Earnings Call Transcript - DAIO Q4 2021

Operator, Operator

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

Jordan Darrow, Investor Relations

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.

Anthony Ambrose, President and CEO

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 for Data I/O because the semiconductor content per vehicle in an EV is forecasted to be about three times 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, 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 an 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 six, with five 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?

Joel Hatlen, Chief Operating Officer and Chief Financial Officer

Thank you, Anthony, and good day to everyone. I'd like to begin by discussing a summary of 2021, our guidance for 2022, and our long-term goals. In 2021, revenue increased by 27% compared to 2020. Our gross margin improved by 4 points from the previous year, reaching the high end of our target range in the mid to upper 50s. Automotive sales accounted for 58% of our total sales, demonstrating strong growth. Consumables also saw a significant increase, making up 30% of our revenue, marking a record year, and we have returned to positive adjusted EBITDA. For 2022 guidance, we anticipate bookings growth exceeding 10%, with SentriX growing over 100%. Automotive will remain our primary target market, and we expect consumable revenues to increase as a percentage of total sales. Our gross margin is projected to stay in the mid- to upper 50s range, with price increases in line with economic trends. We expect adjusted EBITDA growth for the year. Looking at our long-term perspective, we foresee decade-long double-digit growth in the automotive electronics and semiconductor markets, which should drive similar growth for Data I/O. Our goal is for 50% of consolidated revenue to come from recurring sales, which includes software, services, and consumables. SentriX's growth rate continues to surpass traditional programming revenues, tapping into a much larger market opportunity as security becomes increasingly important. Our target for gross margin is to rise above 60%, with adjusted EBITDA, net income, and cash flow benefiting from higher revenues and better margin performance. Overall, our financial performance in 2021 has shown meaningful growth in revenues and bookings, alongside a return to adjusted EBITDA profitability. We have managed our operating expenses effectively while maintaining a strong balance sheet to support our R&D and growth initiatives. Now, let's take a look at the financial results. In the fourth quarter of 2021, net sales were $6.4 million, representing a 29% increase from $4.9 million in the same quarter last year. We believe the constraints from customer supply chains and silicon parts shortages continue to impact our performance. However, our fourth-quarter revenues were the highest since 2018. Our revenues were nearly double the backlog at the end of the third quarter, and bookings for the fourth quarter were slightly less than the revenues for the same period. Recurring revenues again proved significant, and as the industry continues to recover from artificial demand suppression, we expect our top-line growth to improve alongside higher equipment sales, enhancing our operational leverage. In response to inflation, we announced price increases in December, ranging from 6% to 8%, and we plan to stay proactive in adjusting our prices to manage ongoing costs. Fourth-quarter revenue growth benefited from higher adapter sales as our installed base of machines worldwide was utilized more extensively. Adapter sales are a form of consumable income and represent recurring revenue, along with licenses, software sales, and service maintenance revenues. In the fourth quarter of 2021, recurring and consumable revenues accounted for $2.9 million, or 46% of total revenues, compared to $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 constituted $10.8 million, or 42% of the total in 2021, up from $8.8 million, or 44% in 2020. Geographically, 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, higher than $5 million in the third quarter of 2021 and $6 million in the fourth quarter of 2020. We believe the fourth quarter benefited from a COVID recovery and improvements in customers' supply chain issues. Adapter bookings for the fourth quarter also remained strong at $2 million, up from $1.7 million in the third quarter of 2021 and $1.6 million in the fourth quarter of 2020. The backlog on December 31, 2021, was $2.9 million, down from $3.3 million at the end of the third quarter and $3.9 million at the end of the fourth quarter of 2020. This decrease in backlog alongside stronger bookings reflects our planning and purchasing efficiencies, as well as improvements in our manufacturing throughput. Deferred revenues grew to $1.7 million from $1.4 million at the end of the third quarter and $1.2 million at the end of the previous year, mainly due to a PSV system being delivered, though final acceptance was not yet completed. In the fourth quarter, our gross margin as a percentage of sales was 54.4%, compared to 47% in the same period last year. For all of 2021, our gross margin stood at 57%, up from 53.2% the previous year. The company saw an impairment charge related to obsolete inventory in the fourth quarter of 2020. Excluding that charge, the adjusted gross margin for the fourth quarter of 2020 was approximately 52.9% and 54.7% for the full year. The margins for the fourth quarter of 2021 would have been even stronger without the pressure from cost inflation, which prompted us to adjust our prices in December. Overall, the higher margins in 2021 were primarily due to an improved product mix and greater sales volume relative to fixed factory costs. Operating expenses in the fourth quarter of 2021 were $3.7 million, down from $3.9 million in the third quarter and $3.8 million in the fourth quarter of 2020. Total operating expenses for the year were $15 million, compared to $13.9 million or $13.2 million excluding one-time items in the prior year. The differences in operating expenses were mainly due to increased sales volume commissions related to channel mix and the higher demand for programming equipment, as well as performance-based incentive compensation. Research and development expenses remained relatively stable at just over $1.6 million for the fourth quarter and $6.6 million for the year, compared to $1.6 million and $6.4 million for the fourth quarter and full year of 2020, respectively. As we continue to invest in enhancing our products, we expect operating expenses to remain steady, with variances primarily linked to sales commissions tied to volume and channel mix, alongside variable incentive compensation. In terms of taxes, adjustments were made to foreign taxes with no U.S. income tax incurred. In the fourth quarter of 2021, we reported a net loss of $205,000, or $0.02 per share, compared to a net loss of $1.6 million, or $0.20 per share in the same quarter of 2020. For the entire year, we had a net loss of $555,000, or $0.06 per share in 2021, significantly down from a net loss of $3,964,000, or $0.48 per share in 2020. Throughout these periods, we have faced foreign currency transaction losses, and in 2020, we incurred a substantial one-time impairment charge, as previously mentioned. As of December 31, 2021, we had 8,621,007 shares outstanding. Regarding our balance sheet, our days sales outstanding, a measure of receivable collection, remained at or below our target, standing at 46 days as of December 31, 2021. Net working capital was $18.5 million, up slightly from $18.1 million at the end of the prior year. Our inventory reached $6.4 million on December 31, 2021, about $400,000 higher than at the end of September and nearly $1 million more than at the end of the previous year. This increase reflects our anticipation of revenue growth and our ongoing efforts to mitigate risks in our supply chain by maintaining higher stock levels of key products. Data I/O's financial position is stable, with cash remaining at $14.2 million as of December 31, 2021, unchanged from the prior year and the end of September 2021. Throughout the year, we accrued certain costs and compensation items related to being a public company, which are typically paid in the first quarter of the following year. In summary, we remain in a strong financial position with no debt, and our resilient supply chain strategy, combined with our financial strength, provides us with significant competitive advantages as a well-capitalized supplier and reliable producer in the global programming industry. That concludes my remarks, and I will now turn the call back to the operator to start the Q&A segment.

