Good afternoon. Welcome to Identiv's presentation of its Fourth Quarter and Fiscal Year 2021 Earnings Call. My name is John, and I will be your operator this afternoon. Joining us for today's presentation are the company's CEO, Steve Humphreys; and CFO, Justin Scarpulla. Following management's remarks, we will open the call for questions. Before we begin, please note that during this call, management may be making references to non-GAAP measures or guidance, including adjusted EBITDA and free cash flow. In addition, during the call, management will be making forward-looking statements. Any statement that refers to expectations, projections or other characteristics of future events, including future financial results, future business and market conditions and future plans and prospects is a forward-looking statement. Actual results may differ materially from those expressed in these forward-looking statements. For more information, please refer to the risk factors discussed in documents filed from time to time with the SEC, including the company's 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 CEO, Steve Humphreys, for his comments. Sir, please proceed.

Thanks, operator, and thank you all for joining us today. During 2021, the advanced RFID applications market started to take off, and we put in place the technology, capacity, team and key customer design-ins to lead in the market. We've clearly established leadership as we start the pivotal year of 2022. This is the year that launches the next stage of IoT devices as RFID and NFC become embedded in almost everything we touch. Already this year, we've launched several initiatives for advanced RFID technologies. In January, we announced our partnership with Wiliot for Bluetooth low-energy-enabled RFID devices, launched our industrial-grade On Metal RFID devices, focused on high-value use cases in medical and industrial products and announced our industrial-grade NFC programmers. In February, we announced our partnership with NXP for their 22x chips that enable batteryless condition sensing, making fill level and wet/dry sensing, easily embeddable into any product. Now there are 2 themes here. First, we become the partner that industry-leading companies in advanced RFID and NFC are turning to for advanced solutions. Second, all of these are focused on advanced applications that incorporate secure data, sensing, tamper, authenticity and enable truly unique product experiences. We are in this position as we start 2022 because throughout 2021, we've built our leadership in the industry and put in place everything we need to support it. We finalized our major hiring and system capabilities, shipped record levels of RFID units and completed our technology and project management platform. The fourth quarter also showed us 2 areas we needed to strengthen to really be ready for 2022. We've now done that, which I'll describe in a few minutes. But first, here are some metrics from 2021 and our fourth quarter, reflecting the momentum that we built. For 2021, overall, our total revenues…

Thanks, Steve. As Steve mentioned, our financial results reflect our continued strength exiting 2021 with the delivery of year-over-year growth in revenues and future backlog. We believe these results, paired with our continued investments in the RFID organization and its capabilities position the company to achieve its growth and profitability potential in 2022 and beyond. We closed the fourth quarter of 2021 with $28.5 million in revenue, up 15% compared to the fourth quarter of 2020 and in line with our normal seasonality exiting 2021. Our full year 2021 revenue was $103.8 million, up 19% compared to the full year of 2020 and near the midpoint of our guidance. For the fourth quarter of 2021, our GAAP and non-GAAP adjusted gross profit margins were 33% and 34%, respectively, compared to 35% and 36% in the fourth quarter of 2020. For the full year 2021, our GAAP and non-GAAP adjusted gross profit margins were 36% and 37%, respectively, compared to 39% and 40% in 2020. Gross profit margin changes resulted primarily from our product mix, increased freight and logistics costs and the continued investment in technology and manufacturing processes and systems to meet the near- and long-term project profiles of our customers. Specifically, in the second half of 2021, we ramped up projects with RFID customers and made investments in technologies to drive new processes, increase automation and boost manufacturing speeds to support an annual run rate of 260 million units. These investments have been fruitful and will continue to contribute to the company's growth in the current year and the years ahead due to the competitive advantages created as a result. We remain committed to a long-term gross margin target of 40% to 45%. GAAP operating expenses, including research and development, sales and marketing and general and administrative costs were…

