INVE - NASDAQ

Good afternoon. Welcome to Identiv's presentation of its First Quarter 2025 Earnings Call. My name is Tom, and I will be your operator this afternoon. Joining us for today's presentation are the company's CEO, Kirsten Newquist; 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 non-GAAP adjusted EBITDA, non-GAAP gross profit, non-GAAP gross margin and non-GAAP operating expenses. In addition, during the call, management will be making forward-looking statements. Any statement that refers to expectations, projections or other characteristics of future events, including future financial results, future business and market conditions and opportunities and future plans, strategies, opportunities and goals 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 as well as our first quarter 10-Q once filed. Identiv assumes no obligation to update these forward-looking statements. I will now turn the call over to CEO, Kirsten Newquist, for her comments. Ms. Newquist, please proceed.

Thanks, operator. And thank you all for joining our quarter one 2025 earnings call. Strong macro trends continue to drive demand for RFID and next generation technologies like BLE despite ongoing disruption and uncertainty in the global market. More than ever, companies are benefiting from adding a digital identity to their physical products, unlocking intelligence to address critical industry and business challenges. The rapid expansion of IoT connected devices, increasing regulatory requirements, heightened security and anti-counterfeiting measures and the growing focus on sustainability are key drivers of this digital transformation. Identiv's specialized RFID and BLE tags, inlays and labels provide for the digital identification of products, enabling physical objects to seamlessly link with the cloud and other digital solutions. This connectivity delivers compelling benefits such as real time tracking and visibility, enhanced product security, condition monitoring and compliance and more engaging customer experiences, all especially vital in today's challenging macro environment. While we came in slightly above our quarter one guidance, delivering $5.3 million in net revenue and our core business remains on track, we anticipate continued market uncertainty and high volatility for the foreseeable future. We are closely monitoring risks related to shifting trade policies and a softening global GDP outlook. Approximately a quarter of our business is exposed to US import tariffs due to our manufacturing footprint in Thailand and Singapore. We are actively pursuing potential tariff exemptions, developing a responsible pass through strategy to protect margins and preparing for multiple scenarios should reciprocal tariffs resume after the current pause. The potential indirect effect on customer demand, especially in more discretionary segments is less clear. Justin will speak to this topic in more detail shortly. Now turning to our first quarter business update. Since the start of the year, we have fully shifted into execution mode of our perform, accelerate and transform growth strategy and go-to-market plan. As we've discussed, the objective of P-A-T is to strengthen and optimize the performance of our core channel business, accelerate our growth through focused key initiatives in high value applications and ultimately transform the business into a market leader in specialty IoT solutions. In the first quarter, we welcomed new team members across our sales, marketing and R&D organizations, adding important capability and energy. We launched our new portfolio of dual frequency inlays, ID-Brain, and advanced several key new product development, NPD, programs and business development initiatives in support of our accelerate strategy. We continued strengthening our relationships with our channel customers and partners, transitioning from a traditional supplier approach to a more collaborative partnership model. Operationally, we made solid progress on the transition of production from Singapore to our lower cost facility in Thailand. Following successful quality audits and the completion of required qualifications, we received formal approval to begin production in Thailand for the final three customers still being served from Singapore. We are now focused on completing their remaining orders and expect to conclude Singapore based production by the end of quarter two or shortly thereafter. In April, we announced the new strategic partnership with Tag-N-Trac, a full-stack IoT platform provider for real time supply chain visibility and traceability to develop and bring to market specialized IoT solutions for cold chain tracking within the pharmaceutical industry supply chain. The partnership combines our advanced BLE smart labels with Tag-N-Trac's Relativity SaaS platform offering pharmaceutical customers an integrated IoT solution that delivers item level visibility and actionable insights from origin to delivery. We are excited to partner with Tag-N-Trac to advance the adoption of BLE solutions in the pharmaceutical industry. Additionally, yesterday, I attended the RFID Journal Live Show in Las Vegas with our partner, InPlay. As you may have seen in our announcement last week, we are collaborating with InPlay on a new portfolio of BLE enabled smart labels designed for high value logistics applications. The upcoming smart label portfolio will be powered by InPlay's IN100 NanoBeacon, an ultra low power BLE system-on-chip and is expected to be commercially available in late 2025. We will keep you updated on the product launch of this secure, scalable and smart IoT solution. In summary, despite a challenging macro environment, we believe our customers continue to recognize Identiv's strong value proposition. Our specialized IoT tags, inlays and labels play a critical role in enabling the digital transformation and addressing key industry challenges, trends that we anticipate will continue irrespective of tariffs. As a stand-alone pure play IoT solutions company, we are executing our P-A-T strategic framework with the goal to drive future growth. This includes reinforcing the foundation of our core channel business while expanding through new strategic partnerships and the development of next generation products. I will share more details on these ongoing initiatives following Justin's review of our first quarter financials. Justin?

