Steven Humphreys – Chief Executive Officer Sandra Wallach – Chief Financial Officer.

Mike Latimore – Northland Capital Markets Nehal Chokshi – Maxim Group.

Good afternoon. Welcome to Identiv’s Fourth Quarter and Full Year 2017 Earnings Call. My name is Vicki, and I will be your operator this afternoon. Joining us for today’s presentation are the company’s CEO, Steven Humphreys; and CFO, Sandra Wallach. Following management’s remarks, we will open the call for questions.

Before we begin, please note that during this call, management may make references to non-GAAP measures or projections, including adjusted EBITDA. 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 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 documents filed from time to time with the SEC, including the company’s annual report on Form 10-K for fiscal year 2016. Identiv assumes no obligation to update these forward-looking statements, which speak as of today.

I will now turn the conference over to CEO, Steven Humphreys, for his comments. Sir, please proceed..

Thanks, Vicki. Good afternoon, and good evening, everyone, and thank you for joining us. This is one of the most exciting moments for our company in years. Our turnaround is well behind us. We went out of the year with 13% year-over-year organic growth and 7% sequential growth.

This is the fastest organic growth that came right at the end of the year and also the first sequential growth in Q4 over Q3 in years. We also delivered positive adjusted EBITDA for the full year, the first time since 2010.

Add to this our first acquisition in years of 3VR [Technical Difficulty] video and analytics platform we can leverage across our entire company, and we’re anticipating total revenue growth this year of well over 20% versus 2017. The most important growth is broad-based.

[Technical Difficulty] transponder [Technical Difficulty] groundbreaking applications last year had such success that they’re expanding, both in pure volume and their initial products and across more products in their company.

We’re also winning new customers in the space who we expect will follow the same cycle of initial products, growth and then product line expansion, all of which become additive to our revenue base.

Our smart card readers are continuing their technology leadership across government security applications, payments and some new major design-ins that support growth even in 2019.

Our Premises business across our core federal government market and our Cisco channel had key customer expansion wins and has now been augmented with a natural fit of video technology and especially analytics. Now let me take a couple of minutes and focus on this last part about analytics.

To be clear, near term, our core drive is to sell more access points, more RFID transponders, more loss prevention platforms. But longer term when you think about it, the real problem in security applications is in data.

There are over 1.5 billion electronically activated doors and over 400 million video cameras out there, generating over 200 petabytes of data daily and over 25 billion access granted events each day.

Since there are only about 20 million security guards worldwide and a similar number of police officers, every guard and law enforcement officer would have to be watching 10 cameras and 20 doors non-stop to monitor them the old-fashioned way. This is obviously an unsustainable situation and it’s a huge opportunity.

If we take the disparate data feeds, connect them, apply analytics and then provide actionable information. This is where we’re now positioned, in addition to our core solutions base.

As I said earlier, to be clear, our near-term business is driven by our core access control, video monitoring and RFID tracking business to provide pure access granted loss prevention and other security events.

These businesses are growing stronger as we’ve seen, but on top of this, the analytics to make this torrent of data useful, then turn it into security and business intelligence is the massive opportunity we have ahead.

Now any vendor or competitor of ours who is not positioning part of their business model on business value of this huge, real time and highly valuable data set is going to be in a major competitive disadvantage. By deeply understanding the platforms that generate all this data, we’re in the best position to manage it.

Additionally, by now, already having a ready-made set of value proven vertical applications across queue line management, loss prevention, ATM skimming and more, we have the experience and credibility as well as the technology to deliver information solutions on top of the data stream. So this is where we’ve always been headed.

We needed to get a lot of elements in place, including a very healthy core business, the technology capabilities to fulfill the complete solution, a stable financial infrastructure, a solid team, a services infrastructure to configure and help implement the integrated solutions and several others.

And as always, there’s plenty of work to do, but the ingredients are in place now.

