David Isaacs - IR, Sard Verbinnen Jason Hart - Chief Executive Officer Brian Nelson - Chief Financial Officer.

Bryan Prohm - Cowen & Company, LLC. Saliq Khan - Imperial Capital, LLC. Mike Latimore - Northland Capital Markets.

Welcome to the First Quarter 2015 Identiv Earnings Call. My name is Bakiba and I would be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. Please note this conference is being recorded. I'll now turn the call over to David Isaacs of Sard Verbinnen. Mr.

Isaacs, you may begin..

Thank you. With me on the call today are Jason Hart, CEO of Identiv; and Brian Nelson, CFO. In a moment, we will hear remarks from both of them and then we will take questions from sell-side analysts and registered investors.

Before we begin, please note that during this call, we will also be making references to non-GAAP results or projections, including non-GAAP gross margins, operating expenses, and adjusted EBITDA.

A complete reconciliation between each of these non-GAAP measures and the most directly comparable financial measures can be found in today’s press release, which is available on identiv.com. In addition, during our call today, we will be making forward-looking statements.

Any statement that refers to expectations, projections, or other characteristics of future events, including financial projections and future market conditions 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 the documents filed from time-to-time with the SEC, including the Annual Report on Form 10-K for fiscal year 2014. Identiv assumes no obligation to update these forward-looking statements, which speak as of today. I'll now turn the call over to Jason Hart for his comments. Jason..

Focus, partner and grow. Thanks David. Hello everyone. These are the core themes for the business through 2015. During the first quarter we continued to focus the operations of the business and finalize sales structures.

We did put special attention on some of the strategic partnerships and especially international business which we’ll discuss a little bit later on.

While seasonally slow, we did experience unexpected softness in the international desktop reader business and a short delay in the execution of a very important strategic agreement for the company with Cisco caused it to fall into the first part of April.

The Q1 result was compounded by some currency fluctuation headwinds and frankly a decline in some planned obsolescence of legacy products. All of this unfortunately culminated in a result in Q1 that we hadn’t expected.

We were however, very encouraged to see the return of strong performance in our premises business and a good performance in our everyday items products lines. This really was a reflection of the engineering and sales investment that we made in 2014. We saw this take effect in Q1 and has continued into this quarter.

All of these actions, however, have to say were positively over shed out by the culmination of a yearlong investment in the forging of a new and very public strategic relationship with Cisco.

Cisco and Identiv share a similar vision and we've aligned to deliver an infrastructure in a set of connected devices for the emerging opportunities in this thing that we call the Internet of Secure Things.

We expect Identiv products to be available through Cisco some time in Q3, but we've already begun to see a lot of excitement and frankly strong demand from the channels.

Additionally Identiv will be providing the next generation of intelligent building systems to existing Cisco access control customers and integrating some of our leading IoT building sensor systems enabling these customers and new customers to be able to provide greater intelligence about their environments and objects and people within them.

I can’t overstate that this is a transformative relationship for our company. We will have more to come on this over the coming quarters, but it is extremely exciting for us and we've really invested heavily in the last 12 months to get there. It would be remissive to me to not mention our existing relationship with Verizon.

Verizon has continued to grow and we've continued to rollout new projects. It’s been a little slower than hoped, but the activities with Verizon continue to be very solid. Our relationship with Verizon have been asked a few times is extremely complimentary to our relationship with Cisco.

We actually see real marketing customer synergies by partnering with both Verizon and Cisco. The sales pipeline has also developed strongly over the quarter and the 12 month outlook is positive.

This is supported by a number of new activities, some of which we've published through our Identiv lab’s website, but they include some new projects in toys, which we saw continued demand for wearables where we've won number of new projects, smart batteries, and apparel just to name a few of the new projects that are either or would be under shipped product in too.

This is demonstrating a continued strong demand for our secure IoT technology and the solutions that make that come together, and frankly a demand that did not exist 12 months ago.

Inventions in the quarter, well to me, as many of you know inventions are a recognition of innovation and one of my personal goals for the company has been to drive a high level of innovation and reward for that innovation. During the quarter, I’m very pleased to report that we received four new patents for our inventions.

