Good afternoon, and welcome to the Data I/O Fourth Quarter 2021 Financial Results Conference Call. [Operator Instruction] Please note, this event is being recorded. I would now like to turn the conference over to Jordan Darrow, Investor Relations. Please go ahead..

Thank you, and welcome to the Data I/O Corporation Fourth Quarter 2021 Financial Results Conference Call. With me today are Anthony Ambrose, President and CEO of Data I/O Corporation; and Joel Hatlen, Chief Operating Officer and Chief Financial Officer of Data I/O.

Before we begin, I'd like to remind you that statements made in this conference call concerning COVID-19, future revenues, results from operations, financial position, markets, economic conditions, silicon chip shortages, supply chain expectations, estimated impact of tax reform, product releases, new industry partnerships and any other statements that may be construed as a prediction of future performance or events are forward-looking statements, which involve known and unknown risks, uncertainties and other factors, which may cause actual results to differ materially from those expressed or implied by such statements.

These factors include uncertainties as to the impact from the COVID-19 pandemic, along with continued reopening and recovery efforts within the supply chain and among our customer base, levels of orders for the company and the activity level of the automotive and semiconductor industry overall, ability to record revenues based on the timing of product deliveries and installations, market acceptance of new products, changes in economic conditions and market demand, part shortages, pricing and other activities by competitors and other risks, including those described from time to time in the company's filings on Forms 10-K and 10-Q with the Securities and Exchange Commission, press releases and other communications.

The accuracy and completeness of forward-looking statements should not be unduly relied upon. Data I/O is under no duty to update any of these forward-looking statements. Now I would like to turn over the call to Anthony Ambrose, President and CEO of Data I/O..

Well, thank you very much, Jordan. I'll begin my formal remarks by addressing our 2021 4th quarter financial and operational performance. And I'll turn it over to Joel for a look at some of the numbers. We reported strong annual revenue growth of 27% and a doubling of our sales to our new SentriX Security Provisioning Platform in 2021.

Our performance in the fourth quarter and full year was driven by the continuing recovery in the automotive electronics market, solid delivery performance from all of our factories in very challenging conditions, and the strength of sales of adapters and other recurring services.

Our growth in 2021 is even more impressive when you consider that an estimated 7 million automotive vehicles are sitting incomplete because of inadequate parts and the silicon shortage. 6 million electric cars will be shipped in 2022, up from 4 million in 2021, according to a new forecast by Gartner, representing a growth of about 50%.

This can be a very important segment to Data I/O because the semiconductor content per vehicle in an EV is forecasted to be about 3x the amount used in traditional internal combustion engine vehicles.

This means that we see continued growth of programming requirements for cars above and beyond that 10% to 12% long-term growth rate we mentioned before. We already have multiple wins in the EV segment, and we're off to a good start in 2022 as well. 2021 was also an excellent year for new customer acquisition.

During the year, we acquired over 20 new customers and customer locations that had not previously purchased Data I/O automated programming equipment. We also had an excellent year for consumables and recurring revenue growth.

Our increasing installed base of PS machines from both new and repeat customers provides recurring and consumable revenues, which supplement our capital equipment sales. At the end of 2021, our PSV installed base increased to over 390 units, up from approximately 330 units at the beginning of the year.

In 2021, we also, for the first time, sold a system and software license on our new SentriX platform. We also announced the first upgrade of an installed-based PSV machine to add secure provisioning with SentriX.

We've clearly validated our technology approach on SentriX with the most demanding customers in automotive intelligence -- artificial intelligence, automotive, industrial metering and other applications.

We continue to support new devices on SentriX and are focused on expanding the marketing and device support in 2022 as we target new customer acquisition directly and through our channel partners. We've proven in 2021 that we can monetize our software and equipment to serve the needs of our clients while bolstering our financial position.