The results through 2017 and especially in the fourth quarter shows this in the numbers as do the completion of the combination with 3VR a month ago, the launch of Identiv Global Services a few weeks ago, the substantially improved debt terms and availability we’ve announced and more news ahead in the coming weeks and months.

So with this introduction in context, I’ll turn the call over to our CFO, Sandra Wallach, to take us through the financial results for the quarter and the full year. Then I’ll come back to cover more of the business details in depth.

Sandra?.

grow and achieve non-GAAP adjusted EBITDA profitability for six quarters in a row, significantly closing the gap to net income profitability. Today, we’re providing 2018 guidance for the consolidated results of the company.

We expect 2018 results revenue to be in the range of $74 million to $78 million with a non-GAAP adjusted EBITDA range of $4 million to $6 million. For completeness on the last page, we’ve included the full reconciliation of GAAP to non-GAAP results. And with that, I’ll turn it over to Steve again..

All right. Thanks, Sandra. So as you’ve heard, 2017 was a year of major progress for Identiv. We returned to organic growth on an annual basis. We substantially strengthened the business, moving closer to our midterm target business model, which has led to our first full year of positive non-GAAP adjusted EBITDA since 2010.

And these results really demonstrate the increasing strength of our core business, and that strength sets the critical foundation for our inorganic growth strategy.

Additionally, our improved business performance has let us strengthen our balance sheet, which is fundamental to any business’s health, providing the strength to deliver on our organic and inorganic growth in 2018 and beyond. We also executed the first step in our inorganic strategy with the acquisition of 3VR in early February.

As many of you might remember from our update call a few weeks ago, our combination with 3VR demonstrates our ability to find a great complementary business and execute inorganically.

It’s an excellent fit for us, strengthening our position in the Premises security market and getting a beachhead in the fast-growing higher-margin video and especially the analytics segment, which is 3VR’s strength. And strategically, it perfectly complements our vision of simple, secure, convenient, and ultimately, frictionless access.

Now the remainder of 2018 will see a continuation of this dual approach to growth across organic and inorganic.

I’ll go into detail in the segments in a couple of minutes, but just as an overview, in our core businesses, we’re really going to be focusing on accelerating the conversion of our pipeline in the transponder market, both through expansion of current customers and adding substantial new ones, leveraging the cross-selling opportunities from our new video customers and our access control customers across commercial and federal segments.

And in particular, I just want to highlight our initiative to grow the contribution from our Identiv Global Services platform, which we launched last month. So IGS is our catalog of end-to-end services that facilitates customer success and drives deeper adoption of our product portfolio.

And I just want to note something when we say catalog of services. We’re not talking about a body shop system integrator, dealer, installer here. We’re talking about standard offerings tied to our core technology and the challenges that we’re seeing repeatedly and replicably across multiple customers.

And a lot of what’s going on here is something that we’ve looked for in the industry for well over a decade is the emergence of IT as a core player in the physical security space. And it has been anticipated again and again.

It actually is happening now, particularly with some of the breaches that have been coming on, on the information security space. That has rolled over into adoption and deployment in the physical security space. Vendors’ ability to address those concerns for IT now is affecting the physical security choices they’re making.

We’ve talked about that for a while, and it’s actually happening right now, and IGS is positioning us perfectly for that.

The other issue is those who don’t address it, we’re going into customers and hearing both the physical and IT security people talking about vendors who aren’t addressing this who are simply sticking to the old business model, want to sell their devices and act as if it’s not somehow affecting the network that it’s now connected to.

Those are actually competitive sales and displacement opportunity we’re seeing and we’re seeing real time. So with IGS, it gives us both a revenue expansion and margin expansion opportunity and a competitive opportunity for displacement, which we talked about for a long time but never has really been there, and now it’s actually coming to fruition.

I just wanted to highlight that briefly. So that really is the foundations of the organic growth. Inorganically, we’ll be focusing on completing the integration of 3VR, of course, to fully leverage top and bottom line synergies, including cross-selling opportunities that already are coming into our sales pipeline.