Operator, Operator

Our first question today comes from Jaeson Schmidt with Lake Street.

Jaeson Schmidt, Analyst

Could you discuss what you've observed regarding order patterns so far in Q1 and what contributes to your confidence in a strong bookings outlook for 2022?

Anthony Ambrose, President and CEO

Well, Jaeson, I think a couple of things. Q1 is always evaluated at the end of March after Chinese New Year. That being said, we're off to a good start this year. Our long-term outlook regarding the growth of semiconductors in the auto industry remains unchanged. Last year, there were 7 million units unfulfilled, and we anticipate unit growth of 6% to 7% in the automotive sector this year in addition to increases in silicon per unit. The underlying demand in automotive appears strong, and the question now is whether the impact of the silicon shortage will diminish. We believe it will improve throughout the year. While it's uncertain if it will completely resolve by year's end, things should be better by then compared to the beginning of the year. My comments don't factor in the recent events in Ukraine and Russia, which I hope will resolve soon. Regarding the security sector, we are seeing increasing interest from customers looking to simplify and scale their security needs. We must continue to drive demand for SentriX as we did last year, and we're optimistic based on the pipeline and the installed opportunities we observe. We believe the demand is present, although factors like the silicon shortage and geopolitical issues could suppress it. Overall, we're preparing to fulfill the anticipated demand.

Jaeson Schmidt, Analyst

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?

Joel Hatlen, Chief Operating Officer and Chief Financial Officer

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.

Anthony Ambrose, President and CEO

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.

Jaeson Schmidt, Analyst

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?

Anthony Ambrose, President and CEO

I believe there are two points to address. Most customers grasp the reasons behind the price increase, as they are experiencing the same rises in silicon, freight, steel, and aluminum costs. While price increases are generally unwelcome, there is an understanding of the situation. Regarding the supply chain, we proactively prepared for potential issues over a year ago by extending our purchase commitments. As new shortages continue to emerge daily, this proactive approach allows us to mitigate their effects on production. For instance, if we're six months out on a critical product and receive notice that lead times have shifted from four weeks to seven months, our existing inventory gives us the flexibility to manage that challenge. Additionally, we've increased our inventory by about $1 million to support the ramp-up, focusing on products we anticipate will be in demand for the long haul. The supply chain challenges are having a significant impact on our customers; their willingness to enhance capacity for growth relies on their confidence in silicon availability. Some customers have indicated their intention to increase orders once they feel secure about their silicon supply. Thus, these challenges are affecting them more than they are impacting Data I/O. As noted previously, we believe we secured one order specifically because we were able to meet a customer's needs when a competitor could not.

Operator, Operator

Our next question comes from John Swanson with Mountainside Capital.

Unidentified Analyst, Analyst

Congratulations on a successful quarter and a solid start to the next fiscal year. Jaeson addressed many of the questions regarding the supply issues. I’d like to delve a bit deeper. Are there specific areas where the bottlenecks remain significant? Anthony, you mentioned your hope that the supply chain challenges will improve before the end of this calendar year. Are there any particular bottleneck areas we should be aware of that you're currently addressing?