Thanks, Justin. Our 2021 results and the activities behind the numbers have us positioned for expanded growth in 2022. With the strength in the advanced application RFID and NFC market and the team and customers we've established, we're confident in 25% to 30% growth for the entire company, led by 40% to 50% growth in RFID. The transformational projects are moving forward with our position more entrenched in each. Our design wins expanded fast with more NRE engagements than we've ever had. Our existing customers are all staying with us and are growing strongly. We've established ourselves in leadership roles in nearly all of the relevant trade and industry groups, which further drive sales opportunities as we're better known as the GoTo for advanced NFC applications. We've established solid partnerships with the technology leaders in advanced RFID, including NXP, Wiliot, CollectID, Blue Bite and others. We've augmented these partnerships with our own technology initiatives across Tag On Metal, authentication servers, application developer kits and more. We took actions to make sure sudden volume growth in RFID is managed financially as well as operationally, make sure there aren't balance sheet exposures, kept our track record of delivering on every customer request regardless of today's unreliable supply chains and held our cash steady while expanding our team. Now our strategic priorities for 2022 remain the same. First is our top priority. RFID growth, driven by design wins, current customer growth, technology partnerships and industry leadership. Our second strategic priority is our federal government growth. And our third strategic priority is expanded software services and recurring revenues. With our teams, financial resources and tight financial controls in place and with our pipeline growing, 2022 is all about execution on these priorities. Our first design win focus is our transformational projects. In the opening,…

[Operator Instructions]. Our first question is coming from Brian Ruttenbur from Imperial Capital.

Yes. And thanks for all the color. So the first question is on the recovery of gross margins in 2022. And I feel very confident as to you about revenue growth. But how quick are we going to see the recovery from fourth quarter to first quarter? It sounds like half of the recovery pretty much comes automatically from freight? And then maybe you can talk a little bit about where we should see kind of sequential growth in terms of gross margins? And should we be getting back to kind of 2020 levels or something like that?

Yes, Brian, and I'm glad you brought that up was the first question because that, of course, is our absolute focus is Amir and Manfred are driving the business so effectively. We've got to be controlling the internals and the mix, so that's reflected as we go forward. So -- and I'll turn it over to Justin to address as well because as you can imagine, have been immersed in this. But we do expect it to be progressing regularly sequentially. You can't, in one quarter bounce all the way back. It's going to be over the course of the year that we're expanding margins as we go forward. But we certainly expect, as you say, progression, right, as we get into the first quarter. And the main thing is we need to make sure that we have consistent progression going forward. It is a balance because you have big opportunities that come in, and we've got to satisfy them, and we can balance the ones batch. That's the only aspect of the caution you're hearing in me. As you know, we want to be cautious on these things and not overcommit on anything. There will be an immediate improvement. There will be sequential progression towards our target gross margins. There will certainly be some fluctuations along the way as we go, but we'll make sure they're going in the right direction. Let me let Justin add some color to that specifically.

Sure. As Steve mentioned, I think that we -- we do have a path for Q1 of 2 of the items that we said were very specific. They were drop ships and stuff that we could make sure we eliminate going forward. And as we go throughout 2022, I believe, and I strongly feel that each quarter margins will continue to recover.

The next question is coming from Mike Latimore from Northland Capital Markets.

I guess just on that topic a little more. So is -- are there areas where customers where once they get to a certain volume, they automatically get a price discount? Or is this truly a situation where you have a new customer coming online to get the share to get that market to the customer, you need to give them a certain price. Can you just elaborate a little more on that?

Yes. Good question because some customers do want the step downs as you go further. But as we've talked about in the past, even with our big mobile customer, who, of course, has that normally built in, we've been very effective at new designs that take them off of that price down step. So for us, in fact, the tightest margin is early in a project when sometimes there's new technology, we've got to put in and we're amortizing that earlier on over lower volumes. The margins tend to expand over time with projects for us, first off, because of volume learning curve and second off, because we get them to upscale their design and make it more complicated in that respect. So that's the profile that we typically see. Since we've got Manfred on and he, of course, has immersed in this and in the market, let me turn it over to Manfred as well to comment on the gross margin profile kind of over the life of a customer. Manfred?

