Identiv, Inc. (NASDAQ:INVE) Q4 2022 Earnings Call Transcript

Identiv, Inc. (NASDAQ:INVE) Q4 2022 Earnings Call Transcript March 2, 2023

Operator: Good afternoon. Welcome to Identiv’s Presentation of its Fourth Quarter and Fiscal 2022 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 financial measures or guidance, including adjusted EBITDA, non-GAAP gross margin and non-GAAP operating expenses. In addition, during the call, management will be making forward-looking statements. Any statements that refer 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 and quarterly report on Form 10-Q. Identiv assumes no obligation to update these forward-looking statements which speak as of today. I would now turn the call over to CEO, Steve Humphreys for his comments. Sir, please proceed.

Steven Humphreys: Thanks, operator. And thank you all for joining us today. In 2022, we built out our teams and technologies, executed our strategic plan and made progress towards our target business model. This shows in our 2022 results. We delivered record revenue and adjusted EBITDA, while expanding our gross margins. Revenue was $112.9 million, reflecting 9% year-over-year growth while full year adjusted EBITDA grew 33% year-over-year to $5.4 million. Gross margins were strong, up 72 basis points over fiscal 2021 to 37.6%. Our IoT security strategy is to focus on high value solutions in verticals that value the technical benefits we bring to their products. We have to be carefully balancing and limiting our participation in more commodity products but we need some participation in the low end because it drives lower average costs, because of volume and scale.

But we have to be very selective so that serves our scale needs but doesn’t dilute our margins or our strategic focus. We struck this balance in 2022. It shows in our gross margins, and in the nearly 20% revenue growth in our RFID-based IoT business. However, some of our transformational opportunities, the use cases with both strong margins and major growth and scale potential didn’t take off or grow as fast as we wanted. Now each opportunity is still intact and we expect them to reach scale. We built the solutions, the relationships are in place. So we are confident that will grow as they deploy and ramp up. In our physical security business, our Premises segment, margins are consistently strong without the volume versus margin trade-off. In this business we also built out our complete team in 2022.

With the strong foundation and a focus on growth, we grew revenues 17% for the year in Premises, more than double the industry’s growth rate. As we manage these realities in 2022, we focused on growing revenues in higher margin categories, protecting our balance sheet and working capital and winning strategic applications to drive our long-term business model. Focusing on high value, higher margin solutions that protect and expand our margin profile is the top priority in our IoT business. This was reflected in our Q4 results. While revenues came in a bit later than consensus, gross margins, EBITDA and net income were all higher than consensus and higher year-over-year establishing our business base for long-term growth and higher margins. So with that context, in Q4, total revenue was $29 million, up 2% over last year and adjusted EBITDA was $1.7 million, an increase of $2.5 million over last year in EBITDA.

Most importantly, adjusted gross margin dollars grew 11% year-over-year and our margin percentage grew 370 basis points to 38% from 34% in Q4 2021. By segment, Premises grew a solid 11% year-over-year and RFID grew 5%, compared to the prior year period when RFID revenues included a greater mix of lower margin orders that both these growth trends were partly offset by a decline of almost 25% in our non-core smart card reader business. We don’t expect further declines in this business and going forward we expect it to be essentially flat. As we exited Q4 with its focused revenue and margin balance, demand is strong. Total company backlog at the end of Q4 was $35 million, up 16% over the same year ago period, of which backlog for delivery in Q1 was $14.3 million, up 22% year-over-year.

Now beneath the numbers, the fourth quarter of 2022 was important for three reasons. First it showed the demand strength in both our IoT and Premises segments. In IoT, we grew while our largest competitor declined, one of our largest IoT customer categories had declining sales and our largest chip supplier de-prioritized deliveries to our IoT RFID segment. In Premises, we again grew much faster than our industry and had major wins in our strategic video and hyper converge product categories. The second reason in Q4 was important is because we grew revenues and expanded gross margins despite the macro environments and tough industry trends in IoT. A year ago we outperformed the IoT industry average, but at the cost of lower gross margins. A year later, we had the demand strengths to outgrow the industry leader with expanding margins.