As I mentioned earlier, total consumable revenue grew for the fourth consecutive year on the strength of adapter sales. Our operations team continued to deliver within lead times. We've delivered consistently despite persistent semiconductor shortages, supply disruptions and shipping challenges.

Our ability to meet customer requirements has resulted in at least one additional customer win versus competition where we could supply a system and they could not. Unfortunately, inflation picked up sharply in 2021, and we responded accordingly with a December price increase of about 6% to 8% across our product lines.

From what we've seen in the market, there would likely be additional increases in 2022 to combat inflation and the associated increases in our cost of goods. Our R&D team continues to deliver new capabilities and intellectual property.

We've been awarded multiple patents in 2021 and now have about 20 awarded security-related patents in the United States, Europe and Asia. We also won a 2021 Global Technology Award in the category of programming for our SentriX Product Creator tool suite.

This technology is next generation for SentriX to streamline security deployment definition and management end-to-end for mass production of IoT and automotive applications. Moving on, I'd like to address the importance of environmental, social and governance issues for the company.

ESG is becoming a greater focus of stock exchanges, proxy advisory firms and large index funds. Data I/O has taken a leadership position in the preprogramming industry in corporate governance and transparency, environmental disclosure and operational resilience and Board diversity.

Through continuous improvement and sustainable business practices, our company consumes very little energy, has minimal emissions or pollutants to air and wastewater, and leads in workplace labor, safety and business practices. We'll have a lot more to say about this in our proxy filings in the upcoming weeks.

At the Board level, in December, we announced the appointment of Dr. Cheemin Bo-Linn as our Director. Cheemin has extensive domain experience and been recognized for accomplishments, including being named Top Woman of Influence by Silicon Valley Business Journal and induction to the Hall of Fame for Women in Technology.

Her technical knowledge and experience in security, automotive and semiconductors, combined with outstanding record of accomplishment in public company governance made her an ideal addition to the Board.

Earlier today, we also announced that Ed Smith has joined our Board, bringing the number of directors on our board to 6, with 5 of them being independent. Our investors have a long relationship with Ed, and I'm pleased that he is now bringing his talents to Data I/O.

We stand to benefit from his proven experience in returning value to shareholders as the CEO of a NASDAQ-listed company; his past experience, that included acquiring and selling multiple companies in the semiconductor and electronics distribution area as well as his professional ties throughout the world to advance our marketing and overall growth strategies.

With their additions to our Board, we are now more than ever positioned to leverage our long-time global leadership in data programming to grow in automotive and the vast, emerging category of security provisioning.

Our collective talents, energy and ambition are now singularly focused to accelerate the positive momentum from 2021 into 2022 and beyond. As we look forward, I'd like to reiterate our long-term goals as discussed in our last call.

First, the automotive industry sees a decade of 10% to 15% long-term growth rate in silicon adoption for the automotive electronics market. Data I/O is extremely well positioned in this space with nearly 60% of our sales into the automotive electronics industry.

As I mentioned earlier, this outlook is further bolstered by the accelerating adoption of electric vehicles worldwide. The 25 billion unit microcontroller industry continues to add security capabilities, and customers are increasing demand for security provisioning.

We're enhancing our marketing and support capabilities here to target new customers, both direct and through our channel partners. We believe double-digit silicon growth will lead to double-digit Data I/O revenue growth over the next decade. Our SentriX business will grow significantly faster than this.

We believe operating leverage and scale will drive our adjusted EBITDA's growth significantly faster than the revenue growth. And we see increasing recurring revenue in absolute and percentage terms from adapters and services growing across the installed base.

For 2022, we're planning for double-digit bookings growth overall and another doubling of our SentriX bookings. We believe underlying demand is strong and metered by silicon shortages and recent political uncertainty.

Recurring revenues will continue to be an important and growing component of our revenue base, and our operating performance will improve accordingly with our overall growth as we benefit from our proven historical operating leverage. Finally, this year is a very special year for Data I/O as we celebrate our 50th year in business.

