Q1 2024 Identiv Inc Earnings Call

Good afternoon, welcome to identify the presentation of its first quarter 2024 earnings call.

Operator: Good afternoon. Welcome to Identiv's presentation of its first quarter 2024 earnings call. My name is Matthew, and I'll be your operator this afternoon.

Matthew: My name is Matthew and I'll be your operator this afternoon.

Steven Humphreys: Joining us for today's presentation are the company's CEO, Steven Humphreys, CFO, Justin Scarpulla, and President, IoT Solutions, Kirsten Newquist. Following the man's remarks, we will open the call for questions. Before we begin, please note that during this call, management may be making references to non-GAAP financial measures or guidance, including non-GAAP-adjusted EBITDA, non-GAAP gross margin, and non-GAAP operating expenses. In addition, during this call, management will be making forward-looking statements. Any statement that refers to expectations, projections, or other characteristics of future events, including the pending asset sale transaction, future business and market conditions and opportunities, and future plans and prospects, including with respect to the transaction and Identiv's post-closing business, is a forward-looking statement.

Speaker Change: Joining us for today's presentation are the company's CEO, Steven Humphreys, CFO, Justin Scarpello, and President Iot solutions Kirsten Newquist.

Matthew: Following management's remarks, we will open the call for questions.

Steven Humphreys: Actual results may differ materially from those expressed in this forward-looking statement. For more information, please refer to the risk factors discussed in documents filed from time to time with the SEC, including the company's latest annual report on Form 10-K and quarterly report on Form 10-Q. In addition, risks related to the asset cell are included in the Preliminary Proxy Statement filed with the SEC on April 30, 2024, and our first quarter 10-Q, once filed, and will be included in the Definitive Proxy Statement once filed. Identiv assumes no obligation to update these four forward-looking statements, which speak as of today. I will now turn the call over to CEO Steven Humphreys for his comments. Sir, please proceed.

Before we begin please note that during this call management may be making references to non-GAAP financial measures or guidance, including non-GAAP adjusted EBITDA non-GAAP gross margin and non-GAAP operating expenses.

In addition, during the call management will be making forward looking statements.

Matthew: Any statement that refers to expectations projections or other characteristics of future events, including the pending asset sale transaction future business and market conditions and opportunities and future plans and prospects, including with respect to the transaction and I did just post closing business is a forward looking statement.

Actual results may differ materially from those expressed in the forward looking statements.

Matthew: For more information please refer to the risk factors discussed in documents filed from time to time with the SEC, including the company's latest annual report on Form 10-K, and quarterly reports on Form 10-Q.

In addition risks related to the asset sale are included in the preliminary proxy statement filed with the SEC April 30th 2024, and our first quarter 10-Q, once filed and will be included in the definitive proxy statement once filed.

Steven Humphreys: Identive assumes no obligation to update these forward looking statements, which speak as of today.

Steven Humphreys: I'll now turn the call over to CEO, Steven Humphreys for his comments Sir. Please proceed.

Steven Humphreys: Thanks, operator, and thank you all for joining us the first quarter of 2024 was one of the most important in our company's history. We completed an extensive year long strategic review and took actions that we think will serve all of our stakeholders very well, we're divesting assets relating to our security and logical reader products for a cash price of 140.

Steven Humphreys: Thanks, Operator, and thank you all for joining us. The first quarter of 2024 was one of the most important in our company's history. We completed an extensive yearlong strategic review and took actions that we think will serve all of our stakeholders very well. We're divesting assets relating to our security and logical reader products for a cash price of one hundred and forty five million dollars, generating capital to invest in our IOT business.

Matthew: $5 million generating capital to invest in our Iot business. We also completed a thorough search for a new leader for our Iot business, who will take over as CEO of the remaining identive business. When the transaction closes. We believe we put identive on a path to realize its opportunity to create major value by investing in the growth of it.

Steven Humphreys: We also completed a thorough search for a new leader for our IoT business who will take over as CEO of the remaining Identiv business when the transaction closes. We believe we have put Identiv on a path to realize its opportunity to create major value by investing in the growth of a key business that's increasingly central to the digital transformation of some of the world's largest industries. Now that's a big statement, but we believe it's accurate for three reasons.

Steven Humphreys: Key business, that's increasingly central to the digital transformation of some of the world's largest industries.

Matthew: That's a big statement, but we believe it's accurate for three reasons the scope of the market opportunity our competitive advantages and soon our access to the capital and the focus and leadership to deliver on the opportunity.

Steven Humphreys: The scope of the market opportunity, our competitive advantages, and soon our access to capital and the focus and leadership to deliver on the opportunity. We'll go into details throughout the call, but first, let me outline specifically what steps culminated in and around Q1. We undertook a strategic review of our business starting early last year. We looked at every combination of our business assets, including market opportunities and our competitive positioning, using one criterion. What is the highest expected value creation opportunity available to us to deliver to our investors? We looked at divesting each part of our business, including divesting all of the business.

Matthew: We'll go into detail throughout the call, but first let me outline specifically what steps culminated in an around Q1, we.

Matthew: We undertook a strategic review of our business starting early last year, we looked at every combination of our business assets, including market opportunities and our competitive positioning with one criterion what has the highest expected value creation opportunity available to us to deliver to our investors. We looked at divesting each part of our business, including divesting all of the Biz.

Steven Humphreys: As we look to each path for capital formation value creation, and ROI, we weren't in market to assess current values and competitive dynamics, we evaluated competitive companies both to assess their strategic directions, and the effect on our value creation opportunity and to assess our opportunity to realize near term value for our assets.

Steven Humphreys: We looked at each path for capital formation, value creation, and ROI. We went in-market to assess current values and competitive dynamics. We evaluated competitive companies, both to assess their strategic directions and the effect on our value creation opportunity and to assess our opportunity to realize near-term value for our assets. In consultation with our largest investor and with our financial advisor, Imperial Capital, we ultimately focused on the actions we announced last month.

Steven Humphreys: In consultation with our largest investor and with our financial adviser Imperial capital. We ultimately focused on the actions we announced last month raised the maximum capital possible to invest in and focus on our specialty Iot business ensure a strong balance sheet for that business and bring on highly experienced leadership to direct this investment in.

Steven Humphreys: Raise the maximum capital possible to invest in and focus on our specialty IoT business, ensure a strong balance sheet for that business, and bring on highly experienced leadership to direct this investment and navigate the company's future growth trajectory. We believe this transaction positions us to build an enduring, leading IoT company that's core to enabling the digital transformation taking place, in particular, across healthcare, pharmaceuticals, and medical devices, but also a critical enabler in other industries' digital transformation. In order to secure the investment for the IoT business, one of the requirements was that I join the buyer.

Steven Humphreys: The companys future growth trajectory.

Steven Humphreys: We believe this transaction positions us to build an enduring leading Iot company, that's core to enabling the digital transformation, taking place in particular across health care Pharmaceuticals, and medical devices, but also a critical enabler in other industries digital transformations in order to secure the investment for the Iot business what are the <unk>.

Steven Humphreys: Requirements was that I joined the buyer. So last year, we launched an executive search process to find a world class leader for our specialty Iot business to take over as CEO. When the transaction closes we needed the best possible leader to take advantage of our unique opportunity to be a linchpin to allergy provider in the digital transformation we're targeting.

Steven Humphreys: So last year we launched an executive search process to find a world-class leader for our specialty IoT business to take over as CEO when the transaction closes. We needed the best possible leader to take advantage of our unique opportunity to be a linchpin technology provider in the digital transformation we're targeting. We found that leader in Kirsten Newquist. She is the ideal profile to lead the business to maximize our value creation opportunity.

Steven Humphreys: We found that leader in Kierston Newquist Houston is the ideal profile to lead the business to maximize our value creation opportunity. She spent 17 years at Avery Dennison, leading their medical business as well as in their smart track RFID business one of the strongest companies in the space. She deeply understands the key customers and influencers across the digital.

Steven Humphreys: She spent 17 years at Avery Denison, leading their medical business as well as their SmartTrack RFID business, one of the strongest companies in the space. She deeply understands the key customers and influencers across the digital transformation of healthcare, while also knowing intimately the operations of the RFID business. She's a pragmatic and disciplined business person who also sees strategic opportunities to transform an industry. She has the rare ability to define a vision and then to build and execute plans to make the vision happen.

Steven Humphreys: Transformation of health care, while also knowing intuitively the operations of RFID businesses, She's a pragmatic and disciplined business person, who also see strategic opportunities to transform industries. She has the rare ability to define a vision and then to build and execute plans to make division happen.

Steven Humphreys: We're convinced she's the right leader for the business and to realize Identiv's market opportunity. So Kirsten will be speaking more about her background and why she chose to join Identiv after the financial review. Now, in the interest of time, we won't go through the details of our strategic assessments, executive recruitment, and everything else.

Steven Humphreys: We're convinced she's the right leader for the business and to realize Identive is market opportunity. So kierston will be speaking more about her background and why she chose to join Identive After the financial review.

Steven Humphreys: Now in the interest of time, we won't go through the details of our strategic assessments executive recruiting and everything else. So for more details. Please review the preliminary proxy statement, we filed last week, we put a lot of information into it including a thorough description of the Iot business going forward as well as the timeline in alternatives, we assessed and the basis for the board's decision.