This continued to recognize the levels of innovation and provide recognition and protection for intellectual property in the new and emerging secure IoT category. We also launched new ideas and projects at the RSI Conference, particularly in the area of privacy and security.

We launched and shipped new products in Q1 including a uTrust sense product which is a very exciting new line of sensor IoT devices that come in the form of cost effective stickers.

We shipped a number of these to some very specific customers and we began to see a high level of excitement in our sales force and our sales pipeline, particularly as people are looking to expand their knowledge of IoT and understand how these sensors can be deployed in a cost effective way.

We also launched a new line of complimentary touch secure IoT building sensors and we really began to see new orders and a lot of interest going into Q2 for this product line. This product line forms a back bone for being able to connect the low cost uTrust sense products into the connective fabric of IoT.

Overall though, I would say our tone for Q1 is humble. While we have spent a lot of time building and stabilizing the operations it is disappointing for us to see some of the revenue activities not materializing. However, much of this was timing or things related to currency fluctuations, and Brian will cover those in just a few moments.

What’s important though is that the book of business and our sales pipeline for Q2 and forward is looking good. And we are now seeing more leads that we’ve ever seen both directly and through our new partnerships.

So this time I would like to turn the call over to Brian, and Brian is going to cover financials and then we’ll come back and answer some questions. Brian..

Thank you, Jason. Now we’ll take a look at our financial results for the quarter. Revenues were $14.9 million, decrease of 11% as compared with the $16.9 million in the first quarter of 2014, a sequential decrease of 23% from the $19.4 million in Q4 of 2014 and note that Q1 is traditionally our slowest quarter of our fiscal year.

Note that the Q1 2015 revenue year-over-year also reflects the impact of foreign exchange as Jason mentioned. Certain of our customer engagements are denominated in that declining Euro. This estimated to have had an approximate $700,000 effect on our comparable number in Q1 2015. Now a few worlds about our segment performance.

Approximately 48% of our first quarter revenue or $7.2 million was derived from sales and our credential segment, our everyday items, which is consistent with the $7.2 million in the first quarter of 2014.

This compares to a sequential decrease of approximately 15% from the $8.4 million revenue in the fourth quarter of 2014 also reflecting the normal seasonality of the business in Q1. We do see strong forward demand from current customers, as well as new projects with brand names and toys, wearables, smart batteries, and apparel.

Our premises segment revenue amounted to $4.7 million in Q1 2015, a year-over-year increase of 35% from $3.5 million in the first quarter of 2014. Premises revenue decreased sequentially by 22% from the $6.0 million achieved in the fourth quarter of 2014.

The increase year-over-year is primarily a result of our renewed focus and investment that we began in 2014 with our U.S. government customers for physical access control solutions.

The sequential decrease again reflects the seasonality of the business in Q1 as well as projects that were anticipated to come to fruition in Q1 that have moved forward based on our customers schedules.

Revenue from our identity products, which again include our smart card readers, reader modules, tokens and our cloud-based credential provisioning, was $2.6 million in the first quarter of 2015, declining 48% over the comparable quarter in 2014 revenues of $5.0 million.

Sequentially our identity product revenue decreased 42% from the $4.5 million in Q4 of 2014. Again, these decreases reflect the weak demand and our legacy international desktop reader business and generally the unfavorable condition in Europe with the unfavorable foreign currency impact and again the typical first quarter seasonality.

Revenue in our other segment which represents sales of digital media and CHIPDRIVE products decreased 58% to $500,000 from the comparable quarter of 2014, but remain the same sequentially from the $500,000 in the fourth quarter of 2014. The decrease year-over-year is due to the decreased demand for the digital media products.

Our non-GAAP gross profit margin was 43% in the first quarter of 2015 an improvement compared to the 41% in the year ago quarter and declined slightly with 44% in the fourth quarter of 2014. The improved margin on the comparable basis is the result of our consolidation of manufacturing facilities that we completed in mid-2014.

The change sequentially is due to the decrease in sales of our high margin premises products, the higher concentration of sales of our credential or everyday item products and lower manufacturing overhead utilization. Now, I’ll turn to our operating expenses.

Our non-GAAP operating expenses in the first quarter were $8.4 million and that compares with $8.3 million in the prior quarter and $9 million in the comparable quarter of 2014.