And we’ll also be aggressively pursuing other business and technology acquisitions that makes sense on a strategic, technical and financial level and get us closer to our goal of instrumenting the physical world. However, we’re not going to sacrifice the disciplined financial approach we took with 3VR.

That’s a core part of our DNA, and that’s something we’re going to carry through in every transaction, whether it’s organic business or inorganic that we take.

So by positioning ourselves to grow both organically and inorganically, we’re strengthening the company and accelerating our drive to build Identiv into the full-scale growth company that the market opportunity clearly supports and that we’re positioned to grab. Turning now to our business segments in more detail.

Premises showed increasing growth as we exited the year. Driving this are some initiatives we’ve been working on over the past months and even years, which are now converting into revenue growth. FICAM, of course, has been a major growth driver for us, and will continue to be not just in 2018 but over the next five to 10 years.

And as I mentioned, our sales strategy supporting our large system integrators but also establishing close connections with our customers is key to our organic growth. And in fact, this is being driven not by vendor push but by customers asking us to work directly with them.

The benefits are that we get visibility into the actual deployments, we can solve deployment challenges more quickly and completely than a system integrator can, who is going across a range of technologies and, additionally, creates the opportunity to secure larger service contracts and then from that insight into what the customers are really looking for and where they’re seeking benefits to provide upsell opportunities.

And as you see with the product range we now have, we’re ideally positioned to leverage those upsell opportunities. Well, you don’t get them if you’re not in the customer in order to see the opportunities and execute on them. We think we’re positioning well for that.

On the product side, we had a range of launches in support of our Cisco partnership, including our ICPAM 3.1 with input modules, a data center rack solution, which is beautifully aligned with Cisco’s positioning, and our Mx-1 controller integration.

On the channel side, we’ve strengthened our go-to-market in key commercial industries as well as in the federal government space. Now I’ll discuss 3VR in a bit more detail on the next slide, but I’ll just note here that it really does fit perfectly with our already established strength in the Premises segment.

The technology complementarity is obvious, but the cross-selling opportunity, in many ways, is the key real near-term opportunity. These really are the same customers. As I’ve been going around and visiting 3VR’s customers, they’re the same security people we’ve been speaking to in access control for years.

They speak the same languages, they have the same issues and the same challenges.

And in fact, that dynamic I was talking about of physical security merging into IT and really being intimately entwined in our customers, not from a vendor perspective, we want to drive it that way but it’s happening inside our customers’ organizations, that’s happening in access control and in video.

And now, by virtue of being in there, we have a broader portfolio to sell, we can be much more part of their solution because if we can solve some of their IT integration and securities pieces for access control and the massive video streams that are going through, we really become a valued partner.

So we’ve already discussed some of the use cases in commercial and retail applications on prior calls. But this cross-selling opportunity really is very compelling. I’ve also talked largely about the commercial space here. But as you can imagine, the opportunity in the federal government space is very similar.

They have the same network security issues, the same challenges and, in fact, in many respects, they have some larger install base of legacy technology, analog CCTV not yet going to IP and a lot of concern about going to IP unless they have the right security infrastructure.

And we think we can leverage our already established deep trusted adviser role in federal government in access control and FICAM into providing them more products and services.

So lastly, as I also mentioned earlier, our software and services initiatives are driving both revenues and our strategic position with customers as well as establishing value-added product opportunities. Now turning to Credentials.

We had strong 21% growth for the year due to high demand for RFID and NFC transponder inlays across a range of applications. In particular, our NFC-related volume shipments are accelerating. Our core customers are growing and expanding now into other product lines based on the success of their initial launches over the past year.

Additionally, as one leading company in a sector realize its successful results, that motivates others to come to us to build their forward-looking solutions in that same sector to maintain their competitiveness.

Now our position as the thought leader and trusted business partner in the market for NFC-enabled applications really is continuing to strengthen. And let me just give you a couple of data points around that. One, of course, is we launched an updated TagStar kit and SDK for independent developers to build their NFC applications.