Steven Humphreys: So for more details, please review the preliminary proxy statement we filed last week. We put a lot of information into it, including a thorough description of the IoT business going forward, as well as the timeline and alternatives we assessed, and the basis for the board's decision to proceed on this path to maximize shareholder value. Today we'll focus on Q1 and subsequent events as they relate to our business' future. Investors need clear visibility on the likelihood of the transaction closing and of the post-close business going forward, so we'll focus on those topics.

Steven Humphreys: To proceed on this path to maximize shareholder value.

Steven Humphreys: Today, we'll focus on Q1 and subsequent events as they relate to our business and future investors need clear visibility on the likelihood to close of the transaction and have the post close business going forward. So we'll focus on those topics.

Steven Humphreys: I'll go through relevant business results in Q1 and the status and outlook for the transaction, and then, after Justin's comments, I'll turn the call over to Kirsten to discuss the IOT business, her near-term priorities, and her long-term vision for the business. So for Q1, our business continued on a solid footing, but there was some effect due to the rampant activity on the transaction and recruiting our future CEO. We managed both activities, which involved key management and diligence meetings, as well as CEO interviews and onboarding.

Steven Humphreys: I'll go through relevant business results in Q1, and the status and outlook for the transaction and then after Justin's comments I'll turn the call over to Kirsten to discuss the Iot business her near term priorities and long term vision for the business.

Steven Humphreys: So for Q1, our business continued on a solid footing, but there was some effect due to the ramp in activity on the transaction and recruiting our future CEO, we manage both activities, which involved key management and diligence meetings as well as in C. E O interviews and Onboarding and we couldn't disclose it at the time, but of course this was going on in Q4 as well as in Q1.

Steven Humphreys: And we couldn't disclose it at the time, but of course, this was going on in Q4 as well as in Q1. So our overall business performance was consistent despite these distractions, with total revenues within our guidance range at $22.5 million and solid gross margins. Our gap gross margin was 37%, and non-gap gross margin was 40%, our highest non-gap gross margin since Q3 2020, reflecting margin strength in our premises segment as well as within identity research. In premises, we also had to contend with the federal government's continuing resolution budgetary uncertainty.

Steven Humphreys: <unk>.

Steven Humphreys: So our overall business performance was consistent despite these distractions with total revenues within our guidance range at $22 5 million and solid gross margins. Our GAAP gross margin was 37% and non-GAAP gross margin was 40% our highest non-GAAP gross margin since Q3, 2020, reflecting margin strength in our premises segment.

Steven Humphreys: As well as within identity readers.

Steven Humphreys: In premises, we also had to contend with the federal government's continuing resolution budgetary uncertainty.

Steven Humphreys: We've been pleased with the premises business strength, which we think puts us in a good position to continue strongly into Q2 and for the rest of 2024. Now, notably, software services and recurring revenues grew to 27% of premises revenues in the first quarter. This reflects three other trends we saw in Q1. Strong interest in our Primus product line, cloud as an interest area in nearly all of our new business opportunities, and high interest levels in video in the federal space as we deploy demo platforms of Velocity Vision across three more federal agencies. We also continue to see growth from our newest integrators, from our smaller geographic regions, and, in particular, across K-12 schools, utilities, and transportation, especially in airports.

Steven Humphreys: We've been pleased with the premises business the strength, which we think puts us in a good position to continue strongly into Q2 and for the rest of 2024.

Steven Humphreys: Now, notably software services and recurring revenues grew to 27% premises revenues in the first quarter. This reflects three other trends we saw in Q1 strong interest in our prime is product line cloud as an interest area and nearly all of our new business opportunities and high interest levels in video in the federal space as we deploy demo platforms of <unk>.

Steven Humphreys: City vision across three more federal agencies. We also continued to see growth from our newest integrators from our smaller geographic regions and in particular across K 12 schools utilities and transportation, especially in airports.

Steven Humphreys: Now our identity business, which includes our access card and identity readers. In addition to Iot continued to perform consistently overall, even with your internal demands of recruiting a new leader our I O T team continued to build our position as a specialty Iot leader with another successful presence that RFID Journal, we also joined the axiom.

Steven Humphreys: Now our identity business, which includes our access card and identity readers in addition to IoT, continues to perform consistently overall, even with the internal demands of recruiting a new leader. Our IoT team continues to build our position as a specialty IoT leader with another successful presence at RFID Journal. We also joined the Axia Institute in Michigan State, and we continued our webinar series with sessions shared with STMicro and another with NXP and the Axia Institute next week.

Steven Humphreys: And Michigan State and we continued our webinar series with session shared with SD micro and another with NXP out actually Institute next week, we secured a new two year customer contract for a smart home application and we also shipped another 5 million units to Willeit in Q1.

Steven Humphreys: We secured a new two-year customer contract for a smart home application, and we also shipped another 5 million units to Williott in Q1. Now, as we said on our Q4 earnings call, we expect these to be the last Williott units for at least a few quarters as they work on producing their Gen 3 chip. This last batch for Williott was produced in our new Thailand facility.

Steven Humphreys: Now as we said on our Q4 earnings call. We expect these to be the last really eight units for at least a few quarters as they work on producing their gen three chip.

Steven Humphreys: This last batch for really it was produced in our new Thailand facility. It demonstrated our ability to rapidly ramp up even very complicated products in Thailand to take advantage of our lower cost there for nearly all of our production over time.

Steven Humphreys: It demonstrated our ability to rapidly ramp up even very complicated products in Thailand to take advantage of our lower costs there for nearly all of our production over time. Now, competitively, as we've expected due to the large capacity build-ups by some companies that we described on prior calls, we've seen a couple of companies become aggressive on pricing. Now this capacity has been added mostly for UHF products, but some of it can be applied to HF applications.

Steven Humphreys: Now competitively as we've expected due to the large capacity buildups by some companies that we described on prior calls we've seen a couple of companies become aggressive on pricing now. This capacity was added mostly for UHF products, but some of it can be applied to H F applications. This affect some of our standard lower margin products, but doesn't affect our more calm.

Steven Humphreys: This affects some of our standard lower margin products but doesn't affect our more complex specialty IoT devices. Finally, our logical access readers within our identity segment performed very well. Our FIDO dual-factor security keys expanded sales and pipeline opportunities, especially in Europe. In the Americas, our contactless readers are our main growth drivers, including our deployment company-wide across one of the world's largest online retailers in Q1 and Q2, and this could continue into 2024 with further follow-on orders.

Steven Humphreys: <unk> specialty Iot devices than.

Steven Humphreys: And then lastly, our logical access readers within our identity segment performed very well, our phyto dual factor security keys expanded sales and pipeline opportunities, especially in Europe in the Americas. Our contactless readers are our main growth drivers, including our deployment companywide across one of the world's largest online retailers in Q1.

Steven Humphreys: Q2, and this could continue into 2024 with further follow on orders.

Steven Humphreys: So returning to our strategic transaction in terms of timeline to close we believe we're moving the process on the shortest possible timeline given the statutory requirements for a shareholder vote and other regulatory processes in terms of certainty to close clearance of these approvals and of course, the stockholder vote are the only major terms needed to proceed.

Steven Humphreys: So, returning to our strategic transaction, in terms of timeline to close, we believe we're moving the process on the shortest possible timeline, given the statutory requirements for a shareholder vote and other regulatory processes. In terms of certainty to close, clearance of these approvals, and of course, the stockholder vote, are the only major terms needed to proceed. We believe we're on a good path both in terms of timing and certainty. We're on track for the Q3 close estimate we provided, and should things progress smoothly, we have a decent shot at an early Q3 close date.

Steven Humphreys: We believe we're on a good path both in terms of timing uncertainty. We're on track for the Q3 close estimate we provided and should things progressed smoothly, we have a decent shot at in early Q3 close date.

Steven Humphreys: That forms the foundation for our IoT business going forward. So after Justin's comments on our financial results, I'll turn the call over to Kirsten so you can hear directly from her the path and opportunity we'll be focused on. Justin, over to you.

Steven Humphreys: That forms the foundation for our Iot business going forward. So after justin's comments on our financial results I'll turn the call over to Kirsten. So you can hear directly from her the path and opportunity will be focused on.

Justin: Justin over to you.

Justin Scarpulla: Thanks, Steve. As Steve mentioned, in the first quarter of 2024, we were able to deliver revenue in line with our guidance range, increased company margins, and continued control over our operating expenses. We achieved these results while focusing on both our identity and premises businesses, including our cutting-edge premises products, as well as our continued build-out of our operational Thailand facilities. First quarter 2024 revenue was $22.5 million, a decrease of $3.5 million versus Q1 2023.

Justin: Thanks, Steve as Steve mentioned in the first quarter of 'twenty 'twenty four we were able to deliver revenue in line with our guidance range increased company margins and continued control over our operating expenses. We achieved these results while focusing on both our identity and premises businesses, including our cutting edge premises products as well as ours.

Justin Scarpulla: Continued build out of our operational Thailand facility.

Justin Scarpulla: $1.7 million of this decrease was from our premises segment and was primarily related to the federal government continuing resolution that wasn't resolved until March. The remaining $1.8 million decrease in our Identity segment was related to our RFID-enabled IoT products, primarily from Willia, offset in part by an increase in our Identity Reader products. In first quarter 2024, GAAP and non-GAAP adjusted gross margins were 37 and 40 percent, respectively, as compared to 35 and 37 percent, respectively, in Q1 2023, which included increases in both our premises and identity segment margins.