Our research and development expenses were $1.8 million in the quarter or 12.4% of revenue as compared to $1.4 million in the same quarter of 2014 or 8.4% of revenue and approximate 30% year-over-year increase. This is the result of an ever increasing number of development projects and expansion of our Identiv Labs.

We expect to continue to invest in development projects in Identiv Labs to deliver secure IoT technology and solutions to meet the ever increasing demand by our customers.

Our sales and marketing expenses were $4.5 million or 30% of revenues in the first quarter of 2015 which is a slight increase approximately $100,000 sequentially and a slight decrease of $200,000 over the comparable quarter in 2014.

We do expect that sales and marketing spend will vary quarterly as a percentage of revenue as well as in actual dollars based on the timing of seasonal program events, such as major trade shows as RSA, Jason mentioned as well as our variable sales compensation.

Our G&A expenses were $2 million in the first quarter of 2015 or 13.5% of revenues as compared to the $2.9 million or almost 17% of revenues in the comparable quarter end 2014. This is an approximate 29% decrease in dollars spent year-over-year. G&A also decreased sequentially by approximately $200,000 or 6%.

These decreases are primarily due to the cost reduction measures we enacted throughout 2014 with the consolidation of our corporate finance into the U.S. among other things.

Our non-GAAP operating expenses in Q1 2015 exclude charges for stock based compensation, restructuring charges in addition to other items, normally excluded from our non-GAAP results. I’ll speak to those two in just a moment.

Based on our operating activities, we recorded negative adjusted EBITDA of $1.9 million in the first quarter of 2015 compared with negative adjusted EBITDA of $2 million in the first quarter of 2014 and adjusted EBITDA of $0.2 million in the fourth quarter of 2014.

With respect to other items on the income statement, our interest expense was 400,000 in Q1, 2015 compared to 500,000 sequentially and $2.1 million in the comparable quarter of 2014. This expense is primarily related to the outstanding principal on the Opus term loan and the revolving facility.

Note the Q1, 2014 had an additional $1.6 million a non-cash interest charge is associated with our pay off of the then Hercules debt facility. Restructuring charges were approximately $0.3 million in Q1, 2015 as compared to $0.4 million in Q1, 2014 and $0.3 million in Q4, 2014.

These primarily related to severance for employees terminated in the quarter. Our stock compensation expense was $1.2 million in Q1, 2015 as compared to $0.2 million in Q1, 2014 and $1.1 million in Q4, 2014. The increase in expense year-over-year reflects the company’s continued focus on equity incentives for employees.

Now on to the balance sheet, cash was $33.1 million at March 31, 2015 as compared to $36.5 million at December 31, 2014 a decrease of approximately $3.4 million. This is a function of our operating loss for the quarter as well as uses of cash for the pay down of current liabilities, servicing of our financial liabilities and the associated interest.

Working capital again we define this for this discussion as our accounts receivable plus our inventory less our accounts payable was $12.8 million at March 31, 2015 as compared to $14.5 million at December 31, 2014, a decrease of $1.7 million.

An increase in inventory of $0.6 million was offset by $4 million decrease in accounts receivable that added a $1.7 million decrease in accounts payable. With respect to our receivables, our daily sales outstanding decreased 58 days from the 63 days in Q4 reflecting good collections in the quarter.

As for inventories, $9.9 million at March 31, 2015 compared to $9.3 million at December 31, 2014. The turnover was approximately $3.6 for the quarter a decrease from the previous quarter of 4.9. Note that company builds up stock at the end of Q1 to meet the lead times for customer orders scheduled for delivering in the second quarter.

Some of the other noteworthy line items on the balance sheet, as noted in our discussion working capital accounts payable decreased by $1.7 million to $6.7 million at March 31, 2015 primarily due to the timing of payments to our major suppliers.

Accrued compensation decreased from $2 million to $1.9 million, primarily reflecting pay down of variable compensation. Our other accrued expenses and liabilities decreased to $3.6 million at March 31 from $4.5 million at December 31, 2014. This net change reflects payments for restructuring charges as well as certain professional fees.

Our payment obligation is related to a former related party and that decreased from $6.2 million to $6 million which reflects the payment made during the quarter partially offset by the accretion of interest.