Thanks, Kirsten. As Kirsten mentioned, our value proposition remains strong. We are working with several new partners, including Tag-N-Trac and the completion of the transition of RFID production from Singapore to Thailand remains on track. We delivered $5.3 million in revenue in the quarter, slightly above our previously announced guidance compared to $6.7 million in Q1 2024. The year-over-year decrease was as expected and due primarily to the exit of low margin business. Gross margin was in line with internal forecasts given the dual manufacturing overhead of our facilities in Singapore and Thailand. First quarter GAAP and non-GAAP gross margin was 2.5% and 10.8% respectively compared to GAAP and non-GAAP gross margin of 7.3% and 13.4% respectively in Q1 2024. The year-over-year decrease in gross margin was primarily driven by the incremental costs related to the transition of production to Thailand and the dual manufacturing sites required during the transition and decreased utilization due to lower year-over-year revenues. GAAP and non-GAAP operating expenses for the first quarter of 2025, including research and development, sales and marketing and general and administrative expenses totaled $5.6 million and $4.5 million respectively as compared to $5.5 million and $4.1 million respectively in Q1 2024. The increase reflects management's targeted investments to support the company's organic growth initiatives as outlined in the P-A-T strategic framework. First quarter GAAP net loss from continuing operations was $4.8 million or $0.21 per basic and diluted share compared to GAAP net loss from continuing operations of $5.4 million or $0.24 per basic and diluted share in the first quarter of 2024. This decrease in net loss was primarily due to strategic review related costs associated with the asset sale of $0.9 million incurred in the first quarter of 2024 that did not reoccur in the first quarter of 2025. Non-GAAP adjusted EBITDA for Q1 2025 was negative $3.9 million compared to negative $3.2 million in the first quarter of 2024. In the appendix of today's presentation, we have provided a full reconciliation of GAAP to non-GAAP financial information, which is also included in our earnings release. Moving now to the balance sheet. We exited Q1 2025 with $132.7 million in cash, cash equivalents and restricted cash. In the first quarter of 2025, we used $3.3 million in cash and restricted cash. Our previously stated expected net operating cash usage for the 12 months following September 30, 2024 remains in the range of $14 million to $16 million as previously disclosed. In the first quarter of 2025, our stock repurchase program was paused due to the elevated macroeconomic uncertainty, and no repurchases were made under them. Our working capital exiting Q1 was $141.5 million. Our balance sheet position remains strong, enabling us to pursue our organic and inorganic growth initiatives within the P-A-T framework. In our 10-Q 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 today's earnings release. Lastly, our financial outlook. In April 2025, the US government announced broad tariffs on product imports from most countries along with elevated country specific tariffs targeting certain others. While the tariffs are not expected to have a material impact on our supply of raw materials and components going into our production facilities in Thailand and Singapore, approximately 25% of our finished goods are imported into the US, either by us or our customers. We expect to pass along the tariffs that we incur on goods that are imported to our customers as a surcharge. We have developed financial models for a variety of tariff scenarios on shipments from Thailand to the US. The situation remains highly fluid and we are preparing for a variety of possible outcomes. As of today's call, for Q2 2025, we currently expect net revenue in the range of $4.9 million to $5.3 million. This concludes the financial discussion. I'll now pass the call back to Kirsten.

