Good afternoon. Welcome to the Identiv’s Q4 and Full Year 2018 Earnings Call. My name is Shenay [ph], and I’ll be your operator this afternoon. Joining us for today’s presentation are the company’s CEO, Steve 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 be making references to non-GAAP measures or projection, 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 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. Identiv assumes no obligation to update these forward-looking statements, which speak as of today. I will now turn the call over to CEO, Steve Humphreys, for his comments.

Sir, please proceed..

Thanks, operator, and thank you all for joining us. 2018 was a pivotal year for Identiv. This shows in the financial results, but the most important milestones were the progress we made delivering our products and technology platform.

Combining our internal development and our three acquisitions over a 11-month period, we now have all the components in place. This positions us for 2019 to be entirely focused on core growth and taking advantage of the breakout growth potential on our markets.

Let’s get into the highlights for the quarter and the year and the growth that positioned us for in 2019 and beyond. In the fourth quarter, revenue again grew nearly 30% year-over-year. From a competitive perspective, we’re taking share in our market, which is growing in the 10% range, compared to our 30% growth.

Looking at the segments, our Premises business was up 25% and our Identity business, which as a reminder now includes the Identity and credential segment we consolidate during the quarter. The Identity segment was up 31% year-over-year.

For the second consecutive year, our fourth quarter exceeded our third quarter revenue breaking out of the third quarter federal government seasonality. This shows more consistency and stability in our results, reflecting the strategic steps we took in 2018.

Just as important is our overall growth, we more than doubled our higher margin software and services revenue in the quarter growing at 155% year-over-year. So, it made up 15% of our total revenue in the fourth quarter.

Growing this part of our business was one of the goals we set in the beginning of 2018 because it drives margins and predictability and even more importantly it drives customer attention. So, this directly leads to our next highlights, our bottom-line progress.

The fourth quarter of 2018 was the first quarter since 2010 that we achieved GAAP net income profitability attributable to the company. This comes from our growth, but also from our scale and expense controls. As we grow our top line and gross margins it drops to our bottom line.

So, consistent with this, our adjusted EBITDA more than doubled to a record 3.1 million, up 130% year-over-year. So, it’s pretty clear from all angles that Q4 was strong in itself, reflecting the financial and operational results we’ve been generating for the past several quarters now.

As a result, 2018 for the year overall demonstrated the same strength. Revenues for the full-year grew 30% and our full-year adjusted EBITDA more than doubled. At a segment level, Premises was up 43%, and Identity up 21% for the year.

So, we’re clearly growing faster than our competition, faster than the market, and building on our strategic position to expand on that success. And as we grow, we’re reaching the business scale that expands EBITDA and net income as revenue growth.

So, with that overview of the financial performance for the quarter, let’s look deeper into some of our operational highlights. Combining our internal development with our strategic acquisitions, we believe we now have the most complete IoT security platform encompassing all the components to deliver the secured digitized world.

I’ll talk about this later, but we’re confident that we’re now the only company providing the full solution across RFID devices, a software platform available as client server, web or cloud, panels, IoT bridges, readers, cards logical and converged access and mobility and the services to tie it altogether.

As we go into 2019, we believe that as a company we’re uniquely positioned to lead both the core industry, as well as the next generation transformation that’s begun. So, looking at the segments on an operational level, in the Premises segment, we’ve added the Freedom, Liberty, Enterphone and product lines.

Along with our earlier acquisition of 3VR and our launches of Velocity 3.7, wireless locks, ICPAM 3.3, Vision point 3.18. These external additions completed the core components of our platform to deliver our vision of cloud, software centric and mobile enabled digital access.

In fact, as a subsequent event, in the next few weeks, we’re launching a pilot of our pure cloud native and mobile platform. This has been built from the ground up to be extremely hardware light, leveraging the full range of AWS services and functions.

An ideal platform for subscription-based services, particularly in the small and medium business category. So, looking at the Identity segment, similarly we made great progress, particularly with the closing of the Thursby acquisition in late 2018.

Thursby really catapulted our digital identity offerings with complete solutions for secure and convenient mobile access across smart cards and drive credentials on IOS and android. It also added an important direct-to-customer sales channel into the Department of Defense.

In fact, we now have the only platform to provide both logical and physical access in the high security environment of the DoD. And also, as you can see here, some of our operational metrics. We’re building on a substantial base already. With over 0.5 million door access points and another 600,000 plus video surveillance points.

In identities per people and things, we have over 25 million cards and over a billion transponders deployed, as well as over 40 million smart card readers for logical access and other security applications.

This shows the growth in both, as the physical world becomes digital with more connected devices, more access points, and more identified people and objects. So, in 2018, we’ve taken major steps to enhance our product suite and value proposition to customers.

While also delivering financial growth and EBITDA progress that positions us very strongly for continued market weakening growth in 2019 and beyond.

So, with that, I’ll turn it over to Sandra to go over our financial results for the quarter and year and then I’ll come back to talk a little bit more about our growth drivers and our outlook for 2019 and beyond.

Sandra?.

Thank you, Steve for providing the context for our financial results for the fourth quarter and full financial year 2018. Before we dive into our full financials, here are our few key metrics that we think are important in analyzing the progress and performance of our business.

The first one is growth as represented by our total year 2018 revenue, which is up 30% year-over-year and slightly above the high-end of our total year guidance.

It’s also important to note that our standalone software and services business has increasingly become a bigger component of our revenues enabling us not only to expand on our growth, but to become more consistent in our results and drive higher margins as well.

For example, we build analytical value on the data streams we are capturing from our technology. We make money on our core business that we sell initially and then we start gaining margin expansion out of that expanding relationship.

That was the case with the press release we issued on December 27, 2018 where we shared that one of our key banking vertical customers is now not only using our video, technology, and analytics, but has also signed a multi-year maintenance and services contract with us, which provides us with the recurring stream of higher margin revenue.

In addition, our GAAP and non-GAPP gross margins have steadily picked up over the last few quarters as we drive stronger sales of our higher margin offerings.

In addition, our non-GAAP adjusted EBITDA margin has increased by more than 271 basis points to 7% for 2018, as we continue to combine our strong growth with maintaining our expenses and ensuring that we have the appropriate cost structure to scale.

With the fourth quarter results we are presenting, this will be the tenth straight positive non-GAAP adjusted EBITDA quarter in a row. And finally, on the right, you’ll see that we maintain a stable and balanced revenue mix both from a segment and geographic perspective.

As you will note in the graphic and the following charts, we have realigned the way in which we organize our operating segments by combining our identity in credential segments. The combined segment is now referred to as our Identity segment.

Total company revenues and gross margins were also positively impacted by a large bulk order of readers in the fourth quarter to a customer, which accounted for approximately 12% of our fourth quarter revenues on a consolidated basis.

Although we had one customer who exceeded 10% of our consolidated revenue for the quarter, we still do not have any greater than 10% concentration customers for the year.

On the next page, our revenue in the fourth quarter was 21.3 million, a 29% increase compared to 16.6 million in the fourth quarter of 2017, and a 6% sequential increase, compared with 20 million in the third quarter of 2018. Our full-year revenue of 78.1 million represents an increase of 30% from 60.2 million in 2017.

Our premises segment generated 42% of our total fourth quarter revenue or 8.9 million, an increase of 25% from the fourth quarter in 2017, and a decrease of 5% from the third quarter 2018. On the full-year basis, this segment generated 34.6 million of revenue, an increase of 43% from 24.2 million in 2017.

The increase was driven primarily by higher physical access control solution product sales, higher software licensing sales, as well as the sale of video, technology, and analytic hardware and software products, and related support services following the 3VR acquisition.

Revenue from our Identity segment, which includes sales of credential smartcard readers, reader modules and transponder products was 12.4 million in the fourth quarter or 58% of our revenue. This represents an increase of 31% from 9.5 million in the fourth quarter 2017 and an increase of 16% from 10.7 million in the third quarter of 2018.

For the full-year, this segment generated 43.6 million of revenue, compared with 36.1 million in the prior year 2017.

This increase was primarily due to higher smart card reader sales in the Americas, higher access card, RFID, and NFC transponder product sales in EMEA and APAC, as well as the additional sales of mobility security solution products following the acquisition of Thursby Software Systems.

Now, shifting over to our gross margin, our GAAP gross profit margin was 48% in the fourth quarter of 2018, compared with 42% in the third quarter 2018, and 30% in fourth quarter 2017. By segment, our GAAP gross profit margins continue to be strong and stable. Premises of 57% in Q4 and 56% year-to-date. Identity at 42% for Q4 and 32% year-to-date.

On a non-GAAP basis, excluding certain non-cash items, our gross profit margin was 49% in the fourth quarter of 2018, compared with 44% in the third quarter of 2018 and 43% in the comparable quarter of 2017. For full-year, our non-GAAP gross margin was 44% in 2018 versus 42% in 2017.

The year-over-year increase in GAAP margins was primarily the result of favorable product and customer mix in 2018 and the one-time transponder related inventory reserve adjustment recorded in the fourth quarter of 2017 associated with the customer relationship that ended in 2015.

On the next page, we will look at our full income statement for the earnings release. Our GAAP net income attributable to Identiv for the fourth quarter 2018 was 0.6 million, compared with a loss of 0.3 million in the third quarter of 2018 and a loss of 4.5 million in the fourth quarter of 2017.

Although we had net income attributable to the company in the fourth quarter that translated to a net loss per share for the fourth quarter as a result of adjusting the numerator of our EPS calculation for the fourth quarter for the first full year’s accretion of dividends on our Series B preferred stock.

In future periods, the accretion of these dividends will be recognized ratably by quarter. On a full-year basis, our GAAP net loss attributable to the company was 4.7 million in 2018 versus 8.1 million in 2017.

The decrease in loss is primarily a result of our strong and stable growth, as well as the ongoing integration of 3VR security and Thursby Software during 2018. On the next page, we’ve provided a full reconciliation of GAAP to non-GAAP information, which is also included in our earnings release. There are few items worth noting at this point.

Interest expense remained at approximately 0.3 million for the third and fourth quarter 2018, compared to 0.6 million for the fourth quarter 2017. Non-cash stock-based compensation remained at approximately 0.7 million in the third and fourth quarter of 2018, compared with 0.6 million for the fourth quarter of 2017.

In addition, during the fourth quarter of 2018, we incurred a transaction related cost for the Thursby and Viscount transactions closed November 1, 2018 and January 2, 2019 respectively, and a restructuring charge for the office space at our Fremont facility where the sublease was recently terminated and we have no plans to use.

Now, moving to our operating expense, which is the next graphic on the webcast. For the fourth quarter, per our earnings release, our total GAAP operating expenses were $9.1 million, compared with $8.6 million in the third quarter 2018, and 7 million in the fourth quarter of 2017.

For the full-year, our total GAAP operating expenses were 35.2 million in 2018 versus 26.8 million in 2017.

The increase was primarily due to additional headcount and other related costs associated with the acquisition of 3VR and Thursby software, including acquisition-related transaction cost and restructuring charges, and the impact of a non-recurring reimbursement of 1 million received in 2017 from our insurance provider in connection with legal matters.

Our non-GAAP operating expenses adjusted to exclude restructuring and severance cost and certain noncash charges normally excluded from our non-GAAP results such as stock-based compensation, depreciation and amortization and loss on extinguishment of debt, as well as additional non-GAAP items consisting of acquisition-related transaction cost in the fourth quarter of 2018 or 7.4 million, as compared with 7.2 million in the prior quarter and 5.8 million in the fourth quarter 2017.

For the full-year 2018, our total non-GAAP operating expenses were 29 million versus 22.6 million in the previous year 2017. The increase across functions for the comparable period of Q4 2018 versus 2017 was primarily due to the additional cost associated with the acquisitions.

Bringing all the pieces back together on the next page given our strong growth profile and aggressive integration of 3VR and Thursby, our non-GAAP adjusted EBITDA gain was approximately 3.1 million in the fourth quarter of 2018, compared with 1.7 million in the third quarter of 2018 and 1.3 million in the comparable quarter 2017.

We believe that our business model is positioned to continue to accelerate towards generating positive and profitable growth. Now, if I could turn to the balance sheet, we will be comparing our position at December 2018 to the position one quarter ago at September 18, and the last year ended December 17.

Cash at the end of 2018 was 10.9 million, compared to 14.2 million at the end of September.

The 3.3 million net decrease in cash for the quarter was primarily composed of a source of 2.2 million cash driven by our net income, excluding noncash items, a 4.4 million usage of cash from changes in operating assets and liabilities, a 0.7 million net cash usage from capital expenditures, a 0.6 million net cash usage from the acquisition of Thursby Software, a net cash generated from financing activities in the fourth quarter totaling 0.1 million comprised primarily of net borrowings under our East West Bank revolver of 0.3 million, offset by tax payments related to RSU-related of 0.2 million.

As we have mentioned in prior earnings calls, we are reducing the use of our line of credit to continue to reduce our interest expense. And lastly, there was a small 0.1 million impact of foreign currency fluctuation. In our 10-K filings, we will be providing a full reconciliation of the total years cash flows.

There is two key areas that I’ll focus on. Financial liabilities of 13.6 million at December 2018, reflects our East West Bank current financial liabilities, plus the 2 million note related to the 3VR acquisition payable in February 2019. This sequential increase of 0.4 million reflects the net change in our credit facility.

Versus 2017 our financial liabilities were 12.8 million, which included the term debt, which we have since retired, plus the comparable outstanding line of credit. Our other liabilities increased in the fourth quarter sequentially by 1.3 million.

This category includes the current and non-current portions of payment obligations, differed revenue, accrued compensation, and other accrued expenses.

This change was driven primarily by a $2.3 million in other crude expenses, including $1.5 million in customer deposits, partially offset by a 0.7 million decrease in deferred revenue and a 0.3 million decrease in long-term payment obligation, reflecting the continued quarterly payments made.

For completeness, we have included the full reconciliation of non-GAAP adjusted results to GAAP and the full balance sheet per the earnings release in the appendix.

In the context of our target business model where we measure ourselves with you quarterly to assess our progress, we have delivered what we set out to do, grow and achieve non-GAAP adjusted EBITDA profitability for ten quarters in a row. We’ve reached or exceeded our midterm target business model for gross margins, OpEx, and non-GAAP adjusted EBITDA.

For the full-year, we have reached our mid-term model for gross margin and non-GAAP adjusted EBITDA. As we are going into 2019, we expect to exhibit many of our long-term target metrics within select quarters of 2019. Today, we are providing guidance for the consolidated results of the company for full-year 2019.

We expect 2019 revenues to be in the range of $92 million to $95 million with a non-GAAP adjusted EBITDA range of $7 million to $9 million. An adjusted non-GAAP net income attributable to Identiv of minus 0.5 to 1.0 million.

As we’re progressing towards our long-term business model, we are significantly closing the gap to net income attributable to the company and positive earnings per share on an annual basis.

Therefore, we are for the first time, including non-GAAP adjusted net income attributable to Identiv into our guidance and we are expecting to surpass breakeven in the next year with the range provided. With that, I will conclude the financial discussion and pass it back to Steve..

Thanks Sandra. In my earlier comments, I laid out some of the foundations that we built for 2019. A key component of that is the product range we acquired from Viscount Systems right at the beginning of this year. As with 3VR and Thursby, Freedom, Liberty, and Enterphone strategically drive forward our overall platform.

In the federal space, Freedom and our Hirsch Velocity platform are two of the just four systems that our federal government approved [13.02] solutions. In addition to product and technology benefits, the product range we now have expands our available markets significantly.

We’ve always been strong in the federal market, but now we have a solid SMB solution and several products that are perfect for distribution, including Liberty, our TS Readers, and access cards. Our IoT bridge, Java based Freedom, and ICPAM platforms, and our POE Hirsh Mx-1 and TS Readers also are our great fits for the emerging IT channel.

One other major benefit of this transaction is the leadership of the Viscount team. The most notable is Scott Sieracki, the former CEO of Viscount, who is now leading our Premises Sales team overall. Previously Scott had leadership roles at Tyco, Open Options, Quantum Secure, and others.

And anyone who knows our industry and knows these companies understand the balance Scott brings as a business builder, as well as the forward-thinking entrepreneur in driving our industry forward.

So, both from a people and a technology perspective as we enter 2019, we’re positioned as one of the industries most advanced and complete range of solutions for digital access. So, with our products and technology in our place and our business model established, 2019 is all about growth. So, I’d like to focus on that here.

Fundamentally, our long-term growth comes from the transformation that’s happening across the physical world through the internet of things. At a more detailed level though, our opportunity comes from a few specific near-term drivers. Identity business is where some of the most explosive growth can come.

The reality is here that 95% of the traditional RFID industry is just glorified barcodes. They’re numbers on tags and have RFID, just like you were scanning them, it is just a different way to get that number. Our solutions however are almost all secured data or microprocessor enabled applications from companies like NXP [indiscernible] and TI.

In microprocessor and software based, our solutions benefit from Moore’s law. The platforms are getting more and more capable at geometric rates.

So, it really becomes all about the killer app, and whether that comes from consumer engagement, medical devices, consumables like they’ve been watching for logistics or pharmaceuticals or toys, we are already the go-to solution provider.

We’re seeing strong pipeline in project growth with both existing customers and new applications, anyone of which can drive breakout growth. Now, also with an Identity, our mobile apps are virtually the only widely deployed BYOD secure solution accepted in the DoD.

If you think about the economics at about $100 a user, adoption by each sub-department of the armed services with just a few tens of thousands of users each represents multimillion-dollar opportunities for us.

Our near-term goal of course is to drive our mobile apps across the hundreds of thousands of users in the case of full Air Force, Navy, or Army.

And in parallel, we’re working to proliferate our secure mobility apps across the entire federal government, as well as into our commercial customers in banking, healthcare, and other verticals and in fact we already have pilot activities in discussions going on in other federal agencies and in some of our commercial customers.

In Premises, the federal government continues to be a growth driver. I mentioned the product strength we have for the combined Freedom and Velocity products. As a software defined IoT platform, Freedom really appeals to a different user base from the future rich decades’ long reputation of Velocity.

This gives us a position that addresses the architectural preferences of nearly any federal agency.

Then on the commercial market side, we’ve expanded our total available market, shortened our sales cycle, and expanded our price range from the $1,000 to $2,000 door range to the $300 to $400 range that we get with our liberty platform and especially some of the pilots we’re starting now with our new cloud-based platform.

So, we now can pre-configure solutions across access, video, mobile, cards, readers and logical access bringing true IoT benefits to physical premises at all scales. Now, there are common strategic steps we’ve taken to leverage each of these growth drivers. We focused on the fastest growing segment in each market. In RFID, with processor enabled apps.

In logical access, with BYOD mobility. In federal government, with the strongest FICAM solution set, as well as a flexible low cost IoT based solution. And in commercial, with the most complete and flexible solution, especially for the IoT centric IT channel. So, in summary, 2018 was a terrific year for Identiv very strong.

It laid the foundation for growth in the 2019 and beyond. We delivered strong and sustainable growth, scale and operating leverage and improved stability and consistency in our results.

So, now we have the products, the market presence, the business platform, and the team to continue to grow faster than the market and to work with early adopters to be positioned for accelerating growth applications.

As we expand, we’ll continue to drive higher growth and profitability, but most importantly we built the platform both from a technology perspective and business model. So, now 2019 is all about execution and revenue growth in some of the drivers we have already talked about. So, with that, I would like to open the discussion to questions.

Operator?.

Thank you. We will now begin the question-and-answer session. [Operator instructions] Our first question comes from Nehal Chokshi with Maxim Group. Please go ahead..

Yes, thank you and congratulations on great set of results and very strong guidance, great to see that.

I wanted to zero in on the software and services growth of the 155% year-over-year, and it’s 15% revenue? And I think if I did the math correctly, that’s up about 2 million here for the December quarter, so could you dive into the drivers of that and answer? And I have a follow-up on that as well..

So, I’ll take a business discussion on it and then Sandra can jump in on some of the financial analysis. [There was across] the board with our IGSR Identiv Global Services activity. We also have been driving software support agreement adoption across our product lines, in particular with some of the new releases with Velocity 3.7 and ICPAM 3.3.

We’re getting much more adoption of the software service agreements.

And also, on the 3VR side, it was also contributed to by the multi-year agreement that Sandra referenced in her comments from one of our financial services customers, and so that starts to appear on a recurring recognition basis and then also she mentioned on the Thursby side with the mobile apps for the DoD that has a strong software [indiscernible], it really was across the board.

You want to anymore color to that Sandra?.

No, I think the components that we really pull out are standalone software and services.

So, it really is based on the fact that we’re licensing our software separately that we are providing the global services, which is a great compliment when we have customers who are dealing with complex integrations or installations, and the 3VR has a significant component of ongoing support and services.

So, those are the pieces that we carve out to create that metric for how we measure the business..

Okay, and with respect to the 3VR contribution to that, Steve you mentioned that you’re getting a lot of data analytic contracts, but then there is also the maintenance of the hardware as well, I presume that both of those are contributing to the 3VR portion there, is that correct? And if so, can you parse a little bit further..

I’ll correct, but I want to turn to Sandra, you mentioned the maintenance on the hardware, does that appear in software and services?.

Support agreement for the prior install base ends up in the services component..

Some portion of that would be, yes. The reason I am clarifying that is because the larger agreement that we had was software specific, and so that would be on the software side of 3VR, but there’s some hardware component in there..

Okay.

It looks like you guys are no longer going to be providing gross margin by segment, is that correct?.

So, we actually did provide gross margin by segment. We’re down to two segments. We’ve stopped reporting on others, which is great, and we’ve added, we’ve combined the prior identity and credentials into one identity segment, because that’s more how we’ve run the business and how we’re organized. So, let me just find it.

So, Premises was 57% GAAP gross profit margin for the quarter and 56% year to date; and Identity was 42% GAAP gross profit margins for Q4 and 32% on a year to date basis..

And the [big GAAP from Identity] is due to the Thursby contribution?.

On the Identity side, the large order that we had in Q4 was a bulk order for somewhere around 25,000 to 27,000 readers in software that the U.S.

Air Force took in a one-time transaction as they are starting their deployment, and so since we’ve talked about the fact that Thursby margins are higher than our average that’s also what drove up Identity, but this is a perfect example of why the Thursby business has it rolled out can also be somewhat lumpy on a quarter-to-quarter basis..

Okay, I’ll get back in the queue. Thank you..

[Operator Instruction] Our next question comes from William Gibson with Roth Capital Partners. Please go ahead..

Hi Sandra, I’ve got a financial question, and just regarding the preferred dividend, was that paid in cash or was that paid in kind?.

The dividend was accreted in common stock equivalents..

And is that the plan for this year or…?.

Yes. So, it continues to be accredited in common stock equivalents until year ten and then it’s the company’s option to flip it to cash at that point, but we plan to book those types of charges on a pro rata basis quarterly going forward..

And so that annual number for last year is a good number for this year as well?.

Yes, roughly 830,000 I believe is a good way to model 2019, but by quarter..

Now, are we going to see traditional seasonality.

I know over the last two years you’ve been swamping [indiscernible] with the growth where we haven't seen normal slowdown in the first quarter, is it more kind of back to classic this year or how is that going?.

So, I’ll take a shot at that Bill, it’s Steve. The main seasonality that will squeeze more out of is the third quarter to fourth quarter we had had downturns there because the federal government, and that we've largely gotten beyond, but the fourth quarter to first quarter seasonality we’ve continued to experience.

We experienced that in 2018 and because of the nature of some of our commercial markets we expected to still see a little bit of that in our current business mix..

Thanks Steve..

Our next question comes from Jeff Kessler with Imperial Capital..

Hi, congratulations on the quarter and the year. Couple of questions.

First, is there anything on the standards or regulatory side that you see like in FICAM that may be have helped you this year if indeed you’ve put together the pieces that are needed to qualify for a larger range of projects?.

Yes. There’s sort of two questions in which you ask there, is one more around that mandates and the other is broader range that we can serve with our broader range of products. So, I’ll take the first and the answer to it is absolutely.

The liberty and freedom products we have lower cost per doer and some more flexible infrastructure, and we certainly see that that’s appropriate for some agencies, especially in the non-security agencies.

And then back on the first part with FICAM, there’s not new initiatives or mandates there, but we’re definitely having more of our customers talk to us about going ahead because they have to change their infrastructure at some point for some of the new PIV cards and in order to give support for those PIV cards, they are realizing it is just the same price and the same process to get to full FICAM ready.

So, not really going to deploying all of FICAM, but they are going to FICAM ready at a faster rate than we have seen in the past..

Okay. The next question is on, if you want to call the catalyst effect of two or three important acquisitions this past year, was there a point at which, we kind of saw this – we kind of seen this in [indiscernible] when they certainly put together – when they failed to put together that hit about 3 or 4 or 5 verticals instead of 1 or 2 verticals.

Did the – for instance did the 3VR acquisition begin adding what it did on the financial side, begin to get you to a, what I would call a critical mass in vertical markets, has that had an effect on who is coming to look at your product versus competition that essentially has been larger than you, but has been more scattered and not focused on this area?.

Yes. I think that’s a good observation in two aspects to it. Yes. Three VR has been very strong in the banking sector, you’ve got over 170 banks and a number of them top tier banks. And that really has brought us credibility in that vertical, similarly in retail.

And then, I think where you were also going is when you bring together a couple of acquisitions and combined, they give you more of that capability and certainly 3VR started us there as did our own investment. Then really brought on Freedom and Liberty with the Viscount acquisition.

That’s really a complete product platform now and that’s where we’re starting to see more acceleration. I mean it’s early right now, but in the next 6 months to 8 months we expect to see that really coming together and also it is allowing us to go into different distribution channels.

Going into distribution itself because we have, if we have just one product, you really can't stay on the line sheet with distributors, but if you’ve got four or five then you’ve got enough critical mass to put through them, and now we have that.

And then similarly with the IT channel, we started into the IT channel with our Cisco partnership and that’s great and ICPAM has been a good fit for that, but Freedom is very similar in fact to the Cisco product is Java-based, it’s edge-based controllers, as well as IoT bridges.

So, it really starts to become a complementary offering and so you’ve got a couple of things that people can pick from when they are in IT integrator versus a physical security integrator.

So, I think you're going to see some acceleration across because of those couple of different leveraged points and you’re right is because we’ve got a few of these, but together add up to that strategic solution that I talked about..

Got it. Finally, the question that I was getting to on this is, I guess you want to call it one throat to choke.

And this is the first time I have seen the company get to a point at which there is essentially, I think you’ve reached a stage at which you are from one throat to choke and you effectively can take on multiple – basically you gain the confidence of multiple project for one customer.

And the conversation I would assume no moves up from just the security guy to somewhere higher up, may be even up to the sea level at this point when you start talking to companies..

Yes, I think that’s right, because almost every company and every agency, you know they all need active-control video, identity cards, mobility and single sign-on, pretty much every organization needs all of this, and instead of going to four or five different companies we can provide it all and as you said, the one throat to choke, and especially in the IT community they’re used to having that kind of concentration integration and they’re really looking for that.

They are kind of confused when they try to deal with the physical world and you have intrusion to [indiscernible] and access and video from four or five different vendors. And so, as we come to them with one that can bring that all it gets a lot of traction..

Okay. Great. Thank you and congratulations on the quarter..

Thanks, Jeff..

[Operator Instructions] We have a follow-up question from Nehal Chokshi with Maxim Group. Please go ahead..

Yes, thanks. So, prior to December quarter guidance you guys hit at the high end of that.

So, what was actually the driver hitting the high-end as implied to simple quarter guidance and if possible, could you frame it up with organic versus inorganic as well?.

So, we exceeded the high end of guidance by 0.1 million. So, our range for the year was 74 to 78 and we were at 78.1, so we had some additional strengths Steve alluded to with our 3VR products, but we also had this large one-time U.S. Air Force transaction with Thursby Software readers that we transacted in December.

So, we still have a good balance of organic and inorganic. With our organic growth beating the market rates that we believe that 8% to 10%, but we did have a rather lumpy transaction in the inorganic space with Thursby Software and their multiagency rollout..

Okay. Great.

And then is it fair that your organic growth rate throughout the close of fiscal year 2018 has consistently beat the market growth rates?.

Yes, absolutely..

Okay.

And then does that then imply that the inorganic portion, the 3VR has been somewhat volatile throughout the course of calendar 2018?.

So, 3VR in total came in slightly below what we originally disclosed as guidance for adding 10 million to 11 million for the top line over the year. That being said, it was a little bit slower in the start.

I think we’ve learned a lot in the process and our fourth quarter run rate exiting the year is in excess of the top end of the 11 million that we guided for 2018. So, I think that’s just a little bit of a lesson learned for us.

We again are bringing Thursby and by counting aggressively, but when we give numbers, especially with the first quarter effect and then bringing Viscount on as of January 2, we expect that there will be a little bit softer in Q1 as we get all of the infrastructure and integration done, but we’re still confident on the total year numbers..

And then considering 3VR’s now organic going into calendar 2019, can you give a view on what is going to be the organic growth rate for calendar 2019?.

So, the organic growth rate that we have is in the mid-to-high teens across the board. And that includes 3VR..

Okay.

And it sounds like given that you are suggesting potentially some lumpiness early in the Viscount and Thursby we should model for greater than normal seasonality for [March Q] then?.

I think that would be a fair way to model it. Absolutely..

Okay. And then finally, so you know that you are now giving non-GAAP net income guidance, which is great, I love that.

I calculate that for calendar 2018, your non-GAAP net income was 1 million, so now your calendar 2019 non-GAAP net income guidance certainly is that correct, was your calendar year 2018 non-GAAP net income 1 million?.

So, we don't have non-GAAP net income just to be clear. We use the term non-GAAP net income in prospective guidance because there could be transactions that we don't contemplate additional items that we would non-GAAP out.

So, our GAAP net income for the quarter was 600,000 favorable and for the year, we were still at a loss of 4.7 million attributable to the company..

Okay.

Do you expect your depreciation and amortization expense for calendar year 2019 would be up materially relatively to calendar 2018?.

I think we will see it step out because we will have the intangibles amortizing from the Viscount and the Thursby transactions. Viscount will be completely new, Thursby will be 10 out of 12 months new. So, I think it’s fair that we will have some step up..

Okay, thank you. That’s all from me..

Great questions, Nehal. 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..

Alright, thanks Shenay [ph] and thank you all for joining us today. Please do also join us at Roth Technology Conference on March 18 in Southern California, it’s been just scheduled. Or we will also be at the Oppenheimer Emerging Growth Conference on May 14 in New York. And at the Houlihan Lokey Global Industrials Conference also in New York on the 16.

So, look forward to continuing to keep you all updated on our business progress. Thanks again, and have a good evening..

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day..