Lastly, our short and long-term financial liabilities increased by $14 million from approximately $13.9 million at December 31, reflecting the amortization of our deferred debt issuance cost in the period.

Note that the $14 million is comprised of our $10 million term loan repayable on March 31, 2017 and $4 million and our revolving loan facility repayable on November 2017 with Opus Bank.

Our outlook and guidance, the company has providing guidance for fiscal year 2015 of revenue between $90 million and $95 million and adjusted EBITDA positive on an annual basis. That concludes my remarks and I’ll pass the call back to Jason.

Thanks Brian. Thanks Brian. As I said earlier, we humble in our Q1 results, it is not reflective of the internal operations of the business, I think the important highlights as we look forward, the business will have and it will be lumpy.

We have always said that we’ll continue to maintain that until we can get to some scale at partnerships one of the many ways that we’re looking at addressing that scale and we’ve invested heavily over the past 12 months to get that. Verizon, Cisco, 3M, Stanley, JCI, Tyco amongst a number of others are our [partners] [Ph] to market.

So I think at this time, I would like to hand the call back to the operator to take questions..

Great, thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is going to come from Bryan Prohm from Cowen & Company. Please go ahead..

Hi thanks for taking my questions. Hey Jason at what point, did you know that the decline in the desktop reader business and the conditions in Europe and you guys have reported Q4 pretty late. So this all kind of manifest down the stretch, any color there that would be great, thanks..

Yes I would like to take it. But thanks for the question, we had some, we’re watching it, but we knew that it was going to be soft; we had hoped to see the strategic announcement with Cisco coming into the quarter. So when we went into the last earnings call, we were fairly confident, we were actually going to get the numbers.

The contract with Cisco did come with the payment and unfortunately that from a recognition perspective has flowed not into Q1. So again, we’re still juggling if you will as part of the traditional business which is lumpy and at the same time building product for the new part of the business..

So if I kind of it back into I mean you alluded to $700,000 FX revenue headwind and then the missed window opportunity on the Cisco, I mean if you could kind of factor all that gain, would you guys have grown revenue on a year-over-year basis or is that too sensitive to the Cisco number?.

Yes Bryan and I think you hit the latter part of it, it’s a bit sensitive to what we anticipate from a Cisco revenues.

Again, as we went into the Q4 earnings call in March, we fully anticipated that we would achieve our annual guidance based on projects around the pipeline as I mentioned in my comments some of the premises projects move forward based on customer schedules.

The weakness in the legacy reader business, we had anticipated that to slow, we anticipated it to slow down, but not come to a slower position than it was. So now again the focus is growing the business from where we were in 2014, we’ve got a lot of great projects in the everyday items space.

We see some great recovery on the premises side with some of the name customers from the past and that’s where we are at..

Yes, and Bryan one other the part of this is, we've always struggled to provide quarterly guidance and this is why we just so susceptible to timing of deals, it wasn’t as I said the result we had hoped for Q1, we did have a number of backups that in our pipeline, it pushed, but the thing that really kind of nailed us was some of that legacy reader business, we hadn’t predicted some changes in our European business.

We did in Q1 change out the management, the sales management for Europe and International in response to the activities and early indications was that we were going to recover some of that legacy business that did not occur. And what we saw was some of those deals pushing forward and frankly some of the legacy deals under pricing pressure we lost.

But again we know that this legacy part of our business in on a decline and we've known that for some time and that’s we implemented the new product in R&D going back to Q2 of last year to begin to change the direction with new products like uTrust sense and our Touch secure read align which very aligned obviously with IoT and that’s where you saw relationships with Verizon and Cisco being formed..

Thanks. So, Jason, you also alluded to Verizon materializing on a slower rate than you anticipated, is that part of the change in the revenue outlook or is that more related to the desktop reader business in Europe’s specifically because it sounds like it’s not just Q1 potentially, but potentially Q2 phenomena as well. Thanks..

Yes. On the Verizon activity and partnership, they are chasing much larger deals and so we are finding that they boom to bust type transactions for us.

So they are very hard to predict, we have invested as you know since the end of Q2 heavily in that relationship also and there are some good things happening there, some really good things happening there.