Yes, I think it's absolutely right, the way you just have described it, Steve. On the other hand, of course, we did address the topic of a mix having some impact on the margin here and there. You also have heard about, let's say, the volume shipments, so with some substantial growth in terms of like the overall output there. We also addressed various markets that were like in the lower ASP area. And that was also basically one of the drivers there on top of some of the seasonal Q4 OCOGS topics that basically dropped down the margin, whether it's shipment or whether it was purchase price variations here and there. So from that point of view, that's basically what we have seen. We are addressing things also with regards to price increases. So it's not just that in days like this, prices drop down because not only we are passing on some of the component increases that we have seen. We also try to basically use that type of, let's say, opportunity to adjust the pricing out there, in particularly wherever the market is allowing us to do so.

Yes. Just I guess the other one would be, how influential are these transformational deals on the backlog growth you just reported? Are they kicking in a material way yet? Or is that to come?

That's -- yes, good question. That backlog is, I mean, some of it, of course, CVS is already in there and our both customers are already in there. I mentioned a 1.4 million unit order on the medical company. But most of it is not. So that 60% of our business that's in billings backlog and run rate doesn't include them that, that will be added in on top.

[Operator Instructions]. The next question is coming from Jay Cheung from -- he is a Private Investor.

First, on the RFID capacity, I know the run rate was --

It looks like Jay's line has dropped. Let me see if I can get him back into queue. One moment.

Okay. If there's someone else in the queue, you could certainly let him in, in the meantime. But yes, I just wanted to make sure it wasn't us.

Okay. Let's see here. We've got Michael Mani from B. Riley Securities.

This is Michael Mani on for Craig Ellis. Thank you for all the color in the prepared remarks and also for letting us ask a couple of questions. So my first question is on the company's ability to execute given that you've done a great job in executing versus some of the supply-constrained peers, especially with its quick project turnaround. That's led to a lot of share gains, as you mentioned. So to what extent is that embedded in the full year 2022 guide? Or to what extent could that drive upside to it?

You mean the rapid responsiveness on designs, specifically?

That and your ability to look to deliver as well while other peers cannot.

Yes. Good point on both. First off, yes, the design side is a huge advantage. There's actually another company that I didn't mention because their name is too sensitive. But we did a quick design for them. It had basically double the read range and some other performance superior results to what they had before and did it in literally 1.5 weeks. And that is really core to our differentiation. And I'm going to let Amir comment on that a little bit, too, because Manfred and he have built that team that does that quick part. And then I'll come back to follow up on the second part of your question. Amir, would you mind commenting on the design and development cycles?

Yes. Sure, Steven. What we're really focusing on right now is as the team is growing, their targets are really on high-margin business. And this high-margin business, basically the underlying factors are that it's specialty applications that we need to take in and be really rapid and agile in the designing of the requirement. And we've built a very nice foundation through Q4 of our highest quarter of design wins all in one. Now many of them are picking up, but we're keeping a really keen eye of what the forecast would look like and working very closely with the suppliers to ensure that we can react and respond as these ramp up. Now a couple of them are picking up, and we're seeing good traction and the indicator is not just the success of the first NRE, but the second one actually coming in for a similar product that they might run in tandem with what we have in the queue. So we're responding really quick to the requirements, and that's really a testament to our engineering excellence. But the second component to this is we're keeping an eye on what the visibility and the forecast needs to be so we can ensure that we could ramp up as quickly as they want to in the coming year. And these plants have been extended now into 2024. So we have almost 2.5 years right now run rate of where we want the sales folks to grow within the region and what targets they should be focusing on. So everything really coincides together.