Thanks, Justin. With that financial context in mind, I'd like to share an update on the progress we are making under our perform, accelerate and transform strategic framework. As the adoption of RFID based solutions continues to grow, new applications increasingly require more advanced and complex RFID designs to ensure successful implementation and widespread market adoption. Identiv's strengths in engineering excellence, rapid prototyping capabilities and agile manufacturing processes uniquely positions us as a partner of choice to support these types of complex requirements. By executing our P-A-T strategic framework across several key verticals, we aim to drive revenue growth and expand gross margins and EBITDA. Now let me walk you through the progress we have made on each of the three pillars. Our first pillar perform is focused on strengthening and growing our core channel business. To achieve this, we are prioritizing higher margin opportunities with existing customers and channel partners, expanding gross margins by completing the transition to Thailand and focusing on executing our NPD pipeline with discipline. Our goal is to consistently exceed customer expectations through exceptional support and reliable on-time delivery. Our new sales leadership is in place and in a short amount of time has already had an impact on the company and its culture. Kim Macaulay, our new commercial leader, has brought a strong customer centric approach and has prioritized in-person visits for herself and her sales team to build a deeper connection and to gain an even better understanding of our customers' pain points. Kim understands the importance of building and maintaining strong relationships to ensure Identiv's success, recognizing that outstanding service paves the way for future projects and growth. Since joining Identiv, Kim has met face-to-face with many of our largest customers and key suppliers. During these visits, she heard consistent praise for our ability to design custom products that address complex requirements as well as for the connections we've built with our customers. She also received valuable feedback on areas where we need to improve, insights that are critical as we continue to raise the bar on service excellence. We continue to advance the development of our NPD pipeline, which plays a key role in driving business growth. We are utilizing the new stage gate process to ensure we are allocating our resources on those projects that are best aligned with our strategy and have the highest potential for success. We are working on numerous active projects, both customer driven and internally driven. In the past quarter, we made progress with the projects in the pipeline and added several new ones, including an RFID inlay for a smart home device and the development of the next generation Wiliot battery free BLE device. Moving to the second pillar of our P-A-T framework, accelerate. We are executing against three specific growth initiatives to build our pipeline and drive future revenue and margin expansion: one, the expansion of our BLE and multi-component MCL platform; two, driving growth in three healthcare high value applications; and three, driving growth in three consumer and logistics high value applications. Beginning with BLE and MCL expansion, we are making solid progress. As we've discussed, BLE is the next generation technology for IoT, providing significant benefits for applications that are challenging to address with traditional RFID technologies. Over the past several months, we have seen growing interest for specialized BLE labels spanning pharmaceuticals, healthcare, logistics and asset tracking applications. We have several significant projects in our pipeline, including the food logistics project previously mentioned and an industrial track-and-trace application, all with the potential to improve business efficiency through the analytics they generate. Their complexity in both design and manufacturing aligns well with our engineering strength and differentiates us competitively. As mentioned in my opening remarks, we've announced a strategic partnership with Tag-N-Trac and our collaboration with InPlay to develop a new BLE smart label portfolio utilizing InPlay's BLE chip. These partnerships directly support our BLE road map and reinforce our position at the forefront of BLE innovation. To support these projects and other opportunities under active discussion, we have added resources to our R&D team in Germany to support the critical development work in this area. We are highly encouraged by the momentum we are seeing in BLE and the increasing interest from the market. The second and third accelerate initiatives are focused on driving growth in six high value and high volume applications, three in health care, two in consumer and one in logistics. For these initiatives, we have added business development and product management resources to develop the market through strategic partnerships and direct commercial OEM relationships and ensure our product roadmap supports the specific requirements for these applications. Strategic partnerships play a key role in the development and implementation of solutions for these high value applications. As discussed on our last call, we have partnered with Novanta to jointly market our combined solution for medical device and life science OEMs. Our advanced RFID inlays, tags and labels provide the digital identity for critical components and consumables used in smart medical devices, advanced diagnostics and wearable devices. Novanta's ThingMagic reader modules and APIs analyze the data produced by our tags to enable authentication of consumables, medication compliance and calibration for diagnostic test components. Together, we are helping OEMs bring next generation products to the market faster, advancing patient care and safety. Our strategic partnership with InPlay to develop BLE smart labels represents a meaningful step toward enabling high value IoT logistics applications. These labels are being designed with scalability in mind to provide customers with a smart, cost effective solution that can expand as needed and adapt to support a range of logistics for high value products. In smart packaging, we are partnering with

[Operator Instructions] And the first question today is coming from Rian Bisson from Craig-Hallum.

It's Rian on for Tony Stoss. Thanks for all the information again, Kirsten. So just first, just kind of looking at tariffs. I know you mentioned a 25% direct impact. I'm curious maybe not quantify but a little more information on what you're seeing, I guess, from some of the customers in your pipeline in terms of caution or just kind of more of an indirect impact that you think from tariffs. Just any more color there would be helpful.