And when a developer is looking where to go, what platform to build on, they can see that we are on the leading edge already partnered with very progressive companies and it’s a natural platform to develop, too. They develop through our SDK, they’re quite likely to continue into production ramp-up.

Another little anecdote I just like to share is from this week’s Google NFC event, which we participated, along with our partners, NXP, Chronicled and a range of others. Just to give you a window into this, we did a joint presentation with Chronicled, which is a partner and customer of ours, and it was packed.

There were over 150 people in the room, and they were learning about Chronicled’s full-stock blockchain secure platform for global supply chain management, which is enabled by our NFC transponder platform.

Now this huge interest in applications using RFID and secure data and our solutions, along with blockchain, as a much easier to deploy trust platform is a natural fit.

And we were there with Chronicled, demonstrating an existing application already out in the marketplace that leverages existing technologies and creates a solution that is orders of magnitude more effective, easier to deploy and lower cost than what’s out there right now.

So we’re already on podium speaking with leading vendors about what we’re doing in the space, not just what could be done. I can take you through a bunch more examples, but I just wanted to give you a little window into something that just went on this week.

Now I always caution that it will take time to emerge before – at its full scale, but we’re actually already seeing large at scale deployments and we’re clearly aligned with thought leaders like Chronicled and motherships like Google and NXP. So we think we’re in a very strong sustainable leadership position here. Turning now to Identity.

Revenue was up 10% for the year due to strong demand for smart card readers, chip sets and OEM modules for payment and identity applications. So clearly, contactless unattended payments and secure identities are massive growth markets. We’re in a strong position in both of these.

Now like our RFID business, Identity is a category that’s largely design-ins and OEM solutions, so we don’t name specific customers. But the programs underlying the markets and payments, identity and all things smart card are clearly on an upswing.

As one of the few deep technology providers with a long track record of successful products, we’re being brought in on many of the most promising initiatives in the industry. So I think you can see the strength of the foundation we built and the interconnection across the data streams that all of our solutions generate.

In addition to being part of the core of our Premises segment, 3VR’s platform brings out-of-the-box analytics, including facial recognition, license plate recognition, demographics, object recognition, dwell time, queue management, heat maps, consumer shopping, conversion rates and more.

These technologies deliver real benefits when they’re turned into applications and especially when access control or item tracking, sort of our core strengths, are combined with video analytics. I just want to focus on this for a moment.

One of the challenges of video analytics is you get this massive stream of data, and it’s very hard to quickly filter whitelist from blacklist events. Well, access control actually has built into it a list of your fundamental whitelist, your trusted employees, contractors and people who are already allowed access to your building.

They tap a card, door beeps, lets them in. Those are probably, at least it better be, trusted people. These have typically been isolated worlds prior to this. But in fact, by bringing these together, we have not just that database but also, in virtually all cases, a picture. So we already have a picture of the people who are allowed in.

Leveraging the facial recognition capabilities of video has always been impeded by the fact that if you have a couple of false negatives, it’s going to be a problem. Many of you might know, we secure a lot of the federal courthouses.

Let me tell you, if you have video letting people in and the judge isn’t recognized, that system is going to be shut down very quickly.

The probability of recognition is much higher when we have that picture and we’re just matching it to, hey, is that person this person? And if it is pretty close, and probably, then it’s probably safe of them to let them go through.

So there’s really leverage that occurs out of having the integration of these two capabilities from a technical perspective, benefits perspective, and I’ve already talked about some of the market perspective.

And then I just want to touch on a few examples here because it’s easy to talk about data and applications, but in fact, these applications are already in place.

And the whole idea of a security infrastructure paying for the implementation and then the very same data feeds being used to generate benefits to the business, whether it’s across security or loss prevention or marketing or customer awareness or even internal training, those are things we can do.