As we look forward in 2022, we're confident that our industry-leading automotive presence, our secure programming technology platform, a resilient supply chain and strong balance sheet position us to capitalize on the resumption of demand supported by exciting high-growth secular trends. With that, let me turn it over to Joel Hatlen.

Joel?.

bookings growth in excess of 10%, with SentriX up over 100%; automotive to continue as our primary target market with consumable revenues increasing as a percentage of the total; gross margin in the mid- to upper 50s range; price increases to reflect economic and market trends; adjusted EBITDA growth for the year. Long-term views.

Decade-long double-digit growth in the automotive electronics, semiconductor TAM drive similar growth for Data I/O; 50% of consolidated revenue from recurring sales goal, which includes software, services and consumables.

SentriX growth rate continues to outpace the traditional programming revenues as it addresses a much larger market opportunity that -- as the world embraces security. Gross margin target range to increase to above 60%; adjusted EBITDA, net income and cash flow leverage accelerated by higher revenues and margin improvement.

For the 2021 full year, our financial performance has advanced with meaningful growth in revenues and bookings as well as a return to adjusted EBITDA profitability. We continue to effectively manage our operating expenses and maintain a strong balance sheet while we fund our R&D and growth initiatives. Now let's review the financial results.

Net sales in the fourth quarter of 2021 were $6.4 million, up 29% from $4.9 million in the fourth quarter of last year. We believe the fourth quarter continues to reflect constraints resulting from customer supply chain, silicon part shortages and related order deferments.

Nevertheless, our fourth quarter revenues were the highest since 2018, with revenues coming in at nearly double the backlog level at the end of the third quarter and bookings during the fourth quarter less than revenues for the period. You can see that our recurring revenues are providing a meaningful -- a more meaningful base.

As industry growth resumes, following what Anthony had described as artificial demand suppression, we expect our top line trajectory to improve with higher equipment sales and with it, our operational leverage will be magnified. As a result of inflation, we announced price increases in the 6% to 8% range in December.

We plan to stay in front of ongoing cost increases with further increases, magnitude to be determined. Fourth quarter of 2021 revenue growth benefited from higher adapter sales associated with the increased usage of our installed base of machines throughout the world.

Adapter sales are consumables and what we view to be a form of recurring revenue, along with licenses, software sales and service maintenance revenues. Recurring and consumable revenues represented $2.9 million or 46% of total revenues in the fourth quarter of 2021 as opposed -- as compared with $2.4 million in the fourth quarter of 2020.

For all of 2021, net sales were $25.8 million, up 27% from $20.3 million in 2020. Recurring and consumable revenues represented $10.8 million or 42% of the total in 2021, an increase from $8.8 million or 44% in 2020.

On a geographic basis, international sales represented approximately 85.3% of net sales for the fourth quarter of 2021 and 89.9% for the year, compared with 89.7% in the fourth quarter of 2020 and 92.5% for all of 2020.

Fourth quarter bookings for 2021 were $6.2 million, up from $5 million in the third quarter of 2021 and $6 million in the fourth quarter of 2020. We believe the fourth quarter of this year benefited from COVID recovery and some improvements in customers' supply chain silicon shortages.

Adapter bookings for the fourth quarter continued to be strong at $2.0 million, up from $1.7 million in the third quarter of 2021 and $1.6 million in the fourth quarter of '20. Backlog on December 31, 2021, was $2.9 million as compared with $3.3 million at the end of the third quarter of 2021 and $3.9 million at the end of the fourth quarter of 2020.

The lower backlog on stronger bookings reflects our planning and purchasing prowess as it reflects our supply chain and our improvements in manufacturing throughput.

Deferred revenues increased to $1.7 million from $1.4 million at the end of the third quarter and $1.2 million at the end of the prior year, with the increase primarily related to a PSV system delivered, but final acceptance was not yet complete.