I mean, in terms of indirect impact, we've gotten some concerns from customers, for sure, but we haven't seen outside of just maybe a couple of minor things. We haven't seen any significant impact from customers at this point. But obviously, there's a lot of uncertainty, things are changing all the time. And so I think there's a little bit of a let's wait and see what actually sticks and what actually happens. But certainly, kind of with the initial set of reciprocal tariffs that were announced that was pretty challenging. And there is definitely a lot of uncertainty and caution in the market at this point.

And then it's nice to say that some more wins come through from the pipeline this quarter, I'm actually looking back to last quarter as well. I just wanted to see if there is maybe any change or hopefully still the same time line on that grocery logistics deal. I believe it was, I think, trial in Q4 and then maybe mid 2026, it could go live? Is that still tracking?

That's tracking, that's what -- our customer is definitely pushing for that. It's a complex project. The manufacturing process still is being developed but that is what the strong push is. So end of the year kind of a decent initial order for some trials and proof of concept and then really going live towards the middle of next year.

[Operator Instructions] Your next question today is coming from Craig Ellis from B. Riley.

This is Stacy on for Craig. And Kirsten, I was wondering since last time when we announced about the transition from Singapore to Thailand that there were some smaller volume, a little margin mix out and also some bigger customers with one that we're not bringing over to Thailand. And where do we stand right now in mixing out that business and how much of both of those are in the future guidance?

So look, we've already made some of those mix outs as you're saying and some of that is reflected already this quarter, and it's definitely reflected in our quarter two guidance. And yes, the transition, though, going from Singapore to Thailand is continuing to make really strong progress and we're pushing as hard as we can to get everything done by the end of the quarter.

And maybe with the 75% volume in Thailand, if I'm remembering it correctly, where are we now with Thailand's volume as a percentage of total and then how are you feeling about the yields with production and operations? And how do we feel about the executive to get to the adding 27%-ish of gross margin in 4Q, is that still a good number?

Well, I'll let Justin speak to the gross margin target. But just to start with the transition, yes, the transition is going very well. We've definitely got over 75% of the volume now transitioned over to Thailand. The team is getting up to speed. The Singapore resources who've been running the product for many years are spending time over in Thailand to ensure that the team in Thailand is getting up to speed. I think we're generally seeing that kind of the yields and the efficiency is getting very close to what they had after years of experience with Singapore. So we think it's going very well, I guess, long story short. And we still have the three big customers that we are serving in Singapore. But as I said, we expect, we've gotten all the audits complete now in Thailand. We've done all the qualifications. And we're really, at this point, doing all the final last orders in Singapore and we expect to have that done by the end of the quarter. And to the margin question, I'll let Justin answer that.

We hold any guidance or indications of margin for the rest of the year, pending the outcome of the tariffs and what's going to happen, because it's under a 90 day review today, that ends in July. So we're going to wait to see where that lands before we give any future guidance on margins for Q4. But as you said that guidance came out because we were anticipating the transition from Singapore to Thailand and that is on track. So I can say, operationally, we're on track. Giving a margin guide for Q4, I'm going to wait and see where the margins play out.

[Operator Instructions] And your next question today is coming from Jaeson Schmidt from Lake Street.

Just given the macro dynamics, did Q1 benefit from any sort of pull-in orders from any customers?

No, I don't believe that quarter one benefited from any pull-ins, no. I mean, just because of our lead times and everything else, it's hard -- outside of some stuff that may be already in inventory, no we didn't see any significant benefit.

And just curious if you could comment on what you're seeing from a kind of quoting activity standpoint or bookings so far here in Q2?

I mean, look, we definitely have heard some concern, of course, from our customers. As I said, I think we've had some very small orders that have been put on hold. But we're seeing -- we're hearing some caution but I think everyone's really honestly waiting to see what happens within this 90 day pause because, obviously, that's really kind of the critical piece at this point. We haven't seen, I think, any significant concerns for quarter two and our guidance reflects kind of any slowdown that we're anticipating. But nothing significant.

[Operator Instructions] And it appears there are no further questions in queue at this time. I would now like to pass the floor back to Kirsten Newquist for closing remarks.

Thanks, operator. And thank you all again for joining the call today. We definitely appreciate the continued support of our customers, partners, shareholders and employees. It was great to feel some of that support yesterday at RFID Journal Live where I got to spend some time with our strategic partners, NXP and InPlay. A few upcoming IR events. We have the B. Riley Conference on May 21st. We have our Annual Meeting of Identiv's stockholders on June 10th. And from a marketing perspective, we have our luxury wine authentication solution webinar on May 28th with our partner