So we are not ready to talk about those just yet, I also don’t want to give forward guidance on them but we now have a lot more color around what’s happening with their particular transactions.

We are also being cautious not to guide on any of the specific relationships but because Cisco and Verizon are so particularly Cisco, both of them are so important to us. We will give you as much color as we can about those relationships..

Okay. Last question from me, and then I’ll jump back into queue.

On the credentials business, huge seasonality jump in Q2 last year, that was sustained through mid-year I think that’s sort of aligned with product cycle ramps and new product introductions, is that the same sort of outlook we would expect if Identiv remains pressured in Q2 and premises is growing, but at a seasonal type of run rate.

Is that where the revenue growth comes from in Q2 mostly credentials and premises again? Can you speak to that in a more detail? Thanks..

Yes, sure. And the sort answer is yes.

We’ve seen a very good shift towards the credential activity, as I mentioned 12 months, we didn’t have many of the projects that we now have, many people are aware of the one large toy vendor that we’ve done a lot of work with, that continues to be very, very good relationship for us and we’ve gone unsecured, a few other brand names a similar yolk in different segments.

And they knew, and they are just beginning so the growth will come in that area. A challenge in credentials has always been our margin and what we have been doing is building a lot more technology that is connecting these devices and that’s begun to make us unique.

A number of the patents and things that we have talked about focused on process and security and manufacturing and it relates to how do we begin to secure more of these credentials that are being embedded into everything from shoes, and handbags and pharmaceuticals through to obviously toys.

Specifically, we are always going to be subject to what the end customer - our customer wants to do in their product cycles, a number of them have their own seasonality, Christmas is a big period for the measure. And therefore pre-buys, pre-manufacturing mostly happens well, and truly prior to Christmas.

So we do expect and have begun to ramp up our inventory to be able to deal with that. I believe it’s in some of our number, but you can take from me, we have begun the stock up, lot of their parts as we see some really nice things happening there..

Thanks. Actually one last quick one for Brian, what’s the FX headwinds looking like mid-quarter, that you have, had the lessons learned of Q1, similar type of….

Yes, the lesson learned from Q1 certainly where we are, but yes, I would anticipate that we will have comparable impact from a quarter-over-quarter basis. We are looking at alternatives from hedging perspective, what we can do with that.

About 50% of our business in EMEA and that’s just an approximation, so let’s that all go start to do some calculations on our business, but is denominated in foreign currency so we’re really taking a strong look at how we can minimize the impact on the topline.

The other aspect of it though is, there is also the operating expenses that are paid in those currencies, so we are getting some relief from the operating expense side based on using some of our U.S. dollars to pay those..

Understood. Thanks. I’ll pass it on..

Thanks Bryan..

Thank you. Our next question is going to come from Saliq Khan from Imperial Capital. Please go ahead..

Sure. Thank you. How are you Jason and Brian..

Hey Saliq..

Hey Saliq..

I wasn’t going to do this to you, but I’ll start with the follow-up on with the last question was regarding the FX headwinds.

Outside of the currency headwinds that we’re seeing are there any longer term issues that you guys are finding in EMEA?.

I’ll take that first from sale market and operation perspective and then I'll let Brian to give you some any fiscal color, short answers is yes, I mean Europe for me is a worry.

We took some really heavy preemptive measures in Q1, which included a reduction in force, the appointment of a new European sales manager and appointment of a new international sales manager, as we begin to dig into the pipeline in forecast.

When I look at our forward pipeline we now have some very good systems in place and very confident about our North American pipeline. There things are looking very, very good, very happy with the projects, very happy with the process. International has continued to struggle and bluntly Saliq, we invested most of our time last year solidifying the U.S.

because that was where we saw the growth in the partnerships and the higher margin product.

As you may recall, we also shutdown one of our German factories and consolidated with Singapore and with all of these things going on in Europe and a generally weak Europe it has given made some concern about the medium to short-term outlook for a European numbers.

Therefore we have done in a revised guidance is begin to weight this new outlook against that and that’s what you saw as revise numbers. The U.S. numbers still solid, our European numbers we still see the deals but more work to be done to really wet them out and reattest to the timing of when the sales and revenue will come through that. Brian..

