity for about 50% over where we were last year.

Great. That's great to hear. And then, there seems to be shortages in the industry. I just wonder how you are mitigating that and making sure you'll be able to fulfill your client orders?

Yes, good -- very good question. It of course is, it -- first off, it's all under control, that's the bottom line of it. But it's pretty hairy out there right now, so what we're doing because we have pretty good customer, we have very good customer relationships, they understand that if they have a launch that has to happen in the fall and if the chip vendor is giving you a 26-week lead times, that they have to place those orders six months before they're going to have a ship. Then it's not us and we're not forcing anything but we have to do that; that's one thing. The other thing is, we have really good relationships with the chip vendors and I don't want to out anybody but we're -- wherever there is availability and they aren't going to cut short someone who is really critical or has a committed delivery, we're able to get access sometime shorter than the lead times that you're hearing about it. So, that actually allows us to bring some value to our customers additionally; that again cements the trust relationship when we can do a little better than what they're hearing out in the marketplace. Because we've been in this industry, it's taking off right now, but we've been working on it for years, and so the relationship we've built over those years, the people who've been in it through thick and thin turned to each other in times like this. So, we're able to manage it on a -- just plan ahead and order ahead basis. And then also with some of the relationships, I think we're doing better than average on that.

That's great to hear. And then lastly, just on the new hire for Vice President of Marketing; Lee Dao [ph]; can you give us some -- maybe some – what sort of focus -- is it more on RFID, or is it more on the premises side? And then maybe some of the first couple of projects that you plan to tackle?

Good question. It is both, and that's one of the reasons we loved Lee's background. She was at Honeywell, so of course, you know, big systems, building controls, things like that that applied to premises. But her longest stint was at Intel; so she understands semiconductor marketing which is very similar to RFID marketing, where you got a market to engineers, get them to adopt and design in. And then she also started out her career on Capitol Hill at a Senators office, so she knows the government; so we've got someone who was in government infrastructure and chip marketing, and she has the whole spectrum. Using some of the digital tools; she is also very much digital native -- you know, she can get down -- I keep saying she -- the marketing team that she is leading can get down to targeting people and building verticals very specifically, engineers who are active in medical device design, and she can just target them, DRIP [ph] -- send specific messages, engage as she has already re-architected our marketing platform, with the new automation platform, she has re-architected our web store and re-architected our website, and really is changing our -- the leverage we get out of marketing as a go-to-market lead generation tools. So as you can tell, I can hardly saw enough about her but really well aligned with where we want to go. And frankly, with a bit of the sales and marketing mix that we haven't been so strong in. We've been very technically driven and technical sales driven, and having actual -- very well targeted leverage to digital marketing now, it's a tool that's going to contribute to our growth that we haven't had so much before.

Great. Thank you so much.

Thank you.

[Operator Instructions] There are no further questions from the lines at this time. And this concludes the company's question-and-answer session. If your question was not taken, you may contact Identiv's Investor Relations team at inve@gatewayir.com. I'd now like to turn the call back over to Mr. Humphreys for his closing remarks.

All right, thank you. And thank you all for joining us today. I know we've gone a little bit long; so just to wrap up, this is obviously a fast-moving market and so we will keep regular metrics and updates coming out to track for progression as we get some of these design wins as we build our backlog and other progress. And we'll also be setting up an analyst and investor briefing focused on RFID to go into some more depth about some of the used cases, the design wins, some of our unique technologies, and also to look at some of the related companies like the chip companies that are also driving this market. So we'll set that up a little bit more in-depth discussion than would have been appropriate for an earnings call like this. So, thank you all for your time. And looking forward to talking again and have a very good evening.

Thank you for joining us today. You may now disconnect.