Third, in Q4, we made progress in our Strategic Medical and Healthcare segment and began initial shipments of Wiliot’s combination, Bluetooth and RFID device. Now in absolute terms, growth in our IoT segment was modest, but we outperformed the market. Our closest competitor in IoT, Avery Dennison Solutions Group, declined 11%. And as I mentioned before, our key mobility customer saw a sales declined 5% despite Q4 being their historically strongest season. Our sales pipeline strength supported us in Q4 with enough alternative demand to keep our growth trajectory and expand gross margins even in the face of demand and supply pressure. In our Strategic Healthcare segment, we built a wide pipeline of customers and projects. We now have over three dozen customers in this category in various stages of evaluation and production.

Use cases of course include the five auto injector projects which we’ll discuss in detail later on the call. Among the balance of the three dozen healthcare customers, we have eight companies doing various kinds of medical tests, five companies doing surgical and operating room devices, two companies developing cold chain modernity applications for blood and other biological samples, two doing dental applications, four drug dispensing use cases, two smart bandage use cases and a dozen other companies with various use cases. Now for those of you on the webcast, these use cases are shown on the slide with customer names kept confidential, of course. And this is the core value segment for our RFID-enabled IoT business. So we wanted to give more insights in the range of applications we have customer activities in.

Now medical products take time to launch, but our strength in the category is growing. We think we are positioned to lead as customers launch their products that incorporate our devices. Now we are going to be cautious in our near term outlook since the medical categories of auto injectors and prescriptions are taking longer to get to market and scale than we expected. Our key IoT program was Wiliot. Wiliot’s IoT pixels are very complicated devices, from a standing start in October without any prior NRE work, we developed the technology and volume production processes, scaled up and shipped our first million units in Q4. This really shows the technical excellence and dedication of our IoT team. Now that we have the processes running, we expect to deliver about 10 million units in Q1 and we are on pace to deliver 14 million units in Q2 with follow-on orders expected for 2023 delivery.

And what is critical that we demonstrate our capability to deliver high quality devices at volume, we did this and built an even stronger relationship with Wiliot in the process, even though we shipped fewer units than we originally planned for in Q4. Now we also have the first Wiliot derived opportunities in the pipeline and will share information as use cases and solution providers come to market. The one transformational IoT opportunity that’s taken longer than we expected to get traction is cannabis included in our smart packaging category. We developed great products, but industry deployment of RFID for authenticity and tracking have gone slowly as the cannabis industry has faced its own headwinds. In California, cannabis sales dropped more than 8% in 2022, Colorado similarly.

With demand pressures the industry’s slowed deployment of new technology and even government regulators seem to have deferred some mandates for better product tracking. We are staying engaged with MSOs, but being careful about cost in advance of a sustained market take off. Now smart packaging overall is developing well and I will talk about that later. Now supply chain challenges also continued in the fourth quarter, although we were able to offset most of the impact. NXP recently guided to a decline of 9% in their IoT-related chip sales, but they kept 11% three year IoT sales growth rate. Consistent with this expectation, we expect IoT chip supply issues to continue through the first half of fiscal year 2023 before normalizing in the second half.

Now in addition last to give our customers options, we recently announced new NFC and HF designs based on chips from STMicro. We also recently announced the strategic supply partnership with Trace ID for UHF-based industrial IoT applications. Now I want to be clear we are not going after commoditized high volume UHF-based business. Trace ID is a manufacturer of complex ruggedized applications of UHF for industrial and specialty environments with products that are consistent with our higher margin profile. Unit price is higher than retail UHF also in the $0.15 range compared to commodity UHF tags that average $0.02. Serving this RFID category through a manufacturing partner rather than direct investment preserves our capital while leveraging our world-class sales and engineering teams to maximize the share of wallet from every account we are in.