Access control and video analytics is again a natural fit, as I mentioned earlier. We have the database there. Another implementation that we already have from discussions about piloting would correlate license plate recognition with an access card event. So if it’s Steve’s car and Steve’s ID, it’s probably okay to let them onto the army base.

If it’s Steve’s car and not his ID, maybe an additional check needs to be done. What this does is really creates frictionless multifactor authentication.

So you’ve got his ID, you check it, I wouldn’t even know that my car license plate is being checked and now I have two factor authentication without being inconvenienced at all about putting my finger print on it, et cetera.

Not for the highest of security implementations but certainly for fairly high security and great cross check and a way to turn that torrent of data into valuable events and transactions. Heat map and merchandising is another great use case. As you can see on the picture here, our systems can track through where people are moving in an environment.

Now there’s an explosion of sensor devices that are starting to help this. Interior location platforms are popping out all over the place. Our belief is a single solution isn’t going to solve all the problems of use cases.

We want to be the platform that yes, brings video and heat map capabilities to it, yes, correlates that with access control as well as inventory tracking but also in-door location, MAC address tracking, other things. When you correlate them all together, that’s when you get really dominant solutions and that’s where we think we’re positioned.

I’ve already mentioned inventory management earlier on. Queue line management is an interesting one because it can be both customer service, obviously, when the line gets long, wouldn’t we all love to have more checkers automatically come and check us out so those lines get short.

Additionally, though, if someone is taking longer on average for their queues to go through, maybe they need some additional training. This is actually initially a banking application but it’s now being deployed across retail and other areas. And then ATM skimming again is an obvious one, using some of our dwell time.

If someone’s at an ATM for more than a couple of minutes, they’re probably doing something more than getting cash out of that ATM. So you can see how the platform is starting to correlate. And on the ATM skimming one, again, as you may know, bank cards are often used for access control into the ATM space.

So if we know exactly who’s going into the ATM kiosk, open that door if it’s after hours, we have a cross correlation if anything might happen that’s a skimming event and therefore, dramatically reduces the problem of the probability of skimming happening.

So I just want to give you a snapshot there so you can understand that when we talk about these applications, these are very tangible, working, deployed applications that we’re expecting to build on top of with all of our technologies.

So in summary, to wrap up, we had our fastest year-over-year growth, which came in the fourth quarter of 2017, really building momentum going out of the year.

Our strength and financial position with our preferred stock investments, paying down half our term debt, renegotiating much better terms on our revolver debt gave us a much better capital and debt structure. And we’ve got a great base and momentum going into 2018 and progressing nicely along our three-year growth plan to really scale up the company.

For 2018 and beyond, we’re going to continue to manage and optimize our cost structure to drive further leverage in the model as we execute our growth strategy because as you do things like inorganic acquisitions, the first pass will always be what the obvious opportunities are.

The second pass can be where can you get leverage points and, actually, perhaps not through reduction of expenses but, in fact, through greater utilization of people you’ve got to allow leverage on the top line. So we’re positioned well in our key segments to take advantage of all these growth drivers.

And with our core business performing strongly, we really do have the platform to layer on accretive and complementary technologies and businesses. And 3VR demonstrated how the tactics, operational strength and financial strength come together with the inorganic piece of our growth strategy.

But it is just the beginning and a glimpse of the potential additions and combinations we’re going to execute as we scale our business. And as I said at the beginning, this is one of the most exciting moments for our company in years. So with the details I’ve taken you through, hopefully, you can see why. All right.

With that, I’ll turn it over to the operator.

Vicki, you want to open for questions?.

[Operator Instructions] And we’ll go first to Mike Latimore with Northland Capital Markets..

Thanks and congratulations on the year.

On the 3VR products, you see most of the kind of near-term bookings coming from cross-sell or getting in the brand-new customer there?.

A bit of both. Actually, the – sorry, Mike. The nearest term ones are cross-sell, obviously, because that’s dealers and channels that we already have relationships with and customers we’re in. So the cross-selling opportunity will have a shorter sales cycle is basically what’s going to happen.