And then, Michael, to your -- the second part of your question about in the supply-constrained environment has been an opportunity for us because we are able to fulfill better than some. The answer is really yes. And we had a non-deal roadshow discussion, as you recall, not long ago. And we talked -- specifically Manfred that talked specifically about the fact that we've got about 100 million units ordered and in supply already allocated to backlog, but 130 million more coming in on order that we've ordered ahead for, that puts us in a really advantaged supply position. And then the third part is, I don't want to overly name names or over -- certainly don't want to get one of our vendors in trouble, but NXP has been a very supportive partner to us. And there is quite a crunch going on that they're juggling a lot of things. But when we have had upside requirements, they've been very supportive of those upside requirements. So we're actually able to fulfill some things even beyond what we preordered and what we've got on hand because we have some pretty good relationships there. So I hope that -- does that answer your two questions?

Yes. That's fantastic color. If I could just squeeze one more about concerning premises. So we've seen a number of good signs enterprise recoveries underway. It seems like a lot of verticals are undergoing tech upgrade cycles that you alluded to in your comments. So how do you -- when you look out at the course of the year, how do you think that the pace of the enterprise recovery will play out maybe in the first half of the year versus the second half?

It's already on a good pace on the premises side as well. The second half of the year, of course, always is stronger. The third quarter is always very strong because of the government year-end, and we certainly see government spending only going in one direction. And we also find -- you never want to profit from things like this. But when there's conflicts and other concerns in the world, security spending and especially physical security spending tends to go up. People are more sensitive to it. And when people propose programs, they're generally pushed right through. So we're seeing a lot of activity. I mentioned PropTech, airports, education institutions, critical infrastructure, ports, transportation, all those areas, as you would expect, that you want to make sure are secure and operating well even in an uncertain environment. We're seeing lots of RFP activity as well as programs we already have underway that are coming through and getting deployed. And we're seeing very little remaining friction in going out to sites and getting installed. There's virtually none of that anymore. Everybody is open and deploying at this point.

Okay. Next, we have Jay Cheung, Private Investor.

Can you hear me now?

Yes, we can.

Okay. Perfect. So first on the RFID capacity, I know the run rate was 260 million units, but where is the capacity now? And where will it be by the end of the year?

Manfred, would you like to take that on directly?

Yes, I can comment on that. So it was 185 million that we delivered last year. The capacity right now is roughly at 220 million. The outgoing capacity by the end of the year entering 2023 is 350 million. If we don't pull in additional equipment, which is an order already. So I was, for example, with a machine and a manufacturer in Germany this week, we are basically releasing and doing the site approval for the next piece of equipment, which is going to be arriving Singapore in about 2 or 3 weeks. And the next machine is already ordered for like July arrival and another one is sitting in early 2023, again, with the possibility of being pulled in. So there is --. Yes. So all the necessary capacity is going to be lined up. So capacity is not going to be the issue right now.

I see. Okay. And then your supply chain team has done a great job in making sure your customers' orders were all filled when -- especially when your competitors were unable to do so. I believe this was the case in both segments. As vendors see this and they see how well you accommodate your customers, do you see your allocations from your vendors increasing significantly this year?

Yes. Actually, that's a good behind-the-scenes reality and the answer is yes. I mentioned NXP, and again, they're balancing lots of demand, but they've been very supportive, and we expect that to continue. They really like the nature of the projects and use cases that we've got going, and they want to be behind them and very supportive of it. So I expect that to continue. And that's the same for several of our vendors. And the same on the premises side that by virtue of being a credible supplier, we're filling in more of our products for more customers. And therefore, people are selling through us and vendors to us know that we're growing our market share and we're the ones they want to support. And it then starts to become a self-fulfilling prophecy. Interestingly, the other thing we're doing, which also helps on gross margins, and this is now openly communicated is effective March 1 across the board for our Premises business, we implemented a 10% price increase. And it was perfectly well received because we have been very supportive with our customers. They know it. They -- everybody reads the papers about how hard it is. And when you put through a price increase, they appreciate that we've worked with them up to now, and they understand that it needs to be done, so our business can stay healthy. So yes, I think we're in a decent position from a supply perspective, better than our competitors and our vendors are working with us on it. And that, therefore, also allows us to start expanding our gross margins in the most straightforward way, which is by raising price.