Gross margin as a percentage of sales in the fourth quarter was 54.4% as compared with 47% in the prior year period. For all of 2021, gross margin was 57% compared with 53.2% for the prior year. The company incurred in the fourth quarter of 2020 an impairment charge in the prior year relating to obsolete inventory.

Excluding the impairment charge, the adjusted gross margin comparable was approximately 52.9% in the fourth quarter of 2020 and 54.7% for the full year. Fourth quarter 2021 margins would have been stronger if not for cost inflationary pressures. This led us to address the higher cost increase -- the higher cost by increasing prices in December.

Otherwise, the higher margins in 2021 resulted primarily from product mix and higher sales volume relative to fixed factory costs. Operating expenses were $3.7 million in the fourth quarter of 2021, down from $3.9 million in the third quarter and $3.8 million in the fourth quarter of 2020.

For the full year, total operating expenses were $15 million in 2021 as compared with $13.9 million or $13.2 million, excluding onetime items in the prior year.

The primary differences in the operating expenses is higher sales volume commissions associated with the channel mix and the higher demand for programming equipment as well as recording performance-based incentive compensation.

R&D expense remained relatively stable during -- running at just over $1.6 million for the fourth quarter and $6.6 million for the year as compared with $1.6 million and $6.4 million for the fourth quarter and full year of 2020, respectively.

As we continue to invest and strengthen our products, operating expenses have been and are expected to be fairly consistent with the variances largely pegged to sales commissions due to volume and channel mix and variable incentive compensation. Taxes during the quarter consisted of adjustments to foreign taxes with no U.S. income tax.

Net loss in the fourth quarter of 2021 was $205,000 or $0.02 per share compared with a net loss of $1.6 million or $0.20 per share in the fourth quarter of 2020. For the full year, a net loss of $555,000 or $0.06 per share in 2021 was down from a net loss of $3,964,000, or $0.48 per share in 2020.

In all periods, we incurred foreign currency transaction losses. And back in 2020, we incurred the substantial onetime impairment charge as noted earlier. We had 8,621,007 shares outstanding on December 31, 2021. Moving on to the balance sheet.

Days sales outstanding, or DSO, a receivable collection measure, on December 31, 2021, remained at or below our target measure at 46 days. Net working capital on December 31, 2021, was $18.5 million, up from $18.1 million at the end of the prior year.

Inventory of $6.4 million on December 31, 2021, was approximately $400,000 higher than at the end of September and almost $1 million higher than at the end of the prior year.

This reflects both our anticipation of revenue growth going forward and our continuing efforts to derisk our supply chain and potential part shortages by higher stocking levels for our key products. Data I/O's financial condition remains strong with cash at $14.2 million on December 31, 2021, unchanged from the prior year and on September 30, 2021.

As we typically note each year, throughout the course of the year, we accrue certain public company costs and compensation items that are reflected as accrued expenses. These amounts are typically paid in the first quarter of each year. Overall, we remain very strong financially and continue to have no debt.

Combined with our resilient supply chain strategy, these represent key competitive advantages as the best capitalized supplier and reliable producer in the global programming industry. That concludes my remarks, and I'll turn the call back to the operator to begin the Q&A segment.

Operator, would you please start the Q&A process?.

[Operator Instruction] Our first question today comes from Jaeson Schmidt with Lake Street..

Just curious if you could discuss how -- what you've seen from an order pattern perspective so far in Q1? And kind of what gives you sort of the confidence in that pretty strong bookings outlook for 2022?.

Well, Jaeson, I think a couple of things. Q1 is -- you always got to wait until the end of March to see Q1 after Chinese New Year and stuff. Having said that, we're off to a good start for the year. The -- what we see overall, go back to our long-term thesis about the growth of semiconductors in the auto industry. We don't see that changing.

We see 7 million units left unfulfilled last year. We see unit growth this year of 6% to 7% in auto on top of the per unit increase in silicon. So we see the underlying demand really there in automotive, and it's just a question of will the metering effect of a silicon shortage lessen. We certainly think it will lessen throughout the year.