Anthony Ambrose, President and CEO

Nothing specific. If you were to speak with our operations team daily, you would receive varying answers to that question based on which supplier comes in and mentions extended lead times or new pricing. For instance, we recently experienced a cybersecurity incident with our freight forwarder, which halted property movement for a few days. These types of events occur frequently but are managed effectively by our experienced operations team. We have a resilient supply chain and can manufacture in both Redmond and Shanghai. Our customers have not experienced extended lead times due to these factors, and we believe they recognize this to some extent. From our analysis of the macro environment, we anticipate a gradual improvement throughout the year. There won't be a definitive moment where we announce the end of silicon shortages; instead, we expect a slow reduction in shortages, demands for price increases, rescheduling issues, and freight forwarder challenges, returning us to normalcy over time. However, don't expect a formal announcement to signal that it's all over.

Unidentified Analyst, Analyst

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?

Anthony Ambrose, President and CEO

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 ones 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.

Unidentified Analyst, Analyst

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?

Anthony Ambrose, President and CEO

I believe, as I mentioned earlier, that the new additions provide valuable external perspectives in our target markets, particularly in automotive and security. Both individuals have significant experience in public company governance. We have taken the time to evaluate a wide range of candidates. I want to express my gratitude to Sally Washlow, our Head of the Nominating and Governance Committee, for successfully overseeing this process over the past year. We feel that these new members will bring fresh ideas and broader expertise. At the same time, our board has maintained strong stability, with several members having served for a long time with great distinction.

Operator, Operator

Our next question today will come from David Kanen with Kanen Wealth Management.

David Kanen, Analyst

Congratulations. First, I'd like to acknowledge Ed Smith. We were investors in SMTX, and I've had the chance to meet him and get to know him, and he's exceptional. Congratulations on having him join the Board; I believe he will be a valuable addition. I'm also a bit under the weather today due to a recent medical procedure, so I apologize if I seem a little off. Regarding the recurring revenue, I believe you provided a target; could you please reiterate that? I thought you mentioned it would be over 50%. Additionally, you gave some guidance on bookings growth; could you clarify that as well?

Joel Hatlen, Chief Operating Officer and Chief Financial Officer

Yes. For our long-term goals and outlook, which we’re looking at over the next five years, we aim for consumables and recurring revenue to represent 50% of our total revenue. This is a long-term perspective, but it reflects our target direction. Regarding bookings, we projected over 10% growth for 2022, with SentriX expected to exceed 100% growth. Furthermore, we anticipate a decade of double-digit growth in the automotive electronics and semiconductor sectors, which will similarly benefit Data I/O.

David Kanen, Analyst

Okay. To further explore that commentary, is your directional guidance partially based on the orders, order growth, or bookings growth you've experienced so far in Q1? We're nearly two-thirds of the way through the quarter. Did the bookings momentum in Q1 continue and provide you with the confidence to release that guidance?

Anthony Ambrose, President and CEO

Yes. This is Anthony. Regarding the long-term items, we are reiterating what we have previously stated multiple times. The auto electronics industry is growing and is in a long-term bull market for silicon adoption. We program silicon and are the largest automotive silicon programming company, with nearly 60% of our business focused on automotive electronics. We have a strong understanding of the industry, which is the source of the long-term, double-digit growth we have mentioned before. For this year, we are sharing our targets established back in late December. I will not comment specifically on Q1 at this point. As I mentioned earlier, there is nothing in our current situation that suggests we will change our annual guidance. Typically, you need to get through March, as that’s when everyone returns. However, I feel good about our current position. I prefer not to adjust our long-term numbers based on weekly bookings or similar fluctuations. Our long-term forecast is based on insights from silicon suppliers, our customers, and various data sources regarding EV adoption, which drives the growth in automotive semiconductors. The only potential concern for the short term relates to factors that could suppress demand, like shortages or geopolitical events, which are beyond our control. We have focused on managing our response to silicon shortages to ensure we can meet the existing demand. Our customers are expected to be in a similar position. We believe the demand is strong and will become more apparent as silicon shortages diminish throughout the year.

David Kanen, Analyst

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

Anthony Ambrose, President and CEO

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.

David Kanen, Analyst

Okay. Joel, can you provide some insights on the recurring revenue and the margin profile? How does it compare to systems? You mentioned it will grow to over 50% of the business. Is it a 60% gross margin business, or is it lower than systems?

Joel Hatlen, Chief Operating Officer and Chief Financial Officer

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.

David Kanen, Analyst

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

Joel Hatlen, Chief Operating Officer and Chief Financial Officer

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.

Anthony Ambrose, President and CEO

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

David Kanen, Analyst

Okay. And then for my last question, I'll go back to the queue. I noticed that total operating expenses have decreased slightly year-over-year, by just over $100,000. Are you planning to maintain that level? I would really like to see your team begin to demonstrate the financial leverage as revenues grow. Should we expect operating expenses to stay around this level, or will they increase as the year progresses?

Joel Hatlen, Chief Operating Officer and Chief Financial Officer

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.

Anthony Ambrose, President and CEO

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

Joel Hatlen, Chief Operating Officer and Chief Financial Officer

Commissions.

Operator, Operator

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.

Anthony Ambrose, President and CEO

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.

Operator, Operator

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