Lastly, an update on the two other metrics in IoT that we track, customer retention and NREs. We kept our 100% customer retention, although with some of the lower margin products we are exiting, this may change at some point by our own choice. NRE activity also continued to be strong. We have 54 NRE projects underway with four new NRE projects in healthcare. We also have multiple projects in the consumer device category and the fast track projects using STMicro chips that we expect to ship next quarter. Moving to Physical Security, our Premises segment, the strength I mentioned is clear in both numbers and business progress. In addition to the strong full year in Q4 growth, we also had Q4 revenues comparable to Q3, which is normally our strongest quarter in Premises.

We’ve been able to strike this balance because of our drive to strengthen the commercial business, alongside our federal business strength that made great progress. Now I’ll highlight one Premises example in Q4, because it shows most of our growth drivers. This is San Diego International Airport, a great example of our strategy to provide the industry’s widest range of security products and at DIA, we are deploying access control, video surveillance, access readers, secure for €“ and storage integrated into our hyper converge platform, all managed through a single pane of glass. This product portfolio gives us more cross-selling opportunities than anyone in the industry and positions us with the most complete high security solution right when CSOs and CIOs are consolidating vendors and don’t want to take any security risks.

Our OEM strategy in Premises has also been gaining traction. Our TS readers are now being sold by our two largest access control competitors by staying focused on hardware as well as our software strategy, completing our product range to maximize our share of wallet adding machine learning-based analytics and driving SaaS, as well as system solutions, we are positioned to keep expanding our share and growing above market rates in the physical security market. So in summary, we think the financial and operational milestones we hit in 2022 have solidified our foundation for revenue growth and margin expansion in 2023. Our focus is on disciplined growth with strong execution of our go to market strategy as we drive toward our long-term model, we are positioning to support accelerating growth as our customers launch products in the transformational applications we developed.

So with that, I’ll pass the call over to Justin to review our financial results in some more detail. Justin?

Justin Scarpulla: Thanks, Steve. As Steve mentioned, in 2022 we delivered record revenue, along with expansion in gross margins and adjusted EBITDA. This is in addition to a total future backlog increase of 16% year-over-year. We protected our margin and maintained tight control over our operating expenses. We believe thse results, paired with our continued investments in our IoT business position the company to continue to grow in 2023. Full year 2022 revenue was $112.9 million, within our guidance range and slightly below consensus estimates. This was up 9% versus the comparable prior year period. Fourth quarter 2022 GAAP gross profit margin was 36.5% a significant increase compared to 33% in the fourth quarter of 2021. For the full year 2022, our GAAP gross profit margins were 36.3% versus 35.7% in 2021.

For the fourth quarter of 2022, non-GAAP adjusted gross profit margin was 37.9%, which was higher than consensus estimates of 37.2% and an increase compared to 34.2% in the fourth quarter of 2021. For the full year 2022, non-GAAP adjusted gross profit margins were 37.6% versus 36.9% in 2021. GAAP and non-GAAP adjusted gross profit margin changes resulted primarily from our product mix, our continued focus on higher margin customers and raw material cost reductions through strategic inventory purchases. We were able to increase margins year-over-year, while continuing to increase our investments in technology and manufacturing processes and equipment. We remain committed to a long-term non-GAAP adjusted gross margin target of 40% to 45%. In the fourth quarter of 2022, our GAAP operating expenses including research and development, sales and marketing and general and administrative cost were $10.2 million, compared to $11.3 million in the fourth quarter of 2021.