I don't know if it will be fully over by the end of the year, but it certainly should be better by the end of the year than the beginning of the year. Now all my remarks don't include anything about the recent events in Ukraine and Russia. Hopefully, that gets over sooner. So that's on the automotive side. On the security side.

We continue to see more and more people asking about security and trying to figure out how they can simplify and scale their security needs. And for us, we have to continue to stoke the demand creation engine on SentriX as we did last year.

And we're putting a pretty bullish forecast out there this year based on the pipeline and the installed base of opportunities that we see. So what -- we think the demand is there. The underlying demand is there. There are factors like the silicon shortage and geopolitical events that would tend to suppress that demand.

But overall, we're preparing to have the demand be ready to be fulfilled..

Okay. That's really helpful. And just a clarification on the gross margin outlook for 2022. You mentioned mid- to upper 50% range.

Do you think you'll be able to hang in that range every quarter this year? Or is that for the full year?.

That's a full year margin outlook. Our sales are lumpy enough so that we can have some pretty wild movements from a volatility standpoint. But for the full year, that's what we're thinking..

Yes. And then Jaeson, the margin can change, whether we sell something direct or through a channel partner. We also can deal with currency fluctuations in the quarter, depending on which subsidiary has inventory, when an order was booked. All that stuff tends to cancel in the wash for the year.

But on a quarter-to-quarter basis, it adds a little more volatility..

Okay. That makes sense. Then just the last one for me, and I'll jump back in the queue. Just curious how you're thinking about the supply chain. Obviously, it's tight for everyone.

And I guess, specifically, have any of your customers pushed back on the price increases?.

So I think 2 questions there. I think most customers understand the price increase. They're seeing the same silicon increases that we're seeing. They're seeing the same freight increases we're seeing. They're seeing the same steel and aluminum increases that we're seeing.

So I think fundamentally, nobody likes a price increase, but I think they all understand it. The supply chain, again, we got out in front of this mess a little over a year ago with the decision to extend our purchase commits.

As shortages come in -- and literally, new ones come in every day, it's given us the time to work them so that their impact is not felt on the production floor. And I'll give you a good example.

If we're out 6 months on a key product and then someone comes in and says, "Well, now our lead times have gone from 4 weeks to 7 months." We have time to work that issue because we've got some inventory onboard.

And as Joel noticed, we've extended our -- increased our inventory by about $1 million to support the ramp, and we focused that inventory on our products that we believe will be around for quite some time. So the supply chain, I think, is having a bigger impact in our customers.

Their ability to want to add capacity to support their growth is determined by their view of silicon capacity. Some customers are telling us that they want to buy more, and they'll be ready to buy more as soon as they get comfortable with their silicon commitment. So I think it's really impacting our customers more than Data I/O.

As I mentioned earlier, we believe we got one order directly attributable to the fact that we could support a customer and a competitor could not..

Our next question comes from [John Swanson] with Mountainside Capital..

Congratulations on a good quarter and a good ramp into the next fiscal year. Jaeson touched on a lot of the questions around the supply issues. I'll just bore down, if I could.

Are there any particular areas where the bottlenecks are still severe that you believe -- I think, Anthony, you mentioned your hope -- I'll put air quotes around the word hope, that the supply chain issues ease before the end of this calendar year.

But any potential -- any bottleneck areas that we should be focused on and that you're trying to work through right now?.

[John], nothing in particular. I mean literally, if you come in and talk to our operations team, every day, you would get a different answer to that question, depending on which supplier comes in and says, oh, we just extended lead times or there's a new price.

Or for example, our freight forwarder got -- had a cybersecurity incident, so no property moves for a few days. Stuff like that is happening all the time, and it's under the covers because our operations team is very experienced. And we do have this resilient supply chain. We can build in Redmond, we can build in Shanghai.