And then in new customers we’re going into, that will just be a longer sales cycle. That’s why it will be near term on the cross-sell side..

And then federal government, sounds like you’re encouraged by what you’re seeing there.

I guess, do you see the federal government grow – growing this year as kind of percent of revenue? Or is it sort of holding there as kind of the same kind of position?.

Yes, good question on percentage. It’s growing nicely. And in particular on the services side, we’re seeing some encouraging numbers. It will be keeping pace, whether it grows faster than some of the other segments and cross-selling opportunities in Premises and all, I don’t know. Probably about the same pace..

And then what should we model for kind of depreciation and amortization kind of on a full quarter basis like in the June quarter?.

What’s the total amount of depreciation and amortization? I just want to make sure I heard the question right..

Yes, like what should we model on a quarterly basis?.

Well, we don’t – yes, we don’t have a lot of additional capacity. We’re not heavy in a capital intensive. So let me just look at, we’ve been running about fourth quarter was $600,000. We’ve been running relatively flat with that. So I think $600,000 to $700,000 a quarter is reasonable for 2018..

Okay.And then just last, on your – you mentioned mid to long-term goals.

Like how many years are we talking mid versus long term?.

Mid, think in terms of this year and going into next year. And long term, no later than the year after next. And if we can hold that in….

Okay. All right. Thanks a lot..

[Operator Instructions] We’ll go next to the Nehal Chokshi with Maxim Group..

Yes, thanks.

Do you have a thoughts on what CapEx will be for calendar 2018?.

CapEx for calendar 2018 should probably be around $1 million in total.

There’s only one piece of strategic equipment that we’re looking at to support our transponder capacity based on the strength of the demand that Steve spoke with, and there’s really nothing else besides some enterprise software applications that we may include in how we run our ERP system..

Okay, great. And then the way that I read through the guidance especially with the prior guidance on what 3VR will add is that you’re looking at about 10% organic growth. So first, is that correct? And I’ll have a follow-up on that..

Yes. We had initially said that 3VR would add $10 million to $11 million on the top line, so that’s a correct assessment..

Okay. And so that 10% organic growth, I think, is a very healthy growth rate.

But given all the different synergies between the different product segments and what you guys have, what do you think is the possibility to deliver above that?.

When you hear the various initiatives we’ve got going on and the opportunities, there are certainly possibilities. As we’ve said, it’s just its early days to really project those.

And in particular, whether it falls into a particular quarter to start to hit, it gets to be pretty fraught, so that’s where we would just stay with the guidance, the way we have it laid out. But is there opportunity there? Absolutely..

Okay.

And then what percent of engagements that you’re having right now are leveraging the synergies between the different product segments?.

Yes, just to give you a snapshot on that. As I said, it’s very, very early days. Here we are at three weeks in since the close, and we actually haven’t yet given our salesforce a framework for joint selling.

But we’ve got a substantial number of deals that have just come in over that ran some dealers on one side or the other that come to us and say, look, I’ve got an opportunity right now to sell these capabilities. So it’s, I can’t give you a trajectory or path, but actually, it’s been stronger than I at least expected..

All right. That’s helpful. Thank you..

At this time, this concludes the company’s question-and-answer session. If your question was not taken, you may contact Identiv’s Investor Relations team at inve@liolios.com. I’d now like to turn the call back over to Mr. Humphreys for his closing remarks..

All right. Thanks, Vicki. And thanks, everybody, for joining us today. As you can hear, we are very excited by the moment in time we’ve got right now and we’ll be working very hard to execute on the opportunity ahead of us.

Hopefully, you all can stay following the company and we’ll be at the ROTH conference next week and investor conferences throughout. And then also, of course, at industry events, including ISC West, where we expect to have a very interesting set of demos and cross-sells there going on. So looking forward to sharing the journey with all of you.

Thank you again, and have a great evening..

Thank you for joining us today. You may now disconnect..