Justin Scarpulla: First quarter 'twenty 'twenty four revenue was $22 5 million a decrease of $3 5 million versus Q1 2020 $317 million of this decrease was from our premises segment and was primarily related to the federal government continuing resolution that wasn't resolved until March.

Justin Scarpulla: The remaining 1.8 million a decrease in our identity segment was related to our RFID enabled Iot products, primarily from Willeit offset in part by an increase in our identity reader products.

Justin Scarpulla: First quarter 'twenty 'twenty, four GAAP and non-GAAP adjusted gross margins were 37% and 40%, respectively as compared to 35 and 37% respectively. In Q1, 123, which included increases in both our premises and identity segment margins.

Justin Scarpulla: Our Q1, 2024, GAAP and non-GAAP adjusted gross margins reflect our continued focus on our margin profile, while continuing to increase our investments in technology and manufacturing processes and equipment.

Justin Scarpulla: Our Q1 2024 GAAP and non-GAAP adjusted gross margins reflect our continued focus on our margin profile while continuing to increase our investments in technology and manufacturing processes and equipment. GAAP and non-GAAP adjusted operating expenses for the first quarter 2024, which include research and development, sales and marketing, and general and administrative costs, totaled $12.6 million and $10.4 million, respectively, as compared to $11.9 million and $10.6 million in Q1 2023 First quarter 2024 GAAP operating expenses also included $1 million in strategic review related costs.

Justin Scarpulla: GAAP and non-GAAP adjusted operating expenses for the first quarter 'twenty 'twenty, four which include research and development sales and marketing and general and administrative costs totaled $12 6 million and $10 4 million, respectively, as compared to $11 9 million and $10 6 million in Q.

Justin Scarpulla: One 'twenty to 'twenty three.

Justin Scarpulla: First quarter 2024, GAAP operating expenses also included 1 million in strategic review related costs.

Justin Scarpulla: First quarter 2024 gap net loss attributable to common shareholders was $4.8 million, or $0.21 per share, compared to a gap net loss of $3 million in Q1 2023. Non-gap adjusted EBITDA for Q1 2024 was negative $1.4 million, compared to negative $0.9 million in the prior year period. This change in non-GAAP-adjusted EBITDA is primarily a result of our lower year-over-year identity revenues, which impacted the utilization of our Singapore and Thailand operations. In the appendix of today's presentation, we have provided a full reconciliation of gap-to-non-gap financial information, which is also included in our earnings relief.

Justin Scarpulla: First quarter 2024.

Justin Scarpulla: Net loss attributable to common shareholders was $4 8 million or 21 cents per share.

Justin Scarpulla: The GAAP net loss of $3 million in Q1 'twenty to 'twenty three.

Justin Scarpulla: non-GAAP adjusted EBITDA for Q1, 2024 was negative $1 4 million compared to negative 0.9 million in the prior year period.

Justin Scarpulla: This change in non-GAAP adjusted EBITDA is primarily a result of our lower year over year identity revenues, which impacted the utilization of our Singapore and Thailand operations.

Justin Scarpulla: In the appendix of today's presentation, we have provided a full reconciliation of GAAP to non-GAAP financial information, which is also included in our earnings release.

Justin Scarpulla: Our next slide further analyzes trends by segment, beginning with identity. In Q1 2024, revenue from our identity products totaled $12.8 million, or 57% of companies' net revenue, compared to $14.7 million, or 56% of net revenue in Q1 2023. Identity segment gap and non-gap adjusted gross margins for Q1 2024 were 22 and 26 percent, respectively, as compared to 21 and 23 percent, respectively, in Q1 The year-over-year increase in gross margin was primarily attributable to an increase in identity, reader revenues, and margin, offset in part by increased overhead expenses from our Thailand operations that came online in Q3 2023. Now, turning to the premises segment.

Justin Scarpulla: Our next slide further analyses trends by segment, beginning with identity and Q1 'twenty four revenue from our identity products totaled $12 8 million or 57% of company's net revenue compared to $14 7 million or 56% of net revenue in Q1 'twenty to 'twenty three.

Justin Scarpulla: I doubt any segment GAAP and non-GAAP adjusted gross margins for Q1, 'twenty, 'twenty, four or 22, and 26%, respectively as compared to 21 and 23% respectively. In Q1 2023.

Justin Scarpulla: The year over year increase in gross margin was primarily attributable to an increase in identity reader revenues and margin after.

Justin Scarpulla: Offset in part by increased overhead expenses from our Thailand operations that came online in Q3 2023.

Justin Scarpulla: In Q1 2024, revenue from our premises products and services accounted for $9.7 million, or 43% of the company's net revenues, compared to $11.3 million, or 44% of net revenue in Q1 2023. The premises segment gap gross margin for Q1 2024 was 58%. An increase of 4% compared to Q1 2023. The Premises Segment Non-Gap Adjusted Gross Margin for Q1 2024 was 59%, compared to 55% in Q1 2023. The increase in our premises segment is related to decreases in inventory, freight, and logistics costs.

Justin Scarpulla: Now turning to the premises segment in Q1, 'twenty 'twenty four revenue from our premises products and services accounted for $9 7 million or 43% of company's net revenues compared to $11 3 million or 44% of net revenue in Q1 'twenty to 'twenty three.

Justin Scarpulla: Premises segment GAAP gross margin for Q1 was 24 was 58%.

Justin Scarpulla: An increase of 4% compared to Q1 'twenty to 'twenty three.

Justin Scarpulla: Segment non-GAAP adjusted gross margin for Q1, 'twenty 'twenty four was 59% compared to 55% in Q1 'twenty to 'twenty three the increase in our premises segment related to decreases in inventory freight and logistics costs.

Justin Scarpulla: Moving now to our operating expense management, our GAAP operating expenses in the first quarter of 2024 as a percentage of revenue was 56% compared to 46% in Q1 2023.

Justin Scarpulla: Moving now to our Operating Expense Management, our GAAP operating expenses in the first quarter of 2024 as a percentage of revenue were 56%, compared to 46% in Q1 2023. The increase in GAAP operating expenses as a percentage of revenue is primarily related to our strategic review costs. The increase in non-GAAP operating expenses as a percentage of revenue is primarily related to the year-over-year decrease in revenue, as operating expenses were relatively flat.

Justin Scarpulla: The increase in GAAP operating expenses as a percentage of revenue is primarily related to our strategic review costs.

Justin Scarpulla: non-GAAP operating expenses in the first quarter of 'twenty 'twenty four adjusted to exclude restructuring strategic review and severance costs and certain noncash charges, consisting of stock based compensation and depreciation and amortization was 46% of revenue compared to 41% in Q1.

Justin Scarpulla: One of the 23 <unk>.

Justin Scarpulla: The increase in non-GAAP operating expenses as a percentage of revenue is primarily related to the year over year decrease in revenue as operating expenses were relatively flat.

Justin Scarpulla: Now turning to the balance sheet, we exited Q1, 'twenty 'twenty four with $22 4 million in cash cash equivalents and restricted cash.

Justin Scarpulla: Now, turning to the balance sheet, we exited Q1 2024 with $22.4 million in cash, cash equivalents, and restricted cash, a decrease of $2 million from Q4 2023. In Q4, the decrease in cash was a result of $1.4 million from operating activities, $0.2 million from investing activities, and $0.4 million from financing activities. Our working capital exiting Q1 was $45.6 million, a decrease of $3.1 million from Q4 2023. As noted previously, our cumulative strategic review costs were $1.4 million at the end of Q1 2024.

Justin Scarpulla: The $2 million from Q4, 2023 in Q4. The decrease in cash was the result of $1 4 million from operating activities 0.2 million from investing activities and zero point $4 million from financing activities.

Justin Scarpulla: Our working capital exited in Q1 was $45 6 million a decrease of $3 1 million from Q4 2023.

Justin Scarpulla: As noted previously our cumulative strategic review costs are $1 4 million exiting Q1 'twenty to 'twenty four.

Justin Scarpulla: In our 10-K filing we will be providing a full reconciliation of the year to date cash flows for completeness. We have included the full balance sheet in the appendix of todays earnings release.

Justin Scarpulla: In our 10K filing, we will be providing a full reconciliation of the year-to-date cash flow. For completeness, we have included the full balance sheet in the appendix of today's earnings release. This leads us to an expected Q2 revenue range of $23 to $25 million. This concludes the financial discussion. I'll now pass the call back to Steve. Thanks.

Justin Scarpulla: This leads us to unexpected Q2 revenue range of $23 million to $25 million. This.

Steve: This concludes the financial discussion.

Justin Scarpulla: Now I'll pass the call back to Steve.

Steve: Thanks, Justin.

Steven Humphreys: Justin, as I mentioned in our opening comments, we believe we're on track to close our strategic transaction. Once closed, the infusion of capital will fortify our balance sheet to support the growth of our specialty IoT business into what we expect to be a key player in the healthcare industry and other high-value end markets. With Kirsten Newquist's leadership and a singularly focused team, we're very confident in our opportunity to transform major industries and the value creation that'll come from establishing that business position under her leadership.

Steve: As I mentioned in our opening comments, we believe we're on track to close our strategic transaction once closed the infusion of capital will fortify our balance sheet to support the growth of our specialty Iot business into what we expect to be a key player in the health care industry and other high value end markets with Kierston nucleus leadership and a singularly focused.

Steven Humphreys: Team, we're very confident in our opportunity to transform major industries and the value creation that will come from establishing that business position under her leadership.