And the reason our customers have not seen an extension of lead times is because of all those factors. And at some point, I think they do appreciate it. But the macro environment, we believe, from what we read -- and we read the same sources everyone else can read. We think it just gets slowly better throughout the year.

There's not going to be one time where you wake up and go, oh, today, we've announced that the silicon shortages are over. It's just gradually, we expect that we'll see fewer shortages, fewer demands for increases, fewer reschedules, fewer issues with freight forwarders, et cetera, et cetera, and it will slowly get back to normal.

But don't expect someone to just pronounce that it's over at some point..

Okay. A couple of other just brief questions, if I may. Inflation, you've talked about the price increases in December.

Just is there a broader impact on your business that we should be aware of and that you're trying to work through?.

No. I think we talked about it. We're trying to catch up to the increases in COGS that we saw throughout the year. We're not the only one in our industry. I was able to understand, from public announcements and other research, that most of our competitors have also put through a price increase. We're seeing price increases in programming centers.

Look, this is just an industry-wide phenomenon. Everybody is understanding it. It is interesting because you have to be a certain age to remember what inflation can do, and we'll see what happens overall in the global economy. My message to investors is we're on top of it. We will respond quickly. We're not locked into doing this annually.

If we need to do it more than once a year, we'll do it in terms of selective increases. And if it turns around, and we don't have to do any further increases, that would be great, too. But we've had to put in place some systems on monitoring pricing almost continuously on our supply chain just to make sure we're not getting any surprises..

Got it. And just one last one, if I could. You've had some excellent additions to your Board of Directors.

Anything in particular that was driving those additions?.

Well, I think -- as I mentioned in my prepared remarks, you bring in someone -- both new additions bring in additional external perspective in our target markets in automotive, security. Both are experienced in public company governance. We've had a chance to work with and cast a very broad net.

As I mentioned, we started a process, and I want to thank our Head of our Nominating and Governance Committee, Sally Washlow, for really driving an excellent process here over the past year. And it's just a case where we think we're bringing in some new thinking, some broader domain expertise.

At the same time, we've had some excellent stability on the board, and a number of our Board members have been serving for a long time with distinction..

[Operator Instructions] Our next question today will come from David Kanen with Kanen Wealth Management..

Congratulations. Yes. First, just comment on Ed Smith. Congratulations. We were actually investors in SMTX. I've gotten the opportunity to meet with him and get to know him, and he's a rock star. And again, congratulations on having him join the Board. I think he'll be a great addition. Very excited about that.

In the prepared remarks, I missed a couple of things. I'm a little bit under the weather today. My apologies. I had a medical procedure, so excuse me if I'm sounding a little bit loopy here. But on the recurring revenue, it sounded like you gave a guide or a target of where you see it. Can you just reiterate that both -- I thought you said over 50%.

And then the bookings growth, you sort of gave directional guidance.

Can you just reiterate that for me, please?.

Yes. For the long-term goals and view of the company -- and this is out 5 years. Our goal or view of the future is that we would like our consumables and recurring revenue to be at 50% of our consolidated revenue. So that's a longer-term view, but that's the direction we're aiming. With regard to bookings.

We said that for 2022, we were looking for growth in excess of 10%, with SentriX up over 100%. And then from the standpoint of our long-term view is, we believe that there's going to be a decade-long double-digit growth rate in the automotive electronics, semiconductor. And that's going to drive similar growth for Data I/O..

Okay. And then -- so to just drill down on that commentary a little bit. That directional guidance, if you will, is it partially based on orders, order growth or bookings growth that you've seen thus far in Q1? I mean we're almost 2/3 of the way through.

Did that -- did the bookings momentum in Q1 carry through and give you the confidence to come out with that data point -- or that guidance, rather?.

Yes. So Dave, this is Anthony. Let me comment on it. So on the long-term items, I think we've been -- we're reiterating what we said, I believe, multiple times before. Look, the auto electronics industry is growing. It's in a long-term bull market for silicon adoption. We program the silicon. We are the largest automotive silicon programming company.