For the full year 2022, GAAP operating expenses were $41.3 million as compared to $38.4 million. In the fourth quarter of 2022, non-GAAP adjusted operating expenses were $9.3 million, compared to $10.5 million in the fourth quarter of 2021. For the full year of 2022, non-GAAP adjusted operating expenses were $37.1 million, as compared to $34.2 million, an increase of 8%. Our non-GAAP adjusted EBITDA was $1.7 million or 6% of EBITDA margin in Q4 2022, landed above consensus estimates of $1.5 million and was an increase of $2.5 million year-over-year. For the full year of 2022, our non-GAAP adjusted EBITDA was $5.4 million, an increase of $1.3 million from 2021. Both Q4 and full year EBITDA numbers, year-over-year growth reflected our commitment to maintaining our expected margin and operating expense profiles.

We remain committed to a long-term non-GAAP adjusted EBITDA margin of 15% to 20%. Our Q4 GAAP net income was $0.3 million or $0.00 per share, which was in line with consensus estimates. This compared to a net loss of $1.9 million or a loss of $0.10 per share in Q4 2021. For the full year, GAAP net loss was $0.4 million or a loss of $0.07 per share versus net income of $1.6 million in 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 analyses trends by segment beginning with identity, revenue from our identity products totaled $16.8 million or 58% of our total revenue in Q4 of 2022, as compared to $17.5 million in Q4 of 2021.

For the full year 2022, our identity revenue were $57.4 million or 60% of our total revenue as compared to $64.7 million in 2021. The Q4 2022 decrease in identity revenue was primarily driven by, lower sales of our legacy smart card readers. The full year increase was primarily driven by our RFID, IoT products which more than offset the decline in our legacy smartcard readers. Our Q4 2022 Identity segment non-GAAP adjusted gross margin was 24%, which compared to 21% in Q4 2021. The year-over-year increase reflects our continued focus on higher margin products. For the full year, the Identity segment non-GAAP adjusted gross margin was 24%, compared to 25% in 2021 primarily due to product mix. Quarter-to-quarter margins can fluctuate, but we expect long-term margins to trend upwards from current levels as we expand and deepen our existing customer and technology partnerships including our planned expansion into Thailand with lower manufacturing cost.

We believe our focus on more complex devices and strategic NRE relationships with our customers will only further strengthen our margin profile. We remain committed to a long-term gross margin target of 35% to 40% in our Identity business. Now turning to the Premises segment. This segment accounted for $12.2 million or 42% of our total revenue in Q4 representing an increase of 11% compared to Q4 of 2021. For the full year, revenue was $45.5 million, an increase of 17%. The year-over-year increase in Premises segment revenue was across both federal and commercial businesses and reflects increased sale in our expanded product portfolio. We continue to expand our market share and offer a total platform solution. Non-GAAP adjusted gross margins for Premises in the fourth quarter of 2022 were 57% compared to 54% in Q4 2021.

For the full year 2022, non-GAAP adjusted gross margins were 58%, compared to 56% in 2021. The year-over-year changes were primarily due to product mix and our continued focus on passing through price increases to our customers and reducing manufacturing and logistics costs. We remain committed to a 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 fourth quarter of 2022, adjusted to excluded restructuring and severance cost and certain non-cash charges consisting of stock-based compensation, and depreciation and amortization was 32% of revenue, compared to 37% in Q4 2021. For the full year 2022, our non-GAAP operating expenses were 33% which was consistent with full year 2021.

This resulted in our fourth consecutive quarter of positive non-GAAP adjusted EBITDA. In summary, we continue to deliver a consistent gross margin profile and tight controls over operating expenses in our business, while reinvesting for growth within our current cost structure. Now, turning to the balance sheet, we exited Q4 of 2022 with 17.1 million in cash, cash equivalents and restricted cash. In 2022, we spent $9.3 million in strategic inventory purchases and $3.9 million in capital expenditures. This build up of inventory was to reduce a portion of our supply chain shortages. The capital expenditures were required for upgrades of our existing production facility, as well as our planned expansion. We remain debt free and we have maintained our strong working capital position.

In our 10-K filing, we will be 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 first quarter of 2023, our total backlog for all future shipments was $35 million exiting Q4 of 2022, up 16% versus Q4 of 2021. As Steve mentioned, some of our transformational opportunities are taking longer to materialize, handset sales at our key mobility customer, which affect the entire accessory ecosystem have declined and supply chain headwinds are expected to continue into at least the first half of 2023. These factors combined with the overall uncertain macroeconomic environment may lessen our growth rate in 2023. That said, we anticipate an increase in total revenue in 2023 and we currently expect revenues to be in the range of $125 million to $130 million, while continuing to focus on gross margin and EBITDA expansion.

Normal seasonality is expected to continue. With that, I will conclude the financial discussion and pass the call back to Steve.

Steven Humphreys: Thanks, Justin. Our focus for 2023 is delivering healthy growth with strong margins, expanding the strategic position we established in 2022, while sustaining our balance sheet and making clear progress towards our long-term business model. In IoT, this means expanding our leadership in strategic long-term markets, building the capacity and cost competitiveness to grow with a wide range of applications and to sustain accelerated growth and margins when our customers launch transformational applications. In Premises, our focus is on maximizing per customer share of wallet and expanding our leadership in both the commercial and federal markets through the team, channel and technologies we’ve built as well as through strategic partnerships.

In IoT, in order to keep expanding our industry leadership in strategic markets, we are focused on making progress within each of our transformational opportunities. Beginning with mobile, we are supporting five designs with our largest mobility customer. This is down from eight designs as two amended and one we’ve exited due to low margins. As I mentioned earlier, this customer faced declining sales last quarter. So we are paying close attention to their volumes. They kept afford us last quarter, but shipments haven’t yet returned to historic levels. However, we are also working with them on a different application area with more volume potential than the ones we are currently in combined. So we’ll report details as they develop. Moving to healthcare.

Specifically, in the auto injector category for our initial customer, we started a second NRE to further develop the design which we are working on through the first half of 2023. Our second project an applicator test for the same end-customer, we’ve been working with the supplier for specialty in coating. In the third project for a different end client, an NRE design that we delivered is now in evaluation. Another for a fourth healthcare company is currently in sample testing and a fifth project is also in evaluation with the same customer. Now as I talked about earlier, we have more than three dozen healthcare customers either in evaluation or shipping. They are developing products that cover a wide range of use cases, auto injectors of course, but also smart bandages, dental applications, drug dispensing, medical test and others.

With the reputation we’ve built in the medical industry, we are winning new projects every quarter and we will update as they progress. In smart packaging, which includes our cannabis market solution, the ramp to volume production is moving slower than we expected. We are still confident that it will take off and when that happens, we are ready with the right products and price points. More broadly in smart packaging we built our position with high end brands with our Bitse.io platform, as well as partnered platforms like Bluebite and collectID, this is another category that we are positioned to lead when it takes off. Now in addition to these strategic categories, another IoT priority for 2023 is establishing ourselves as the clear high-end market leader for technically challenging RFID-enabled IoT applications.

We want to be in every opportunity, win every use case with high value and high information intensity and grow with them as they launch. To make this happen, we’ve built the industry’s leading project engineering and project management system. We are also expanding our production capacity in Southeast Asia to add technical capabilities and to lower our manufacturing costs. Following a thorough evaluation, we’ve decided to expand into Thailand with an accelerated timeline for coming online. We greenlighted the project last month and expect to be producing first parts in a totally new facility within five months. In terms of customer partnerships, Wiliot is one of our largest near term growth opportunities. We are supporting both the passive and battery-assisted devices and expect a range of opportunities both directly from Wiliot and through other solution providers.

As I described in the opening, Wiliot’s devices are technically complicated. They take two production passes and extensive programming and testing. This complexity shows in their price point but it also affects our total capacity. Production capacity to produce 100 million units of simpler devices, produces 50 million Wiliot devices. At current volumes our capacity in Singapore is enough, but the additional capacity in our new Thailand facility will be needed to support continued volume growth of complicated products like Wiliots. Now collectID is another key customer partnership. They excel in promoting and selling the consumer engagement capabilities of our IoT solutions to a wide range of sport clubs with their presence in European football and HL Hockey and auto racing.

Now these aren’t big volumes but they demonstrate the strategic high margin use cases of device management and consumer engagement enabled by solutions like our Bitse.io SaaS platform. Continuing the partnership strategy, one way we are meeting capacity and technology expansion needs, while conserving capital is through manufacturing partnerships by TraceID. I described earlier how this expands our capacity without capital investment and leverages our sales and technology teams. We can bring ruggedized industrial and specialty UHF products to our customers, expanding our share of wallet, while staying consistent with our high value solutions focus. Now there are other IoT partnerships in the works that we’ll disclose when they are in place.

Turning to Premises, expanding the video and analytics capabilities of our Velocity platform and increasing our share of wallet are our top priorities for our position in the physical security market in 2023. We are building key strategic partnerships to expand our complete solutions reach without investing excessively until we have established a technology step with customer demand. Strategic partners included Iricity for analytics, ScaleComputing for hyper converged solutions and multiple camera and other video-related partners supporting Velocity Vision. Our OEM partners are also contributing strongly and will continue to do so in 2023, leveraging our engineering investment and entrenching our technology reputation in the industry by making our products available through the sales teams of two of our largest competitors.

So, we continue to build on the breadth of our platform and expand feature adoption through ease of use, hyper convergence, and machine learning applications. In Video Analytics, our new Vision AI software is the core of this strategic focus in 2023. With this technology, we’ve now integrated a wide set of machine learning analytics into our Velocity Vision system. Integrated with our Velocity Access Management platform, we’re bringing intelligence to physical security and the entire experience as people interact with buildings and other facilities around them. This analytics suite is also ideally positioned to expand our growing recurring revenue base. Lastly, increasing our share of wallet means expanding sales within our federal customer base as well as adding new federal agencies.

In Q4, we secured four new federal agencies within the Department of Interior and expect to add more agencies over the course of 2023. We also continue to grow sales to commercial customers, specifically in banking, education, and health care facilities, all industries that prioritize security. So going into 2023, we think we’re positioned very well strategically in both of our core businesses. In RFID, we, of course, have to execute our Thailand expansion. But beyond that, 2023 is all about executing our plan and continuing to expand our leadership in advanced RFID-enabled IoT applications. This positions us to accelerate our growth as our customers launch products enabled by our technology. In physical security, we’ll expand our market share through our complete platform for enterprise scale physical security and expand our recurring revenues through our integrated security and analytics software.

Now we are prioritizing gross margin and EBITDA expansion, driven by tight focus on value-added applications and expanding our share of wallet across all of our customers. This will keep our balance sheet strong while we grow and progress towards our target business model. Now those are clearly the right priorities to build value in our business and win strategically in our long-term markets. What it means near term is that we’re going to grow with discipline. Supply constraints are continuing in the first half of 2023. We won’t pay extra to drive growth if it undermines margins. Some business is under margin pressure, and we won’t chase that business if we can’t differentiate and protect our margins. Now this could be several million dollars that we’ll have to rotate out of and replaced with higher value business.

It might depress our aggregate growth near term, but as long as our underlying growth is strong, we’ll make that trade-off. Lastly, we’ve communicated previously the potential impact from an economic recession. We think there’s a possibility that categories like cannabis and even mobile devices could be affected. Our strategy remains solid with realistic assumptions so we can grow within our resources and stay ahead of our competition to grow as our market takes off. We think we’re positioned in 2023 with a solid balance of growth, gross margins, and working capital while expanding our capacity and technology strengths. So as a result of this business environment and our strategic position, we expect 2023 net revenues in the range of $125 million to $130 million, with expanding EBITDA margins.

This reflects premises growth in the 20% range and IoT high-value solutions growth in the 25% range, offset by rotation out of lower-margin IoT revenues of about $5 million to $7 million and flat smart card reader revenues. We think this factors in risks related to supply chains, inflation, slower economic growth, and conservative business decisions by our customers. Now we could easily have upsides. If product launches happen faster, Wiliot related sales develop more widely, supplies become more available, and several other factors. If any of these happen, we believe that with our production expansion in Thailand, we are positioned to accelerate and grow revenues and EBITDA margins in 2023 and beyond. So with that, I’ll now ask the operator to open the lines for questions.

Operator?

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Q&A Session

Operator: Thank you. And the first question comes from Craig Ellis with B. Riley. Please proceed.

Craig Ellis: Yeah, thanks for taking the question and Steve, congratulations on a number of the strong annual financial metrics in the business, especially around profitability. I wanted to start just by following up on some of the supply points that you made. Can you go into more detail around alternate sources of supply and what the COGS profile of some of those sources looks like relative to your historic lead supplier?

Steven Humphreys: Sure and I’ll make a couple of comments, and then Amir is here with me, too. So I’ll let him jump in on that as well. But of course, ST Micro is the closest alternate that we work with. Although there’s some other smaller ones as well, EM and others. And then also in this year, we get a little bit of latitude because Wiliot provides their own chips that they get out of the fabs. So that portion of our demand and our revenue isn’t constrained by our largest supplier. So we’ve got some diversity as always it takes time for designs to come online, something that’s been designed with a chip from somebody else do you want to design in an ST Micro, that part will usually take a few months, but others can come up faster and because Wiliot, it’s a bit of a larger share of the proportion, that also diversifies our supply. Amir, you want to add anything else?

Amir Khoshniyati: Sure. And just building on that, the second half of the year was all about cross qualification. So with the ST announcement that we recently had, we got the highest runner chip cross-qualified so it takes a little bit of pressure from one of the largest suppliers leading into it. And then to Steve’s point, we are really focused on IoT solutions as a whole. So Wiliot, it also is creating a very good buffer as well with an alter technology. So we are very well positioned.

Craig Ellis: Got it. And then, related to supply, as we look at the balance sheet, Justin, we see inventory ticking up $4 million to $5 million in the quarter, cash down. Is the change in inventory really related to some of the supply things that Steve and Amir just talked about or is it something else? And when should we expect inventory to normalize? And what’s your outlook for what that means for the cash balance?

Justin Scarpulla: Yes, we’ve talked about a little bit in the script as well, but we actually have made strategic purchases in Q4. I expect those to continue a little bit into Q1, but we will right size and get cash back to previous levels in Q2 and beyond. So what we’re looking at is we’re targeting working capital more than we target our specific cash balance, Craig. And we’re maintaining a target of over $50 million in working capital. The inventory is good, strategic inventory purchases we met to repurchased strategically, and we’re going to build that up a little bit, and then we’re going to balance it out towards the back half of the year.

Craig Ellis: Got it. And then, if I could just close it out with a two-parter, the first part for Steve, the other part for you, Justin. So Steve, I didn’t catch all of the elements that fall within the $125 million to $130 million revenue outlook beyond the 20% premises growth. So can you repeat those elements? And then Justin, clearly, the company is prioritizing gross margin EBITDA. Nice to see it, but what should we think about with respect to the contour of gross margin through the year given some of the gives and takes strategic mix outs, improving supply in the back half, et cetera.

Steven Humphreys: Okay. Absolutely. So first, on the growth side, the premises growth in 20% range you said the IoT solutions growing in the 25% range overall, but there’s also some lower margin revenues we’re rotating out of about $5 million to $7 million that offset that growth, and then the smart card reader revenue is staying flat. We don’t expect any further declines from them. They should be solid, but flat and therefore, that moderates the blended growth overall. Does that fill in what you’re looking for, Craig?