Steven Humphreys: Now to be clear, transforming industries takes time, particularly a regulated industry like healthcare, and requires a clear, go-to-market strategic plan, laser-focused execution, and investment with a deliberate allocation of resources. Kirsten's been on board for all of three and a half weeks, and she's been diving deeply into our IoT business. She's bringing in resources to build out a detailed plan, but as you'll hear, she already has a vision for strategic value creation and the path to get there from our current business position. Kirsten

Steven Humphreys: That'll be clear transforming industries takes time, particularly a regulated industry like health care and requires a clear go to market strategic plan laser focused execution and investment with a deliberate allocation of resources.

Steven Humphreys: Houston has been on board all of three and a half weeks and she's been diving deeply into our Iot business, she's bringing in resources to build out a detailed plan, but as youll hear she already has a vision for strategic value creation and the path to get there from our current business position.

Kierston: Kierston welcome.

Kirsten Newquist: Thank you, Steve, and good afternoon everyone. I'm very happy to be with all of you today and speak with you about the opportunity we have in front of us for the IoT business. But first, I'd like to take a moment to provide some background about myself and why I joined Identiv at this pivotal moment in the company's history. As Steve mentioned, I came to Identiv after nearly 17 years with Avery Dennison, where I started out in corporate strategy analyzing new growth platforms, including RFID.

Kirsten: Thank you, Steve and good afternoon, everyone I'm very happy to be with all of you today and speak with you about the opportunity we have in front of us for the Iot business.

Kirsten Newquist: But first I'd like to take a moment to provide some background about myself and why I joined identity at this pivotal moment in our company's history.

Kirsten Newquist: As Steve mentioned I came to identity. After nearly 17 years with Avery Dennison, where I started out in corporate strategy analyzing handbreadth platforms, including RFID.

Kirsten Newquist: I ultimately joined the Avery Dennison Medical Division, first as Vice President, Business Development, and ultimately as Vice President and General Manager, which I led for six years with a focused and disciplined approach. During my tenure, I was able to double sales and significantly increase the EBIT of the business.

Kirsten Newquist: I ultimately joined the Avery Dennison Medical Division first as Vice President business development, and ultimately as Vice President and General manager, which I've led for six years with a focused and disciplined approach during.

Kirsten Newquist: During my tenure I was able to double the sales and significantly increase the EBITDA of the business.

Kirsten Newquist: I led the launch of many new, innovative products, including wound dressings and surgical films containing active ingredients, and components for wearable devices such as continuous glucose monitors, all utilizing complex coding, converting, and finishing capabilities under the strict quality and regulatory standards required to produce finished medical devices. My last year at Avery Denison was spent in the RFID division, Avery Denison SmartTrack, where I led the healthcare strategy and market development efforts and provided leadership to the product management team. I was familiar with Identiv from my involvement in the RFID industry.

Kirsten Newquist: The launch of many new innovative products, including wound dressings, and surgical sounds containing active ingredients and components for wearable devices, such as continuous glucose monitors all utilizing complex cutting converting and finishing capabilities.

Kirsten Newquist: <unk> quality and regulatory standards required to produce finished medical devices.

Kirsten Newquist: My last year at Avery Dennison, let's spend within the RFID Division Avery Dennison Smart track right led to health care strategy and market development efforts and provided leadership to the product management team.

Kirsten Newquist: I was familiar with identity for my involvement in the RFID industry.

Kirsten Newquist: My decision to join the company was driven by the opportunity to lead an entrepreneurial-oriented public company with a strong portfolio of products and solutions and an exciting and growing IoT industry. Its primary focus on specialty IoT technologies, utilizing HF, NFC, dual-frequency, specialty UHF, and BLE, along with its multi-component manufacturing capabilities, sets it apart from competitors who primarily serve high-volume UHF-based applications. Its focus and initial traction in the healthcare sector were particularly interesting given my background in this space.

Kirsten Newquist: My decision to join the company was driven by the opportunity to lead an intrepid nouriel oriented public company with a strong portfolio of product installation and an exciting and growing Iot industry.

Kirsten Newquist: It's a primary focus on specialty Iot technologies utilizing H S. NFC can little frequency specialty U H F N B L. A along with its multi component manufacturing capabilities sets. It apart from competitors, who primarily serve high volume UHF based applications.

Kirsten Newquist: Its focus and initial traction in the health care sector was particularly interesting given my background in this space.

Kirsten Newquist: Having worked for many years with the major players involved in the medical device and healthcare industry, I understand and appreciated the position that Identiv has built up to this point. This is an area where there are large unmet needs, ranging from medication non-adherence, to drug mix-ups, to pharmaceutical counterfeiting, in which RFID can play an important role. The IMS Institute of Healthcare Informatics estimates that medication nonadherence alone costs at least $105 billion in avoidable healthcare costs in the U.S.

Kirsten Newquist: Having worked for many years with the major players involved in the medical device and health care industry I understood and appreciated the position that Identive has built up to this point.

Kirsten Newquist: It is an area, where there are large unmet needs ranging from medication non adherence to drive mix ups to pharmaceutical counterfeiting and with RFID can play an important role.

Kirsten Newquist: The IMS Institute of Health care Informatics estimates that medication non adherence alone caused at least $105 billion and avoidable health care costs in the U S.

Kirsten Newquist: There are further compelling trends in health care, such as the shift of care from hospital to home.

Kirsten Newquist: There are further compelling trends in health care, such as the shift of care from hospitals to the home, the growth in personalized medicine, and the rise in large molecule drugs requiring careful temperature, moisture, and location monitoring that collectively create a growing opportunity space. As the healthcare industry embarks on its digital transformation journey, we see many opportunities for RFID-enabled solutions to become a critical asset in this transformation, including medication authentication and adherence, diagnostic test authentication, blood bag and sample tracking, smart labels for auto-injectors, and condition monitoring of critical drugs.

Kirsten Newquist: Both in personalized medicine, and the rise in large molecule drugs, requiring careful temperature moisture and location monitoring that collectively create a great opportunity space.

Kirsten Newquist: As the health care industry embarks on its digital transformation journey, we see many opportunities for RFID enabled solutions to become a critical asset in this transformation.

Kirsten Newquist: <unk> medication authentication and adherence.

Kirsten Newquist: Diagnostic test authentication blood bag and sample tracking smart label for auto injectors and condition monitoring of critical drugs and.

Kirsten Newquist: Incorporating RFID into these products and processes provides a persuasive value proposition by reducing medical errors, enhancing patient engagement, and ultimately increasing patient safety. Let me share with you two metrics to give you an order of magnitude on the opportunity space. There are over 5 billion prescriptions filled annually in the U.S. today and over 16 billion syringes used worldwide each year.

Kirsten Newquist: Incorporating RFID into these products and processes provides a persuasive value proposition by reducing medical errors enhancing patient engagement and ultimately increasing patient safety. Let me share with you two metrics to give you an order of magnitude on the opportunity space there.

Kirsten Newquist: Over 5 billion prescriptions filled annually in the U S today and over 16 billion syringes used worldwide each year.

Kirsten Newquist: Initial market penetration in these areas represents a substantial opportunity for identity. We have already experienced interest from the industry and have built up an impressive pipeline of customer-driven NRA projects across these applications. Furthermore, these specialty solutions command higher growth margins, often in excess of 35 percent. However, while the opportunities in healthcare are vast and compelling, they tend to be longer-term given the regulated nature of the healthcare industry. In fact, the industry is relatively nascent when it comes to RFID.

Kirsten Newquist: Initial market penetration in these areas represent a substantial opportunity for identive.

Kirsten Newquist: We have already experienced interest from the industry and have built up an impressive pipeline of customer driven energy projects across these applications.

Kirsten Newquist: Furthermore, these specialty solutions command higher gross margins often in excess of 35%.

Kirsten Newquist: Well the opportunities in health care, our bath and compelling they tend to be longer term given the regulated nature of the health care industry. In fact, the industry is relatively nascent when it comes to RFID. Most of these customers at the beginning of their digital journeys and need to go through several design iterations and run multiple pilots to optimize the technology.

Kirsten Newquist: Most of these customers are at the beginning of their digital journeys and need to go through several design iterations and run multiple pilots to optimize the technology and fully understand the benefits and ROI. Once the technology is proven out, it takes time to integrate the solution into their manufacturing processes due to regulatory and quality requirements, and then it would typically be launched with a phased rollout. That said, once launched, it is usually a very sticky business as the switching costs are high.

Kirsten Newquist: <unk> and fully understand the benefits and ROI.

Kirsten Newquist: Once the technology is proven out it takes time to integrate the solution into their manufacturing processes.

Kirsten Newquist: The regulatory and quality requirements, and then typically would be launched with a phased rollout that said once launched it as he usually very sticky business as the switching costs are high.

Kirsten Newquist: We see this industry as a long-term sustainable driver of identity growth. In parallel, we will also be evaluating the opportunities in three other high-value segments, specialty retail, smart packaging, and smart home devices. As these industries do not have the same regulatory and quality hurdles, we expect their ability to adopt new solutions will be quicker than those we see in the healthcare segment.

Kirsten Newquist: We see this industry as a long term sustainable driver of identity growth.

Kirsten Newquist: In parallel we will also be evaluating the opportunities in three other high value segments specialty retail smart packaging and smart home devices.