60% almost of our business goes into automotive electronics. We understand that industry. So that's really where the long-term, double-digit growth that we've talked about several times comes from. I think for the year, we're just sharing with you our targets that we established back in late December.

I'm not going to comment specifically on Q1 one way or the other. As I said earlier, I mean, we're -- there's nothing in our start, which would indicate one way or another that we're going to change our guidance for the year. The Q1, typically, you've got to get through March because that's when everybody is back.

But as I said earlier in the call, I like where we are right now. What I don't want to do is get into the habit of looking at weekly bookings or things like that and tweaking the long-term numbers.

We arrived at the long-term forecast based upon what the silicon guys are telling us, what our customers are telling us, what you can read as well and look at all the data sources on the adoption of EV, which spikes the growth in automotive semiconductors.

The only thing on the long-term area that we have to think about that could give us pause on a shorter horizon are things that suppress demand, such as shortages, such as geopolitical events. We really have no impact on the geopolitical events. We can't influence that.

What we've done is try to influence our own behavior on the silicon shortages to make sure we're prepared to satisfy demand that's out there. And hopefully, our customers have done the same thing. The demand is there. We believe it's there. We'll see it materialize.

And hopefully, as the silicon shortages abate throughout the year, that picture becomes even clearer for everybody..

Okay.

And then the commentary about SentriX growing over 100%, was it a 7-figure business in 2021 or still 6-figure?.

We haven't broken out the SentriX revenue yet, Dave. We're not going to do that most likely this year, but it was more of a comment on the momentum we've seen in the business and our view of what we can do in 2022..

Okay. And then, Joel, can you comment or give us a little color -- a little more color on the recurring revenue and the margin profile there? How it compares to systems? It's -- you're saying it's going to grow to ultimately over 50% of the business.

Is it a 60% gross margin business? Or is it below systems?.

It's mixed. But on average, it will bring up to above the current high 50s rate. So we feel good about that in helping our 60% longer-term goal..

Okay. And then also, if you could just throw in a comment about SentriX and the margin profile..

So SentriX is a little harder to say. So when you look at the pay-per-use piece, that's a very high margin piece because of the way that that's some depreciation and things like that.

If you're selling a SentriX machine, that's generally something where, depending on whether there's pay-per-use aspects or software licensing aspects, it would be different. Generally a higher-margin profile, but it'd be very hard at this point to really narrow that down to a forecast..

Okay. But it is higher.

Whether it's by part or system, it's still higher than the overall?.

Yes. I think, Dave, just to kind of summarize Joel's point, more recurring revenue and more SentriX is favorable for the margin..

Okay. And then last question, I'll go back into queue. I noticed that total operating expenses were down year-over-year a little bit. I think it was a little over $100,000. Is that something you're going to hold the line on? I would love to see you guys, as revenues increase, start to show the leverage inherent in your financial model.

So should we -- will that pretty much remain where it is? Or are we going to see OpEx creep throughout the year?.

I really am trying to model something that's relatively flat with the exception of anything that has to do with some inflationary pressures and the fact that sales volume, in particular, channel commissions and the mix, can make a pretty big difference in our expected operating expenses..

Yes. So Dave, think raises, think -- probably not going to add too much headcount. And then with revenue growth, there's always the growth in the sales expenses and --.

Commissions..

Commissions and other performance-based compensation..

Ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Anthony Ambrose for any closing remarks..

Well thank you, operator. With no further questions, before we close the call, I'd like to thank everyone for joining us today and their support throughout the year. We look forward to participating in the Maxim Group's second annual Virtual Growth investor conference in late March before our first quarter report in late April.

We'll also be at embedded world, which was planned to be for March. That will get pushed to the second quarter. And for those of you that normally attend embedded world, you've probably seen the change in the schedule there. With that, I'd like to conclude today's call. Thank you very much..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..