Yes, I’m not sure Saliq, if you wanted additional color on the FX impact, but I think what Jason communicated is really more pertinent with regards to the international business on a whole.

Yes, I'm not happy that I have comparable basis from an FX standpoint from a declining Euro, but more fundamental its where we at in the business, where we at in the sales organization internationally, where we are with the product offering and making sure that were shoring up other aspects of the business, in the premises segments the everyday items.

Those are why we focused our growth strategy and executing on that. We’ll continue to do focus in the international area. The rebuilding of the sales force as something Jason mentioned a couple of times now, so we’re not giving up on it. It’s just a matter of where we put our focus and where we put our energy..

Got it.

On the heels of question, your response to that as well, is this actually mean because you’re putting a lot more emphasis and time on North American pipeline and the efforts to shore up that business, could it possibly offset and I’m not even talking about this the share, but as we look out to the following year, could North America potentially offset a decline in the International business, most of it, if not all of it?.

Yes and then that’s a great question and apparently this will be one of those forward-looking statements Saliq, but yes we’ve seen some great growth in our premises, some great growth in our everyday items, a lot of those projects come from the Americas part of our business and so as we continue to do the projects in Identiv Labs as we continue to focus on our government customers, and expectation that the partnerships that we have that are oriented in the U.S.

will stimulate growth predominantly in the U.S..

Yes so Saliq from a sales and operations side of this, it’s clear that when we spend a $1 of OpEx on sales in the U.S., we’re getting a good return for it, when we spend the same dollar in Europe, we’re getting less of a return for it at the moment.

Therefore the strategies that we have adopted has been to partner very heavily with Cisco and Verizon and leverage their bandwidth and their infrastructures and take less of the margin on our high margin products but we’re not spending the dollar that we would have otherwise spend in Europe to get the transaction or access to the market.

So you’ll see us invest more heavily, in fact we created a brand new team to focus just on Cisco as an example and they’ve already begun to have very good dialog and outreach not just in Europe but also in Asia. So leverage is the name of the game for as the way as a company of our size hedges its bids.

The other side of this has been we do see good pockets of growth in different international markets. So we’re focusing very carefully in those areas, so it’s still to be determined and last part of your question was can the U.S.

make up for any decline in Europe, I’m hoping it doesn’t have to but if it does, I'm really pleased to say I gave you some hints about wearables and other projects that we’re working on.

Some of these projects are of the size of previous projects that we've had with particular toy vendors and alike and while we don’t include them in our forecast at least at the maximum potential, they’re very real, we have secured some orders and if those projects continue and they fully deploy, we will see the possibility that the U.S.

could easily account for any downside in Europe.

But again, we’re not counting on that as you know, we have plan A, plan B, plan C and the company has always been one that’s going through a turnaround and a transition and we don’t count on any one egg, I’m just personally disappointed when two or three of those plans don’t come together and we have a revenue result in Q1 the way we did..

You are kind of shifting away from the European strategy, the cushion ahead for you regarding the all other segment, this is an area where you guys are competing heavily with the Chinese market where the margins tend to be I believe in the low 30s.

How is the progression of that market and your penetration being going above last quarter?.

Yes so in our other segment, we have a couple of products that we lumped into that one of them is one of our European specific market products where we have approximately 20,000 customers in time and attendance products, it is a good margin product in a very specific market, it does have some competitors, it is a product that we have minimal investment in, but we like it and we’re actually looking at how can we leverage that customer base.

So that’s why we still keep that. The other area is now digital media area and that was a legacy product line where we have no focus, so as a result of that and really some conscious actions on our part to not divert engineering and R&D to that product has been discontinued and is frankly [indiscernible].

So those areas, we’re very aware of and – they are not our areas of focus, we don’t see getting a very strong shareholder return from further investment there..

The last question I had for you and then I’ll hop back in the queue, is there’s been a lot of focus from your team to go ahead and bring on board newer technologies, spend a lot more time and money on R&D as well.

As you’re looking out over the next 12 to 18 months what technologies or what solutions that you think you still need that you don’t have currently or what types, at least if you could give us a hint on that?.

Yes I can’t give you any real specifics but I can tell you a couple of things, we have a process going on at the moment with our CTO office, and our CTO is a brilliant guy, hopefully he is not listening, because I don’t want his head to get too big.