That's great. And then I assume this enables you to take new customers from your competitors. One, how meaningful of an impact were these new customers? And then two, do you see those customers now going back to their old suppliers? Or are they staying with you and reordering from you?

When you work with the customer in hard times, they tend to stick with you because everybody needs reliability. And even if they need to pay a little bit more for it, it hurts more. I think financial optimization sometimes looks like algorithms and that works when everything is on a consistent environment and everything is stable. Everybody knows that we are not in stable times and who knows when we'll get back to stablex. And so being willing to put value on reliability and relationships and commitments as well as great technology, great solutions. I think everyone from CFOs on down are accommodating that kind of situation. So no, the customers we won back, that we won, I think, are going to stay with us. We're already in their course and talking about other products that we can do with them. They're starting to look at expansion of capabilities and then that allows us to look at higher gross margin products.

Okay. Great. And then on the '22 guidance, I noticed you were maintaining it from last quarter, but whether it's new projects, new customers, bookings, higher allocation from excel suppliers, it seems that momentum is only accelerating from 4 months ago. So why wouldn't guidance improve as well?

And it's purely -- as we've talked about before, we really need to see it in our hands before we're going to raise expectations. Timing with some of these projects and can move around and something moves by 1 month and it moves out of one quarter into another. We think we've got it well covered. Certainly, we've got it well covered for 2022 in our opinion. But we don't want to raise that until we have a raised number really well covered. So hopefully, I could appreciate that.

Yes. Okay. And then on the call, just you reiterated your overall long-term gross margin target of 40% to 45% for the entire company and then 35%, 40% for the ID side and then 55%, 60% for the premises side. So what level of sales would you need to reach those gross margin targets for each segment? And what would be the resulting EBITDA or operating margins?

Yes. Good. So interestingly, it's not so much a level of sales as it is getting to the mix. It's partly scale, but it's largely mixed as we get things like the high-end auto-injectors and a dozen other projects that, as Amir talked about, our pipeline of NRE projects bigger than they've ever been, that's where the gross margin is big. And as that becomes a bigger part of our mix, the gross margins expand. So I'm not trying to avoid the question. But certainly, when we're looking at a $200 million revenue range, that mix should be in place. But I think it could be in place earlier than that as we drive the mix properly. And then on the premises side, the 55% to 60%, you don't have to go far back in our results to see that we've been in the 57-plus percent gross margin range in premises already. So we are at the scale that, that can be achieved. It's -- again, it's a matter of mix and the margin on the mix there. But mix becomes more stable and more consistent as you gain scale. But all of those numbers are touchable from where we are right now, frankly.

Okay. And if I could just squeeze one more in. I know we're out of time, but you reiterated guidance for 2023 of 30% to 35% revenue growth. How much visibility do you have that you feel confident that you can reach these -- what seasonally is an aspirational goal?

Well, we have visibility to that. And in fact, with the pace at which some of these bigger deals are moving through, if anything, the '23 number, we're feeling more confident about, it just wouldn't make sense to be moving '23 and not moving '22. But if you look at all these, we have in and then when you look at that pipeline, again, that I can't throw out all the names that are there, but you can hear from when Manfred and Amir are talking about the pipeline we're building and the projects we've got underway. That is an aspirational at all. That's as much line of sight as you can have. And all we're talking about at this point is 10 months out, 9 months out. So it's something that we have decent visibility too. Things can always change, but certainly, we're as confident about that as ever. And you're right. We have run over. So I'm getting the waves that we have to wrap up.

At this time, 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. I know we've run over, and it's a very busy time for everybody. But we really appreciate the support for the company, and we're certainly going to continue to drive it forward and continue to communicate out. We have some other investor events coming up, and we'll keep communicating as transparently as we can as the company moves forward. But we're certainly excited from a business perspective and committed to keep making progress on the overall business model. Thank you again for joining us.

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