Kirsten Newquist: These industries do not have the same regulatory and quality hurdles, we expect their ability to adopt new solutions will be quicker than those we see in the health care segment.

Kirsten Newquist: Many of the technical requirements and design features that we develop for healthcare applications can be leveraged in these markets, and vice versa, and also require custom design, rapid prototyping, and often complex manufacturing processes. We are seeing growing interest in products that we have already developed for these segments. These include our embedded and highly secure authentication tags on consumables for smart home devices.

Kirsten Newquist: Many of the technical requirements and design features that we developed for the health care applications can be leveraged in these markets and vice versa and also require custom design rapid prototyping and often complex manufacturing processes.

Kirsten Newquist: We are seeing growing interest for products that we have already developed for these segments.

Kirsten Newquist: These include our embedded and highly secure authentication tags as consumable for smart home devices.

Kirsten Newquist: Our Life of Garment tags that withstand the stringent wash and dry cycle requirements for garments and footwear, and our NFC-enabled smart labels for packaging to enhance the consumer experience. In summary, we will proactively go after specific applications and use cases where we know there is strong volume potential and a realistic opportunity for sustainable and predictable higher-margin recurring revenue. At the same time, we will continue to support the customers and industries that are at the core of our business today and where we see opportunities to optimize our cost structure and margin profile.

Kirsten Newquist: Our latest diamond tanks that withstand the stringent Washington dry cycle requirements for garments and footwear and.

Kirsten Newquist: And our NFC enabled smart label for packaging to enhance the consumer experience.

Kirsten Newquist: In summary, we will proactively go after specific applications and use cases, where we know there are strong volume potential and a realistic opportunity for sustainable and predictable higher margin recurring revenue.

Kirsten Newquist: At the same time, we will continue to support the customers in industries that are at the core of our business today, and where we see opportunities to optimize our cost structure and margin profile.

Kirsten Newquist: One of our most critical short-term initiatives is to accelerate the transition of the majority of our RFID production to our Thailand facility to capitalize on its much lower cost structure, and we expect that effort to be largely complete by the end of quarter one 2025. After that, our primary manufacturing will occur in Thailand with a smaller R&D and engineering-focused operation in Singapore to support new product development and any customers who require more time to re-qualify in Thailand.

Kirsten Newquist: One of our most critical short term initiative is to accelerate the transition of the majority of our RFID production to our Thailand facility to capitalize on its much lower cost structure, and we expect that effort to largely be complete by the end of quarter one 2025.

Kirsten Newquist: After that our primary manufacturing will occur in Thailand, with a smaller R&D and engineering focused operation in Singapore to support new product development and any customers who require more time to requalify in Thailand.

Kirsten Newquist: As part of this process, we have begun to exit some of our very low margin business that doesn't justify the expense of relocating to Thailand newer make financial sense to sustain once we've transitioned.

Kirsten Newquist: As part of this process, we've begun to exit some of our very low-margin business that doesn't justify the expense of relocating to Thailand or make financial sense to sustain once we've transitioned. The overhead incurred by maintaining dual manufacturing sites during this transition, coupled with exiting the slow-margin business, has and will continue to impact our revenue and margins into the first half of next year. However, we're confident that our move to Thailand and the reduction of this low-margin business will ultimately result in a more streamlined and efficient operation with significantly improved direct margins. I am now in my fourth week with Identiv.

Kirsten Newquist: The overhead incurred by maintaining duo manufacturing sites. During this transition coupled with exiting the low margin business has and will continue to impact our revenue and margins into the first half of next year.

Kirsten Newquist: However, we're confident that are moved to Thailand, and the reduction of this low margin business will ultimately result in a more streamlined and efficient operation with significantly improved direct margins.

Kirsten Newquist: I am now in my fourth week with Identive I've enjoyed getting to know the team delving into the company's product portfolio and absorbing the team's perspective on the business is potential.

Kirsten Newquist: I've enjoyed getting to know the team, delving into the company's product portfolio, and absorbing the team's perspectives on the business's potential. The reasons why I joined Identiv are true. Strong technology and engineering capabilities, a strategic position within the specialty IOT sphere, and an array of compelling products in development. It's evident to me that we have a dedicated team fueled by a passion for the business. I also see an opportunity to streamline a very wide breadth of business opportunities with the disciplined processes and strategic clarity that are necessary to drive the business towards long-term, sustainable, high-margin growth. This will be crucial in realizing our long-term goals. To date, the business has struggled to fully capitalize on its potential, both in terms of revenue and profitability.

Kirsten Newquist: That said, what this team has been able to accomplish in developing its specialized products and building its opportunity pipeline with limited resources is commendable. Over the next several months, my priorities are to complete my onboarding and business deep dive and address two important topics. Build a plan to drive business excellence and develop strategic clarity and focus along with a detailed growth and go-to-market plan. It is imperative that our core business is focused, disciplined, and resourced appropriately so it can provide a solid foundation to build upon the longer-term opportunities we will be pursuing.

Kirsten Newquist: The reasons why I joined Identive are true strong technology, and engineering capabilities, our strategic position within the specialty Iot sphere.

Kirsten Newquist: And then array a compelling product in development.

Kirsten Newquist: It's evident to me that we have a dedicated team fueled by a passion for the business.

Kirsten Newquist: I also see an opportunity to streamline a very wide breadth of business opportunities with a disciplined processes and strategic clarity that are necessary to drive the business towards long term sustainable high margin growth. This.

Kirsten Newquist: This will be crucial in realizing our long term goals.

Kirsten Newquist: To date the business has struggled to fully capitalize on its potential both in terms of revenue and profitability that said what this team has been able to accomplish and developing specialized products and building its opportunity pipeline with the limited resources is commendable.

Kirsten Newquist: Over the next several months my priorities are to complete my Onboarding and business deep dive and address two important topics build a plan to drive business excellence and develop strategic clarity and focus along with a detailed growth and go to market plan.

Kirsten Newquist: It is imperative that our core business, it's focused disciplined and resource appropriately. So it can provide a solid foundation to build upon the longer term opportunities we will be pursuing.

Kirsten Newquist: To start, I'm bringing in industry-specific resources with whom I've worked extensively in the past to bring in an outside perspective and complement our internal talent to drive the business excellence initiatives and our strategic process. These consultants are standouts in their respective industries. In addition, our board advisor Manfred Rietzler, the founder of SmartTrack, one of the trailblazing companies in the RFID space, will be participating in our strategic growth process, as will our two board members, Dr. Rick Kuntz, a Harvard-trained and faculty cardiologist who previously was chief medical and scientific officer for Medtronic, and Laura Angelini, who was previously a senior MedTech executive with Baxter Healthcare and Johnson & Johnson.

Kirsten Newquist: To start I am bringing in industry specific resources, with whom I have worked extensively in the past to bring in an outside perspective and complement our internal talent to drive the business excellence initiatives and our strategic process. These consultants are standouts in their respected industry.

Kirsten Newquist: St.

Kirsten Newquist: In addition, our board advisor Manfred retailer the founder of Smart track what are the Trailblazing companies in the RFID space will be participating in our strategic growth process as will our two board members Dr. Rick.

Kirsten Newquist: Harvard trained and faculty cardiologist, who previously was chief medical and scientific officer for Medtronic, and Laura Angiolini, who was previously our senior Med Tech executive with Baxter healthcare and Johnson and Johnson.

Kirsten Newquist: I look forward to providing you with timely updates on the development of these plans and the key milestones as we execute against them. And finally, I want to emphasize that, at present, we have no immediate plans to pursue M&A. Our primary objective is to gain strategic clarity and drive towards business excellence, so any future M&A will be built upon a strong business foundation and aligned closely with our strategic objectives. In closing, I'm looking forward to the opportunities ahead and to fully immersing myself in the business and my role, and to meet with the Wall Street community in the coming months. With that, I'll turn the call back over to Steve.

Kirsten Newquist: I look forward to providing you with timely updates on the development of these plans and key milestones as we execute against them.

Steve: And finally I want to emphasize that at present, we have no immediate plans to pursue M&A. Our primary objective is to gain strategic clarity and drive towards business excellence. So any future M&A will be built upon a strong business foundation and aligns closely with our strategic objective.

Kirsten Newquist: In closing I'm looking forward to the opportunities ahead and to fully immerse myself in the business and my role and to meet with the Wall Street community in the coming months.

Kirsten Newquist: With that I'll turn the call back over to Steve.

Steve: Thanks, Kirsten as you all heard Houston has a very clear vision for the business and firm understanding of our operations with this clear vision. After just a few weeks on the job you can see why we're so excited to have her leading identive going forward I'm personally very thankful to have found such an excellent leader to take our business forward and realize the tremendous opportunity we.

Steven Humphreys: Kirsten, as you all heard, Kirsten has a very clear vision for the business and a firm understanding of our operation. With this clear vision, after just a few weeks on the job, you can see why we're so excited to have her leading Identiv going forward. I'm personally very thankful to have found such an excellent leader to take our business forward and realize the tremendous opportunity we have. Now, before opening the call for discussion, I'd like to make a couple of personal comments.

Steven Humphreys: Have.

Steven Humphreys: Now before opening the call for a discussion I'd like to make a couple of personal comments.

Steven Humphreys: If we meet the schedule we aspire to, this may be my last earnings call for Identiv. If that turns out to be the case, I'd like to thank all of you, our investors, for your support of the business. I'd also like to thank all of our people and our customers and partners for everything we've built together. I'm confident that we've created a path for both of our businesses to thrive and grow with very exciting futures.

Speaker Change: If we meet the schedule we aspire to this may be my last earnings call for Identive, if that turns out to be the case I'd like to thank all of you our investors for your support of the business I'd also like to thank all of our people and our customers and partners for everything we built together I'm confident that we've created a path for both of our businesses to thrive and grow with very.

Steven Humphreys: Citing futures.

Steven Humphreys: Both businesses needed capital and focus to achieve their potential, and I believe we found the best path forward to reach that goal. In the case of the physical security business, we've found terrific partners with Vitaprotect and 7-2 who are aligned with our vision, our values, and culture, and our commitment to invest in and grow the business. I'm very excited to work with them after the closing and especially looking forward to continuing to work with and expand our amazing Identiv Physical and Logical Security team to build a truly world-leading security business.

Steven Humphreys: Businesses needed capital and focus to achieve their potential and I believe we found the best path forward to reach that goal in the case of the physical security business. We've found terrific partners with Baidu to protect and seven two who are aligned with our vision, our values and culture and our commitment to invest and grow the business I'm very excited to work with them after the closing and especially.

Steven Humphreys: Looking forward to continue to work with and expand our amazing Identive physical and logical security team to build a truly world leading security business.

Steven Humphreys: I'll miss being part of the IoT business and working with our great people there, but Kirsten's an exceptional business leader. With her vision, passion, and disciplined business approach, and with the expected capital resources on the balance sheet to make it happen, I'm confident we'll realize our vision for Identiv IoT. So with that, I'd like to open the call to your questions. Operator, please open the question.

Steven Humphreys: I'll Miss being part of the Iot business and working with our great people, there, but pearson's exceptional business leader with her vision passion, a disciplined business approach and with the expected capital resources on the balance sheet to make it happen I am confident we will realize our vision for Identive Iot.

Steven Humphreys: So with that I'd like to open the call for your questions. Operator. Please open the question queue.

Operator: Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while you are posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Please hold while I poll for questions.

Speaker Change: Certainly everyone. At this time, we are conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time.

Operator: We do have somewhat posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.

Operator: Once again, if you have any questions or comments. Please press star one on your phone.

Operator: These hold while we poll for questions.

Speaker Change: And it also Matthew I'd like to add that in addition to the speakers here cares congested and I. We also have a mere cushion the Audi.

Steven Humphreys: And also, Matthew, I'd like to add that in addition to the speakers here, Kirsten, Justin, and I, we also have Amir Khoshniyati, Dr. Manfred Mueller, and our chairman of the board, Jim Ousley, on the line. So any questions that are appropriate for them, we have everybody here to answer. So thank you again.

Steven Humphreys: Dr. Manfred Mueller and our chairman of the board Jim <unk> on the line. So any questions that are appropriate for them.

Steven Humphreys: Have everybody here to answer that.

Steven Humphreys: Thank you again.

Operator: Certainly. Your first questions are coming from Craig Ellis from B. Reilly Securities. Your line is live.

Steven Humphreys: Certainly your first question is coming from Craig Ellis from B Riley Securities. Your line is live.

Craig Andrew Ellis: Yes, thanks for taking the question and Steve if it does prove to be your last call band.

Craig Andrew Ellis: Yeah, thanks for taking the question. And Steve, if it does prove to be your last call, then in a public forum, I'd like to say it was a pleasure interacting with you over the duration of the coverage. And I'll start with a question. Yeah, you're welcome. I'll start with a question for you and then move on to Justin and Kirsten.

Craig Andrew Ellis: Public Forum I'd like to say it was a pleasure.

Craig Andrew Ellis: Interacting with you over the duration of the coverage.

Craig Andrew Ellis: And I'll start with a question yeah, you're welcome I'll start with a question.

Steven Humphreys: So looking at revenues, we've got revenues that were inside the range of 1Q and 2Q, which were seasonal. When I look at the year on year trends down, I think we'll be down in the low teens in the quarter, but in 2Q, I think we'll be down closer to the higher teens. So can you just talk about the things that are happening inside of revenues, whether it be lingering cyclical impacts or some of the mix out items that might be happening, or even maybe premises some of the shift to recurring that might be impacting revenues? And do you think here in the second quarter we're at a cyclical bottom or still more effects of that?

Craig Andrew Ellis: For you and then move on to Justin and Kirsten.

Steven Humphreys: So we're looking at looking at revenues, we've got revenues that were inside the range of <unk> and <unk> were seasonal when I look at the year on year trends are down.

Steven Humphreys: I think in the low teens in the quarter, but in <unk> I think we'll be down closer to the higher teens. So can you just talk about the things that are happening inside of revenues, whether it be lingering cyclical impacts or or some of the mix out.

Steven Humphreys: Items that might be happening or even maybe on premise with some of the shift to recurring that might be impacting revenues.

Steven Humphreys: And do you think here in the second quarter, we're at a cyclical bottom or still more effects of that to come.

Speaker Change: Yes so.

Steven Humphreys: Yes, so taking those from the top, as you said, there is some rotation out of lower-margin business. That's one.

Steven Humphreys: Taking those from the top as you said there is some rotation out of lower margin business. That's one we mentioned the continuing.

Steven Humphreys: We mentioned the continuing resolution on the premises side that did have an effect, as well as the shift to recurring. And then when you're a very small company like us, and you take half of the executive team a little bit off the playing field, you have some attention focus shift there. But I think the main underlying trends on the premises side will revert back to the norm. On the identity side, there are some of the transitions that Kirsten mentioned in her update that are core to how the business is going forward. There's no add anything to that.

Steven Humphreys: Continuing resolution on the premises side. It did it did have an effect as well as the shift to recurring.

Steven Humphreys: And then when you are a very small company like us and you take half of the executive team a little bit off the playing field you have but you have some attention focused shift there.

Steven Humphreys: But I think the main the underlying on the premises side, the underlying trends will revert back to back to the norm.

Steven Humphreys: On the identity side are there there are some of the transitions that Kirsten mentioned in her update that are that are core to how the businesses going forward.

Steven Humphreys: Theres no I'd add anything to that.

Steven Humphreys: Okay.

Steven Humphreys: No, I think you've answered it adequately.

Speaker Change: No I think you've answered it adequately.

Justin Scarpulla: Okay, moving on to more of a financial question for Justin. Justin, really impressive 10 quarter high gross margin this quarter. Were there any one-time items in either of the segment numbers or on OPEX? Since there were deal costs that inflated 1Q, at least in the gap numbers, do those mix out in 2Q, and how do we think about some of the intermediate trends for OPEX beyond just what we saw in 1Q?

Steven Humphreys: Okay.

Justin Scarpulla: Moving on to more of a financial question for Justin Justin.

Justin Scarpulla: Really impressive 10 quarter high gross margin in the quarter were there any one time items and in either of the segment numbers and on Opex.

Justin Scarpulla: Thank you.

Justin Scarpulla: Since there was deal costs, but did inflated wyman Q at least in the GAAP numbers.

Justin Scarpulla: Do those mix out in <unk> and how do we think about some of.

Justin Scarpulla: The intermediate trends for Opex beyond just what we saw more in queue. Thank you.

Justin Scarpulla: Sure, I'll take that one from the top as well. From a margin perspective, there was not a one-timer within either segment that boosted our margins. We did start to see, and I noted it in my commentary as well, that Identity Readers was returning to a pretty healthy margin year-over-year, and that is expected to continue. So, that is not a one-time item there, and I think that that's one of the largest drivers that we have for margin. And then, on the OPEC side, you touched on strategic review costs. You know, those are ongoing as we continue to have proxy filings, our definitive proxy statement. Hopefully, we'll get the files here shortly.

Justin Scarpulla: Sure I'll take that one from the top as well from a margin perspective, there were not a one timer within either segment that boosted up our margins. We did start to see we noted it in the in my commentary as well that identity readers.

Justin Scarpulla: <unk> was returning to a pretty healthy margin year over year and that is expected to continue so that is not a one time item there and I think that that's one of the largest drivers that we have for margin and then on the Opex side.

Justin Scarpulla: You touched on the strategic review costs those are ongoing as we continue to.

Justin Scarpulla: Proxy filings, our definitive proxy statement hopefully will get filed here shortly.

Justin Scarpulla: And the amount of administrative work that we're doing up through the stockholder vote and getting through the government approvals that we need from the government things, those are ongoing into Q2 as well. So, that was a one-timer of about $1 million that is included in our gross margin. From a non-GAAP perspective, those are not included in non-GAAP. From operating expenses going forward, I think you asked that was the last part of your question. You know, we do have a new leader here with Kirsten and some of the outside consultants that she mentioned that would put slight upward pressure on OPEX going forward throughout the next couple quarters.

Justin Scarpulla: The amount of administrative administration that we're giving up through the stockholder vote and getting through the.

Justin Scarpulla: The approvals that we need from the government things those are ongoing into Q2 as well. So that was a one timer of about $1 million that is included in our in our gross margin from a non-GAAP perspective.

Justin Scarpulla: Those are not included in non-GAAP from operating expenses going forward I think you asked that was the last part of your question.

Justin Scarpulla: We do have a new leader here with Kirsten and.

Justin Scarpulla: Some of the outside consultants as she mentioned that would put some upward pressure on opex going forward throughout the next couple of quarters.

Justin Scarpulla: Got it thank you and then tourists and.

Justin Scarpulla: Got it. Thank you. And then Kirsten, just a couple of questions for you. So one, in a public forum, welcome aboard.

Speaker Change: Just a couple of questions for you so one.

Kirsten Newquist: In a public forum welcome aboard and I just talked to you Ken.

Craig Andrew Ellis: Nice to talk to you again. Thank you. You said, yeah, you're welcome.

Kirsten Newquist: Thank you mentioned yeah, you're welcome you mentioned two things I wanted to follow up on when it's more of a near term item and the other so longer term item.

Kirsten Newquist: You mentioned two things I wanted to follow up on. One's more of a near-term item, and the other's a longer-term item. In the near term, the intent to mix out some of the lower margin business by the first half of next year or into the first half of next year. Can you just talk about the size of that business currently and whether or not that impacts any medical business or if it's in other end markets and then related to the medical business?

Kirsten Newquist: In the near term.

Kirsten Newquist: Intent to mix out some of the lower margin business by the first half of next year or into the first half of next year can you just talk about the the size of that business presently in and whether or not bad impact any medical business or fits in.

Kirsten Newquist: Other end markets and then related to the medical business can you just talk about what your vision is for how big that business would be in the next year or so and what you think it could become.

Kirsten Newquist: Can you just talk about what your vision is for how big that business will be in the next year or so and what you think it could become, if not quantitatively, qualitatively, in a three- to five-year period? Thank you.

Kirsten Newquist: If not quantitatively qualitatively in a three to five year period. Thank you.

Speaker Change: Yes, certainly so I think in the very short term as we talked about exiting some of the low margin business. It is truly very low margin business and as I said in my previous statements. It doesn't even justify the move into Thailand, north sustaining at long term and this is not business.

Kirsten Newquist: Yeah, so certainly. So I think in the very short term, as we talked about exiting some of the low margin businesses, it is truly a very low margin business. And as I said in my previous statements, it doesn't even justify the move into Thailand or sustain it long term. And this is not a business in the medical market at all. So it's really that very, very low margin business. And quite frankly, as I've told the team here, we're not here to practice; we're actually here to make money.

Kirsten Newquist: In the medical market at all so it's really that very very low margin business and quite frankly as I've told the team here.

Kirsten Newquist: We're not we're not here to practice, we're actually here to make money and.

Kirsten Newquist: And so we certainly don't want to take our resources and or are budgets and move my new business that makes no sense for us to continue and for the long term, but it does not include any of the medical business for sure.

Kirsten Newquist: And so we certainly don't want to take our resources and our budgets and move businesses that make no sense for us to continue in the long term. But it does not include any of the medical business, for sure.

Kirsten Newquist: So I think in terms of longer term theres definitely a lot of opportunity as I said in my in my earlier statement in the in the medical space. It is a nascent space, we definitely see a lot of the major players the major pharmaceutical companies the major medical device companies starting to explore.

Kirsten Newquist: And so I think in terms of the longer term, there's definitely a lot of opportunity, as I said in my earlier statement in the medical space. It is a nascent space. We definitely see a lot of the major players, the major pharmaceutical companies, and the major medical device companies starting to explore different opportunities. Some of them are small R&D projects. Some of them are pilots who are really trying to gain experience so that they can work it into a bigger launch.

Kirsten Newquist: Different opportunities some of them are small R&D projects. Some of them are pilots that they're really trying to gain it.

Kirsten Newquist: Experience so that they can work it into a bigger launch so we certainly see a lot of interest we see a lot of potential.

Kirsten Newquist: So we certainly see a lot of interest. And we see a lot of potential. And it's hard to quantify exactly where we think it can go in the next three to five years. We'll be doing some work, some deep work over the next four to five months to quantify it for IDif and get a little bit more clarity on that. But it definitely could be a significant opportunity just because when you see the volumes that exist in the different categories that we're contemplating, they're really, really large. And we definitely see interest from the medical device and pharmaceutical companies today.

Kirsten Newquist: And you know, it's hard to quantify exactly where we think it can go in the next three to five years, we'll be doing some work some deep work over the next.

Kirsten Newquist: Four to five months to quantify it for Identive and get a little bit more clarity on that but it definitely could be a significant opportunity just because when you see the volumes that exist in the different categories that we're contemplating there really really large and we definitely see the interest from.

Kirsten Newquist: The medical device in the pharmaceutical company today.

Speaker Change: Thanks for that color.

Kirsten Newquist: Thank you once again, everyone. If you have any questions or comments. Please press star then one on your phone.

Craig Andrew Ellis: Thank you. Once again, everyone, if you have any questions or comments, please press star, then 1 on your phone. Your next question is coming from Michael Piccolo from Imperial Capital.

Michael Neil Piccolo: Your next question is coming from Michael Picken from Imperial Capital. Your line is live.

Michael Neil Piccolo: Hi, guys. Thank you for taking my question and congrats again on the transaction and kissing joining with team wanted to just get a little bit more clarity on the Iot business I'm going to call you guys spoke about it in the proxy you cited the gross margin potential in excess of 35% and then I also understand curious when was saying there could be sure.

Michael Neil Piccolo: Hi guys. Thank you for taking the question, and congrats again on the transaction and Kirsten joining the team. I wanted to just get a little bit more clarity on the IoT business. On the call, you guys spoke about it, and the proxy cited a gross margin potential of in excess of 35%. And then I also understand Kirsten was saying there could be shorter-term impacts from gross margin as you exit lower-margin projects. We understand that 35% is a long-term target, but can you talk about how we get there? Is it going to be lumpy and project-based, or will there be more smooth increases over time?

Michael Neil Piccolo: Order term impacts from the gross margin has been lower margin projects, we understand that 35% long term target, but can you talk about how we get there is it going to be lumpy and project based or more smoother increases over time.

Michael Neil Piccolo: Yes, there's going to be a combination there as we've as we've talked about.

Justin Scarpulla: Yeah, I think there's going to be a combination there as we, as we talked about our increasing focus on healthcare, as those start to play out and move to their next cycle. They are in their infancy today as far as where we are in their product life cycle.

Justin Scarpulla: Our increasing focus on health care as those start to play out.

Justin Scarpulla: And move to their next cycle. They are in their infancy today as far as where we are in the product lifecycle. So we know with we feel within our in our either our new product initiatives that we have a strong base of health care projects that we feel will will go to <unk>.

Justin Scarpulla: So we know, we feel within our NREs, our new product initiatives, that we have a strong base of healthcare projects that we feel will go to production and get us to where we need to be. Our healthcare today, as I alluded to, and I noted in Q4, our healthcare today, although a smaller percentage of our business, is in that 30 to 35% range. So we feel we'll get there with a mixed shift over to healthcare out of our kind of commodity and lower margin one.

Justin Scarpulla: Production level and get us to where we need to be.

Justin Scarpulla: Our health care today, as I alluded to and I and I noted in Q4, our health care today, although a smaller percentage of our business is in that 30% to 35% range. So we feel we'll get there with a mix shift over to health care out of our kind of commodity and lower margin won the second piece of that is going to be our shift.

Justin Scarpulla: The second piece of that is going to be our shift from Singapore to Thailand. We've been talking about it for quite a while, and Kirsten noted in her analysis as well, when we talked about it today, that we're going to try to accelerate that out of Singapore and into Thailand. Between the overhead and the labor, we'll see significant savings there. It's going to take time, and we'll have some short-term bumps here because we'll be running both through 2023, sorry, through 2024 here through the next couple quarters.

Justin Scarpulla: From Singapore to Thailand, we've been talking about it for quite a while and appears to noted in her.

Justin Scarpulla:

Justin Scarpulla: Her.

Justin Scarpulla: Alex is as well that when we talked about it today that we're going to try to accelerate that out of Singapore, and India, Thailand between the overhead and labor, we will see significant savings there it's going to take time and we will have some short term bumps here, because we're being running both through 2023.

Justin Scarpulla: So there are 2024 here through the next couple of quarters, but when we are in a long longer term Thailand.

Justin Scarpulla: But when we are in a longer-term Thailand production facility, we should get some adequate margin points out of that as well. Previously, I think we said 5%, but our early numbers indicated it could be north of 5% on a long-term basis, being in Thailand only. So those two give us confidence that we'll hit our long-term target. As I said, in the short term, I think it'll be a little bumpy, but in the longer term, those are a couple of the factors that are contributing to how we get up to 35%.

Justin Scarpulla: Duction facility, we should get some adequate margin points out of that as well previously I think we said, 5%, but our early numbers indicate it could be north of 5% on a long term basis being in Thailand, only so those two give us confidence that we'll hit our long term target as I said short term I think it'll be a little bumpy, but in the longer term those are couple of other factors.

Justin Scarpulla: That are contributing to how we get up to that 75%.

Speaker Change: Got it that's very helpful color. Thank you.

Michael Neil Piccolo: Got it. That's very helpful, Collin. Thank you.

Speaker Change: And just one follow up the Iot business in terms of both I guess cash deployment expectations in organic investment areas can you just talk a little bit more about I guess you know when you guys discussed in the proxy in terms of you know how you plan I know I think <unk> mentioned on the call that the M&A isn't a main priority right now but.

Speaker Change: But I guess, what is and can we talk about you know what were the cash and how it is going to be deployed.

Michael Neil Piccolo: And just kind of one follow-up to the IoT business in terms of both, I guess, cash deployment expectations and organic investment areas. Can you talk a little bit more about, I guess, what you guys discussed in the proxy in terms of, you know, how you plan? I know, I think Kirsten mentioned on the call that M&A isn't a main priority right now, but I guess what is, and can we talk about, you know, where the cash is and how it's going to be deployed?

Collin: Yeah, So I think.

Michael Neil Piccolo: The first two priorities as I said, a little bit earlier, certainly we got to do some work to ensure that we have strong business excellence and that we have the right processes. The right team the right resources in place. So that we have a really strong foundation to build for the future. So we'll be spending time developing that plan and moving that forward.

Kirsten Newquist: Yeah, so my first two priorities, as I said a little bit earlier, certainly, we have got to do some work to ensure that we have strong business excellence and that we have the right processes, the right team, the right resources in place so that we have a really strong foundation to build on for the future. So we'll be spending time developing that plan and moving that forward. Secondly, we want to make sure that we're super clear about our strategic focus.

Michael Neil Piccolo: Secondly, we wanted to make sure that we're super clear with our strategic focus you know, we talk about health care as being a great segment for us, but that is a very big segment with very many different use cases and different ways that we can play we're going to be doing a lot of deep dive work.

Kirsten Newquist: You know, we talk about healthcare as being a great segment for us, but that is a very big segment with very many different use cases and different ways that we can play. We're going to be doing a lot of deep dive work, as I said, over the next three to four months, really going deep on the applications that we think we have a true competitive advantage and where we can really compete effectively and gain those margins.

Kirsten Newquist: As I said over the next three to four months really going deep on the applications that we think we have a true competitive advantage and where we can really compete effectively and gain those margins. So we're gonna get very clear with our focused obviously, we're looking at some non health care related segments as well, but we want to be really really clear with where we want it.

Kirsten Newquist: So we're going to get very clear with our focus. Obviously, we're looking at some non-healthcare related segments as well, but we want to be really, really clear with where we want to go. It doesn't mean that we won't look at other applications, but we want to know where we're going to be driving the market, where we're going to be going after and looking for business. And we want to give ourselves time to do that.

Kirsten Newquist: So actively go it doesn't mean that we won't look at other.

Kirsten Newquist: Other applications, but we want to know where we're going to be driving the market, where we're going to be going after and and looking for business and we wanted to give ourselves time to do that and part of that strategic process. Obviously, we'll also be looking for opportunities to.

Kirsten Newquist: And part of that strategic process, obviously, we'll also be looking for opportunities to expedite the strategic plan and continue to build value beyond the inlays. I know there's already been a lot of work on building a data management platform, which I think is great, but we need to be very, very clear with where we want to continue to expand it. And so that's part of the strategic work. And coming out of that strategic work, we'll be a lot more clear about how we want to invest the money and where we want to invest it.

Kirsten Newquist: Expedite the strategic plan and continue to build value beyond the inlays I know there's been a lot of work kind of on building a data management platform, which I think is great, but we need to be very very clear with where we want to continue to expand it in and do that and so that's part of the strategic work and coming out of that strategic work will be.

Kirsten Newquist: Lot more clear with how we want to invest the money and where we want to invest it.

Speaker Change: Great. Thank you for the color.

Kirsten Newquist: Great, thank you for the color.

Speaker Change: Thank you once again, everyone. If you have any questions or comments. Please press star then one on your phone.

Operator: Thank you. Once again, everyone, if you have any questions or comments, please press star, then one, on your phone. Your next question is coming from Jaeson Schmidt from Lake Street. Your line is live.

Jaeson Allen Min Schmidt: Your next question is coming from Jason Smith from Lake Street. Your line is live.

Jaeson Allen Min Schmidt: Hey guys, thanks for taking my questions. I just want to follow up on the commentary on the focus on higher-margin business within the identity segment going forward. So, on a going forward basis, is it fair to assume that any new program you guys look at or take on has to clear a certain gross margin hurdle going forward for you to even look at it?

Jaeson Allen Min Schmidt: Hey, guys. Thanks for taking my questions just wanted to follow up on sort of the commentary on the focus on higher margin business within the identity segment going forward.

Jaeson Allen Min Schmidt: On a go forward basis is it fair to assume that.

Jaeson Allen Min Schmidt: Any new program you guys look at or take on path to clear a certain gross margin hurdle going forward for you to even look at it.

Kirsten Newquist: Yes, we're going to be looking at two things. I think a growth margin hurdle, and we'll be looking at it through kind of two different lenses. So obviously, if it's for a product that's already developed in a mature industry that's more competitive, that'll be one growth margin target. And as we look at the high-value opportunities that require significant customization and that we'll also be investing ourselves to develop them, obviously, those margin targets will be quite a bit higher. So we really will have, you know, different criteria for different types of products and depending on what the initial investment and effort are to customize the product.

Jaeson Allen Min Schmidt: Yes, we're going to be looking at two things I think our gross margin hurdle and we will be looking at it with a kind of two different lenses. So obviously, if it's for a product that's already developed.

Kirsten Newquist: In a mature industry, that's more competitive that'll be one gross margin target and as we look at the high value opportunities that require significant customization and that will also be investing ourselves to develop them. Obviously those margin targets will be quite a bit higher.

Kirsten Newquist: So we really will have a different criteria for different types of products.

Kirsten Newquist: And depending on what the initial investment and effort it is to customize the product.

Speaker Change: Got it and then just as a follow up you called out specialty retail smart packaging and smart home devices. Obviously, you already have exposure in those today, but surely scale within each of those markets. Do you think you need to build out the sales infrastructure in a significant way or do you have.

Jaeson Allen Min Schmidt: Got it. And then, just as a follow-up, you called out specialty retail, smart packaging, and smart home devices. Obviously, you already have exposure to those today. But to really scale within each of those markets, do you think you need to build out the sales infrastructure in a significant way, or do you already have everything in house today?

Jaeson Allen Min Schmidt: Everything in house today.

Kirsten Newquist: Yeah, no, I think definitely. And that's why, you know, once again, our, my initial priority is really getting clarity on our strategic focus. So we've definitely got some really intriguing projects already in those spaces. And so, as we're looking at healthcare and the timeline for healthcare, and some of the applications there, we definitely think we can pursue some of those other segments proactively as well. But we really have to balance it. And, obviously.

Speaker Change: Yeah, No I think definitely and that's why you know once again are my initial priority is really getting clarity on our strategic focus. So we've definitely got some really intriguing projects already in those spaces and so as we're looking at health care and the timeline for health care and some of the applications. There. We definitely think we can pursue some.

Kirsten Newquist: Are those other segments proactively as well, but we really have to balance it.

Kirsten Newquist: And obviously.

Kirsten Newquist: To be able to go directly into those different segments, we wanna build out a business development effort. Those business development efforts have to be tied specifically to the vertical itself. So we're gonna have to be really careful with how many we take on, because obviously there'll be an investment on the business development side of it as we want to go deep into specific segments.

Kirsten Newquist: To be able to go directly into the different segments, we want to build out our business development effort does business development efforts has to be tied specifically to the vertical itself. So we're going to be really careful with how many we take on.

Jaeson Allen Min Schmidt: Okay, that makes sense. Thanks a lot.

Jaeson Allen Min Schmidt: Because obviously there'll be an investment on the business development side of it as we want to go deep into specific segments.

Jaeson Allen Min Schmidt: Okay that makes sense, thanks a lot.

Jaeson Allen Min Schmidt: Thank you that concludes our Q&A session I'll now hand, the conference back to CEO, Steven Humphreys for closing remarks. Please go ahead.

Operator: Thank you. That concludes our Q&A session. I'll now hand the conference back to CEO Steven Humphreys for closing remarks. Please go ahead.

Steven Humphreys: Alright, Thanks, operator, and thank you all again for joining US we will continue to update you all on the business progress in the Kpis as Kirsten laid out in her discussion and on our progress and timeline for closure of our transaction of course.

Steven Humphreys: All right. Thanks, operator. And thank you all again for joining us. We'll continue to update you all on business progress and the KPIs, as Kirsten laid out in her discussion, and on our progress and timeline for closing our transaction, of course. For details of the transaction and the business going forward, please do review our preliminary proxy that's already on file with the SEC. We expect to file our definitive proxy in the coming weeks.

Steven Humphreys: For details of the transaction and the business going forward. Please do review our preliminary proxy that's already on file with the SEC, we expect to file our definitive proxy in the in the upcoming weeks and at that point, we will announce the date for our annual meeting and stockholder vote on the transaction in terms of Investor outreach, we will be attending the B Riley conference on May 20 <unk>.

Steven Humphreys: And at that point, we'll announce the date for our annual meeting and stockholder vote on the transaction. In terms of investor outreach, we'll be attending the B. Riley Conference on May 22nd. And Craig Hallam is on track to set up a fireside chat session in early June. And we'll also share business updates following our shareholder vote, of course, and the AGM. And if you have any questions, please don't hesitate to reach out to Sophie and our investor relations team. So thank you all again, and have a very good evening.

Steven Humphreys: And Craig Hallum has a is on track to set up a fireside chat session. In early June and we will also share business updates following our shareholder vote of course, and the AGM and if you have any questions. Please don't hesitate to reach out to us So PNR investor relations team. So thank you all again and have a very good evening.

Speaker Change: Thank you everyone. This concludes today's event you may disconnect at this time and have a wonderful day. Thank you for your participation.

Operator: Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.