But he and his team have been looking at a number of areas that will augment what we already and will directly contribute to our partnerships with organizations like Cisco and Verizon, very specifically targeted at technologies in the IoT space. We have a lot of inventions that have not fully come out the other side of our lab yet.

As you’re seeing from our numbers, we have heavily invested in R&D, and we’ve reduced SG&A to pay for that. So I think you’re going to see us with more things in how do you make your home and your buildings more intelligent.

How do you integrate consumable sensors, with those environments and then how do you provide analytics security and privacy with all of that information. So it’s definitely an evolving market and I feel really good about the two partnerships that we’ve formed because as a trio, we’re very, very strong..

I’m glad you actually made that last comment about making buildings and that was a lot more intelligent and focusing around security, and I believe you, when I talked about this before is that, everyone’s focused on the Internet of Things, but very few people are really focused on the Internet of Secured Things.

So surprising to see that you guys are making headway in that as well..

Thanks Saliq, more work to be done, the company is still as you can see, it has its ups and downs but it’s fundamentally the operations there, we have cash in bank, we have some really creative people building things and we have partnerships now to execute..

Great. Thank you guys. I appreciate it..

Thanks..

Thank you. Our next question is going to come from Mike Latimore from Northland Capital. Please go ahead..

Great. Thank you.

Jason, on the new opportunities with your everyday items, I think you said that you’ve secured some orders there but that you did not include those in guidance, is that what you said?.

Yes the bit we know about with those orders is included in guidance and for example where there are pilots or we have some paid R&D projects, we do include that revenue, what we haven’t included in our forecast is any substantial upside to that.

I’ll give you an example, we work with a particular vendor, we build some prototypes, we make up $300,000, $400,000 from that activity, they go through that pilots and then they place an order for 20, 30, 40 million units. With that 20 million, 30 million, 40 million units is the transformative pace we don’t currently predict that in our forecasting.

Just it would make the numbers so lumpy that frankly you guys would kill me every quarter. So if I don’t get it right..

Yes, it’s okay. Got it. And then so your confidence on the everyday items I think literally derives from your current main customer there it sounds like for the year..

That was what we do know from other, some other projects that we have already secured. We secured a customer in the variables category.

And a get customer in a consumable category so we’ve got good predictability now in those and its subject to some of their own seasonality and frankly and getting some historical data behind this, so we can get better at our own predictability around their trends..

Okay and then what percent of revenue was into in international quarter?.

Just looking that up to give you precise number..

In the quarter we had about 67% of our revenue was in the Americas and that’s shift year-over-year of about 18%..

Got it.

Okay and then just on Cisco, it sounds like you will get kind of contractual payment in the second quarter and then more production of revenue in the third quarter, is that the way to think about that?.

I think that’s exactly how to think about it..

Okay. Got it, got it.

And then the confidence in the premises business, can you just elaborate a little bit on that; I mean what drove to strength this quarter, what are couple of the key projects that you’re looking on for next couple quarters on premises?.

Yes, the strength has really come from - we did a lot of work in 2014. The rebuild the business and forms some new alliances. We linked a lot of IoT sensor technology and some of the legacy physical access and then converted it at all to connected devices. That was one of the big things that helped us with Cisco as an example.

Getting our products on to the U.S. government approved products list in the quarter was also another major achievement and with that we saw recommitments from our customers that, two years prior had told us they we’re going to leave the company.

And we’ve now seen a very, very strong reliance as we begin to invest in their strategy and become FICAM compliant and really help them with some of their new and future business problems. I am extremely excited about what we are now seeing. We have commitments now going up over the next five years with number of the agencies.

And my commitment to them is we’ll continue to invest and invest in the R&D to make their machines successful..

Great. Thanks..

Very welcome. Thank you for the question. End of Q&A.

Thank you. We have no further questions at this time. And I would like to turn the call back over to Jason Hart for closing remarks..

Thank you very much. As you’ve all heard it’s been a humble result for Q1, but certainly and extremely positive result in terms of partnerships. So again we’ll look forward to speaking to everyone next quarter and we will have some good results to, to discuss. Thanks very much..

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect..