Q2 2024 Identiv Inc Earnings Call
Good afternoon, welcome to identify presentation of its second quarter 2024 earnings call. My name is Holly and I will be your operator this afternoon.
Operator: Joining us for today's presentation are the company's CEO, Steven Humphreys, CFO, Justin Scarpulla, and President, IoT Solutions, Kristen Newquist. Following their remarks, we will open up the call for questions. Before we begin, please note that during this call, management may be making references to non-gap financial measures or guidance, including non-gap adjusted e-badas, non-gap gross margin, and non-gap 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 the identities of the 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 Scarpulla, and President Iot solutions, Kristen New quest.
Speaker Change: Following management's remarks, we will open up the call for questions.
Speaker Change: 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.
Operator: Actual results may differ materially from those expressed in these forward-looking statements. For more information, please refer to the risk factors discussed in documents filed from time to time with the SEC, including the company's latest annual report on Form 10-K and quarterly report on Form 10-Q, as well as our second quarter 10-Q once filed. Identiv assumes no obligation to update these forward-looking statements.
Speaker Change: In addition, during the call management will be making forward looking statements.
Speaker Change: 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 identive as opposed to closing business.
Speaker Change: <unk> is a forward looking statement.
Speaker Change: Actual results may differ materially from those expressed in these forward looking statements.
Speaker Change: For more information please refer to the risk factors discussed in documents filed from time to time with the S. E C.
Speaker Change: Including the company's latest annual report on Form 10-K, and quarterly report on Form 10-Q, as well as our second quarter 10-Q once filed.
Speaker Change: Identive assumes no obligation to update these forward looking statements.
Operator: I will now turn the call over to CEO Steven Humphreys for his comments. Sir, please proceed.
Speaker Change: I will 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 second quarter accomplished the three main goals for the business to build our base for the company's long-term future. First, Kirsten Newquist, the president of our IoT business and soon-to-be CEO of Identiv, made great progress understanding our core IoT business and developing a rigorous plan for future growth. Second, we cleared all but the last one of the process hurdles to close our transaction to divest our security business.
Steven Humphreys: Thanks, operator, and thank you all for joining us.
Steven Humphreys: The second quarter accomplished the three main goals for the business to build our base for the company's long term future.
Speaker Change: First here's the new quest, the president of our Iot business and soon to be CEO of Identive made great progress understanding our core Iot business and developing a rigorous plan for future growth.
Speaker Change: Second we cleared all but the last one of the process hurdles to close our transaction to divest our security business lines.
Steven Humphreys: And third, our combined total company revenues exceeded consensus estimates, delivering the results needed to keep our strategy on track. I'll address the Q2 results in the context of the transaction and support for the business going forward and then turn the call over to Keir Starmer. Execution across Identiv continued as projected despite being in a pre-closing state that could be distracting for any organization. We were able to deliver revenues above consensus estimates through Kirsten's leadership of the IoT team and solid performance of the Physical Security and Identity Reader team. As we progress through the preparations for the closing of this strategic transaction, lighter protects has been a support and a partner, enabling management to focus on executing our growth plan to deliver this revenue.
Speaker Change: And third our combined total company revenues exceeded consensus estimates delivering the results needed to keep our strategy on track.
Speaker Change: I'll address the Q2 results in the context of the transaction and support for the business going forward and then turn the call over to Kirsten.
Kierston: Execution across Identive continued as projected despite being in a pre closing state. It can be distracting for any organization, we were able to deliver revenues above consensus estimates through kierston. His leadership of the Iot team and solid performance of the physical security and identity reader teams as.
Speaker Change: As we progressed through the preparations for the closing of the strategic transaction later protects been a supportive partner, enabling management to focus on executing our growth plan to deliver this revenue.
Steven Humphreys: Justin's important; we're managing cash tightly to be sure our businesses are healthy during the transition. As a result, we finished in a better cash position than our internal forecast. Operationally, we had some gross margin pressure due to mix in the security business and temporarily lower overhead absorption as we accelerate our move to Thailand, partly offset by the phase-out of some lower-margin business.
Speaker Change: Just as important we're managing cash tightly to be sure our businesses are healthy during the transition.
Speaker Change: As a result, we finished at a better cash position than our internal forecast.
Speaker Change: Operationally, we had some gross margin pressure due to mix in the security business and temporarily lower overhead absorption as we accelerate our move to Thailand, partly offset by the phase out of some lower margin business.
Steven Humphreys: Regarding the transaction process, we've executed each step on track. We've cleared antitrust and UK regulatory approval. And for our shareholder approval, we received a 96 percent positive vote among our voting shareholders in favor of the strategic transaction. Our only remaining regulatory step is U.S. government CFIUS approval. This is going well, and we expect a decision within the Q3 timeframe we've communicated before. We're confident we're on track to close the transaction as planned.
Speaker Change: Regarding the transaction process, we've executed each step on track, we've cleared antitrust in UK regulatory approval and for our shareholder approval, we received a 96% positive vote, among our voting shareholders in favor of the strategic transactions.
Speaker Change: Our only remaining regulatory step is U S government <unk> approval. This is going well and we expect a decision within the Q3 timeframe we've communicated before.
Speaker Change: We're confident we're on track to close the transaction as planned upon closure, we expect to add about $130 million in net cash after taxes bankers' fees and one time costs.
Speaker Change: One other clarification I'd like to make about our reported financials in today's earnings release in accordance with GAAP. Our financials are now being reported as continuing operations, our Iot business and discontinued operations, our physical security and reader businesses now Jessica will cover these in further detail in the financial discussion, but before that.
Speaker Change: I'd like to turn the call over to Kirsten for her update on the current Iot business.
Jessica: Over to you.
Kirsten Newquist: Thank you, Steve, and good afternoon, everyone. I'm glad to be with you all today to provide an update on the IoT business and the progress we've made on our strategic growth and go-to-market plans since we last spoke in May. I've been at Identiv for nearly four months, and I've spent much of that time diving deep into the details of our IoT business and preparing for the Anticipated Close of the Asset Cell Transaction, which will provide significant capital to fund the future growth of the company. I have visited our offices in Germany, Thailand, and Singapore to meet with our teens, learn about ourselves in R&D processes, and listen to their feedback.
Kirsten: Thank you, Steve and good afternoon, everyone I'm glad to be with you all today to provide an update on the Iot business and the progress we've made on our strategic growth and go to market plans since we last spoke in May.
Kirsten: I've been at Identive for nearly four months and Ive spent much of that time diving deep into the details of our Iot business and preparing for the anticipated close of the asset sale transaction, which will provide significant capital to fund the future growth of the company.
Kirsten: I have visited our offices in Germany, Thailand, and Singapore to meet with our teams learned about ourselves and R&D processes and listen to their feedback.
Kirsten Newquist: We have some of the most talented people in the RFID industry working at Identiv, and their passion for our technology and customers is energized. I've also had the opportunity to meet with some of our customers and suppliers, allowing me to hear directly from them about the areas where we excel and where we can improve. I've received particularly positive feedback on our ability to quickly develop technical solutions and produce prototypes for testing. As I've gotten to know the business, some of my initial impressions have been confirmed, while others have evolved as I've learned more.
Kirsten: Some of the most talented people in the RFID industry working out of dentists and their passion for our technology and customer it is energizing.
Kirsten: I've also had the opportunity to meet with some of our customers and suppliers, allowing me to hear directly from them about the areas, where we excel and where we can improve.
Kirsten: I've received particularly positive feedback on our ability to quickly develop technical solutions and produce prototypes for testing.
Kirsten: As I've gotten to know the business. Some of my initial impressions were confirmed while others have evolved as I learn more.
Kirsten Newquist: I'll start today's discussion with an update on our core IoT business. With a deeper understanding of our customers, products, and capabilities, it is clear to me that the opportunity space for Identiv Specialty IoT solutions is strong. Going forward, we need to focus the organization on the highest potential and most sustainable opportunities.
Kirsten: I'll start today's discussion with an update on our core Iot business.
Kirsten: With a deeper understanding of our customers' products and capabilities. It is clear to me that the opportunity space for Identive specialty Iot solutions is strong.
Kirsten: Going forward, we need to focus the organization on the highest potential and most sustainable opportunities.
Kirsten Newquist: Our core business is primarily focused on selling and marketing through the RFID channel, which allows us to serve many industries and segments and complement our own sales and marketing efforts with those of our partners. We are strengthening our relationships with our channel customers. Shifting from a traditional supplier approach to a more collaborative partnership model, we have many promising customer-driven new product development opportunities in progress, such as an HF authentication solution for surgical consumables, NFC-enabled smart labels for auto-injectors, and NFC-enabled smart labels for top-shelf liquor brands to enhance consumer engagement.
Kirsten: Our core business is primarily focused on selling and marketing through the RFID channel, which allows us to serve many industries and segments and complements our own sales and marketing efforts with those of our partners.
Kirsten: We are strengthening our relationships with our channel customers shifting from a traditional supplier approach to a more collaborative partnership model.
Kirsten: We have many promising customer driven new product development opportunities in progress.
Kirsten: As an H F authentication solution for surgical consumables.
Kirsten: NFC enabled smart labels for auto injectors, and NFC enabled smart labels for top sell liquor brands to enhance consumer engagement.
Kirsten Newquist: However, we need a more disciplined approach to evaluating these opportunities from the start and throughout the product development process to ensure we focus on those that we expect will have a sustainable competitive advantage and strong ROI for the business. To address this, we are implementing a stage gate process to actively manage the projects, assess viability and ROI at each stage, and maintain continuous customer engagement. We are developing clear criteria for accepting new opportunities, as well as for entering each stage of the development process. New projects must meet these acceptance criteria before we begin design work, and we will be diligent in reassessing at each stage gate.
Kirsten: However, we need a more disciplined approach to evaluating these opportunities from the start and throughout the product development process to ensure we focus on those that we expect will have a sustainable competitive advantage and strong ROI for the business.
Kirsten: To address this we are implementing a stage gate process to actively manage the projects assess viability and ROI at each stage and maintained continuous customer engagement.
Kirsten: We are developing clear criteria for accepting new opportunities as well as for entering each stage of the development process new projects must meet these acceptance criteria before we begin design work and we will be diligent and reassessing at each stage gate.
Kirsten Newquist: When I visited Thailand, I was very impressed with our new state-of-the-art production facility, with its competitive cost structure and led by our highly experienced RFID operations leader and his skilled teams. As we mentioned on our last earnings call, the transition of our RFID production from Singapore to Thailand is a key near-term priority, and we are progressing it with the highest sense of urgency. We made significant progress in Q2 toward that objective, including receiving our ISO 9001 and ISO 14001 quality certifications for the Thailand facility, and we will continue to move machines and add headcounts in Thailand throughout the second half of this year.
Speaker Change: When I visited Thailand, I was very impressed with our new state of the art production facility with its competitive cost structure and led by our highly experienced RFID operations leader and his skilled team.
Kirsten: As we mentioned on our last earnings call the transition of our RFID production from Singapore to Thailand is a key near term priority and we are progressing it with the highest sense of urgency.
Kirsten: We made significant progress in quarter, two toward that objective, including receiving our ISO 9001, and ISO 14001 qualities or certifications for the Thailand facility and we will continue to move machines and add head count in Thailand throughout the second half of this year.
Kirsten Newquist: We are on track to complete the majority of the transition with the exception of three customers by quarter to one twenty twenty five. Due to qualification and regulatory requirements, we will continue to support these three customers in Singapore into 2025. We are continuing to phase out our very low margin business and anticipate discontinuing another 10% of this year's volume in line with completing the transition.
Kirsten: We are on track to complete the majority of the transition with the exception of three customers by quarter one 2025.
Kirsten: Due to qualification and regulatory requirements, we will continue to support these three customers in Singapore into 2020 five.
Kirsten: We are continuing to phase out or very low margin business and anticipate discontinuing another 10% of this year's volume in line with completing the transition.
Kirsten Newquist: Once we shift all production to Thailand and the team achieves full productivity, we expect the non-gap growth margin of our core business to almost double, reaching 26 to 28%. By focusing our growth efforts on higher-margin segments, those with over 35% growth margin, we believe we can ultimately achieve a 30% plus non-gap growth margin for the business. Nonetheless, there remains much to do for the IoT business to fully capitalize on its potential and achieve the scale necessary to become a self-sustaining standalone company. Separating the IoT business from the physical security business will require focus, resources, and collaboration with the physical security team during the 12 months transition period.
Kirsten: Once we shipped all production to Thailand, and the team achieves full productivity, we expect the non-GAAP gross margin of our core business to almost doubled reaching 26% to 28%.
Kirsten: By focusing our growth efforts on higher margin segments does with over 35% gross margin. We believe we can ultimately achieve a 30% plus non-GAAP gross margin for the business.
Kirsten: Nonetheless, there remains much to do for the Iot business to fully capitalize on its potential and achieve the scale necessary to become a self sustaining standalone company.
Kirsten: Separating the Iot business from the physical security business will require focus resources in collaboration with the physical security team during the 12 month transition period.
Kirsten Newquist: We have engaged an external advisor to assess our current business processes and identify key priority areas. We are building a plan to address these areas to ensure we have a strong foundation on which to scale the business. Although we see a path to achieving a 30% non-gap growth margin, we will need to scale the current size of our IoT business. With our OPEX profile, including the costs associated with being publicly listed, we believe we should be able to achieve EBITDA breakeven at $60 to $70 million in annual sales.
Kirsten: We have engaged an external adviser to assess our current business processes and identify key priority areas.
Kirsten: We are building the plan to address these areas to ensure we have a strong foundation on which to scale the business.
Kirsten: Although we see a path to achieving a 30% non-GAAP gross margin, we will need to scale. The current size of our Iot business with our opex profile, including the costs associated with being publicly listed we believe we should be able to achieve EBITDA breakeven at 60 to 70 million in annual sale.
Kirsten: <unk>.
Kirsten Newquist: This leads to my second key priority, which is to complete our strategy and growth plan, so we have a clear path to reach this annual run rate as quickly as possible. While we expect that much of the strategy will be organic, we are also exploring other strategic options such as mergers, partnerships, and acquisitions. As we consider these options, we intend to focus on those that not only bring scale but also offer complementary products, strong synergies, talent, and are highly accretive financially.
Kirsten: This leads to my second key priority, which is to complete our strategy and growth plan. So we have a clear path to reach this annual run rate as quickly as possible.
Kirsten: Well, we expect that much of the strategy will be organic we are also exploring other strategic options such as mergers partnerships and acquisitions as we consider these options we intend to focus on those that not only brings scale, but also offer complementary products strong synergies talent and are high.
Kirsten: [noise] accretive financially.
Kirsten Newquist: But before I get into the details of our strategy efforts, I would like to hand the call to Justin so he can provide the financial update for quarter two, the cash requirements for the next 12 months, and the quarter three guidance for our continuing operations as well as the combined.
Justin: But before I get into the details of our strategy efforts I would like to hand off the call to Justin So he can provide the financial update on quarter to the cash requirements for the next 12 months and the quarter three guidance for our continuing operations as well as the combined business.
Justin: Thanks Kirsten.
Justin Scarpulla: Although we concluded the second quarter of 2024 as a combined company, as Steve mentioned, in accordance with the gap, we are required to report financials for the continuing operations of the company, our IOT business... and reports the financials for the physical security business as discontinued operations due to the pending sale of the assets of that business.
Justin: Although we concluded the second quarter of 2024 as a combined company as Steve mentioned in accordance with GAAP. We are required to report financials for the continuing operations of the company, our Iot business and report the financials for the physical security business.
Speaker Change: Discontinued operations due to the pending sale of the assets of that business.
Justin Scarpulla: Since we provided two guidance for the combined company, including both our IoT and physical security businesses, for comparison purposes, we have also provided the aggregated total company results, which are now considered non-gap in today's earnings relief. Our gap revenue from our IoT business for the second quarter of 2024 was $6.7 million, compared to $11.5 million in the second quarter of 2023. The decrease in gap revenue year-over-year was primarily the result of lower sales of our BLE transponder products to one of our customers.
Justin: Since we provided guidance for the combined company, including both our Iot and physical security businesses for <unk>.
Kirsten: There are some purposes. We have also provided the aggregated total company results, which are now considered a non-GAAP in today's earnings release.
Kirsten: Our GAAP revenue from our Iot business for the second quarter of 2024 was $6 7 million compared to $11 5 million in the second quarter of 2023.
Kirsten: Decrease in GAAP revenue year over year was primarily the result of lower sales of our B transponder products to one of our customers.
Justin Scarpulla: Gap and non-gap gross margin in Q2 2024 was 9.1 and 14.6 percent, respectively, compared to gap and non-gap gross margin of 14.2 and 16.6 percent, respectively, in Q2 2023. The decrease in gross profit margins was primarily attributable to lower sales, as discussed, which resulted in underutilization of our production facilities in Southeast Asia, as well as the opening of our Thailand facility in July
Justin Scarpulla: GAAP and non-GAAP gross margin in Q2, 'twenty 'twenty four was 9.1, and 14, 6%, respectively compared to GAAP and non-GAAP gross margin of 14.2, and 16, 6% respectively. In Q2 2023.
Kirsten: The decrease in gross profit margins was primarily attributable to lower sales.
Justin Scarpulla: Costs, which resulted in under utilization of our production facilities in southeast Asia as well as the opening of our Thailand facility in July 2023.
Kirsten: As Justin mentioned by focusing our growth efforts on higher margin segments. We believe we can achieve 30% plus non-GAAP gross margin for our Iot business.
Justin Scarpulla: As Kirsten mentioned, by focusing our growth efforts on higher margin segments, we believe we can achieve a 30% plus non-GAAP gross margin for our IoT business. GAAP operating expenses from the IoT business, including research and development, sales and marketing, and general and administrative, were $7.3 million in the second quarter of 2024, as compared to $5 million in the second quarter of 2023. Included in the second quarter GAAP operating expenses were $1.6 million in strategic transaction related costs.
Justin Scarpulla: GAAP operating expenses from our Iot business, including research and development sales and marketing and general and administrative were $7 3 million in the second quarter of 2024 as compared to $5 million in the second quarter of 2023 <unk>.
Speaker Change: You did in the second quarter GAAP operating expenses were $1 6 million and strategic transaction related costs.
Justin Scarpulla: As of June 30, 2024, the cumulative strategic transaction related cost totaled $3 million. Non-GAAP operating expenses from our IoT business adjusted to exclude restructuring, strategic transaction-related, and severance costs and certain non-cash charges consisting of stock-based compensation and depreciation and amortization were $4.7 million in the second quarter of 2024 as compared to $4.4 million in the second quarter of 2023. Gap net loss from our IoT business in Q2 2024 was $6.9 million, or $0.31 per basic and diluted share, compared to a gap net loss of $3.5 million, or $0.16 per basic and diluted share, in the second quarter of 2023.
Kirsten: As of June 30th 'twenty, 'twenty, four the cumulative strategic transaction related cost totaled $3 million.
Justin Scarpulla: non-GAAP operating expenses from our Iot business adjusted to exclude restructuring strategic transaction related and severance costs and certain noncash charges, consisting of stock based compensation and depreciation and amortization were $4 7 million in the second quarter of 2024.
Justin Scarpulla: That's compared to $4 4 million in the second quarter of 2023.
Justin Scarpulla: GAAP net loss from our Iot business in Q2, 2024 was $6 9 million or <unk> 31 cents per basic and diluted share compared to GAAP net loss of three 5 million or 16 cents per basic and diluted share in the second quarter of 2023.
Justin Scarpulla: 2nd quarter, 2024, non-gap adjusted EBITDA from our IoT business was a negative 3.7 million, compared to a negative $2.6 million in the second quarter of 2023. The decrease was primarily the result of lower year-over-year IoT revenues, which also resulted in underutilization of our production facilities in Southeast Asia, as well as the opening of our Thailand facility in July 2023.
Justin Scarpulla: Second quarter 2024, non-GAAP adjusted EBITDA from our Iot business was a negative $3 7 million.
Justin Scarpulla: Compared to a negative $2 6 million in the second quarter of 2023. The decrease was primarily the result of our lower year over year Iot revenues, which also resulted in underutilization of our production facilities in southeast Asia.
Justin Scarpulla: As well as the opening of our Thailand facility in July 2023.
Justin Scarpulla: In the appendix of today's presentation, we have provided a full reconciliation of GAP to non-GAAP financial measures, which is also included in our earnings release. Moving now to our aggregated non-GAAP results for the second quarter of 2024. For this transition quarter, we have provided an aggregated financial summary to provide a complete view of the entire business, and this aggregated non-GAAP summary includes our IoT and physical security businesses. Aggregated non-GAAP revenue for the second quarter of 2024 would have been $24.3 million compared to $29.6 million in the second quarter of 2023.
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: The decrease in aggregated non-GAAP revenue year over year was primarily the result of lower sales of our BLE transponder products. As previously noted, aggregated non-gap growth margin for the second quarter of 2024 would have been 35% compared to 36.7% in the second quarter of 2023. Aggregated adjusted non-GAAP gross margin for the second quarter of 2024 would have been 37.3% compared to 38.2% in the The year-over-year decrease was due to a mix in the physical security business and lower overhead absorption in our Southeast Asia operation.
Justin Scarpulla: Moving now to our aggregated non-GAAP results for the second quarter of 'twenty 'twenty four for this transition quarter. We have provided an aggregated financial summary to provide a complete view of the entire business and this aggregated non-GAAP summary includes our Iot and physical security businesses.
Justin Scarpulla: Moving now to our operating expense management, aggregated non-GAAP operating expenses for Q2 2024 would have been $14.5 million compared to $11.9 million in Q2 2023. Second Quarter Aggregated Non-GAAP Operating Expenses In addition, 1.6 million in strategic transaction-related costs. The aggregated, adjusted, non-gap operation, adjusted to exclude restructuring, strategic transaction-related, and severance costs and certain non-cash charges consisting of stock-based compensation and depreciation and amortization would have been $11.1 million in the second quarter of 2024 compared to $10.6 million in the second quarter of 2023.
Justin Scarpulla: Aggregated non-GAAP revenue for the second quarter of 2024 would have been $24 3 million compared to $29 6 million in the second quarter of 'twenty or 'twenty three.
Justin Scarpulla: A decrease in aggregate of non-GAAP revenue year over year was primarily the result of lower sales of our BLE transponder products as previously noted.
Justin Scarpulla: Aggregate and non-GAAP gross margin for the second quarter of 2024 would have been 35%.
Justin Scarpulla: Compared to 36, 7% in the second quarter of 2023.
Justin Scarpulla: Aggregated adjusted non-GAAP gross margin for the second quarter of 2024 would've been 37, 3% compared to 38, 2% in the second quarter of 2023.
Justin Scarpulla: The year over year decrease was due to mix and the physical security business and lower overhead absorption in our southeast Asia operations.
Justin Scarpulla: Moving now to our operating expense management aggregated non-GAAP operating expenses for Q2, 2024 would have been $14 5 million compared to $11 9 million in Q2 2023.
Justin Scarpulla: Second quarter aggregated non-GAAP operating expenses.
Justin Scarpulla: Include $1 6 million and strategic transaction related costs.
Justin Scarpulla: Aggregated adjusted non-GAAP operating expenses adjusted to exclude restructuring strategic transaction related and severance costs and certain noncash charges, consisting of stock based compensation and depreciation and amortization would have been $11 1 million in the second quarter of 2024 compared to.
Justin Scarpulla: The $10 6 million in the second quarter of 2023.
Justin Scarpulla: Aggregated non-GAAP net loss for the second quarter of 2024 would have been $6.2 million compared to a net loss of $1.1 million in the second quarter of 2023. Aggregated non-GAAP adjusted EBITDA for the second quarter of 2024 would have been a negative $2 million compared to a positive $0.7 million in the second quarter of 2023. This change in aggregated non-GAAP adjusted EBITDA is primarily the result of lower revenues and margins, as previously described.
Justin Scarpulla: Aggregated non-GAAP net loss for the second quarter of 2024 would have been $6 2 million compared to a net loss of $1 1 million in the second quarter of 2023.
Justin Scarpulla: Aggregate and non-GAAP adjusted EBITDA in the second quarter of 'twenty 'twenty four would have been a negative 2 million.
Justin Scarpulla: Third to a positive zero point $7 million in the second quarter of 2023, this change and aggregated non-GAAP. Adjusted EBITDA is primarily the result of lower revenues and margins as previously described.
Justin Scarpulla: In the appendix of today's presentation, we have provided a full reconciliation of non-gap to adjusted non-gap financial information, which is also included in our earnings relief. Turning to the balance sheet, which now reflects the assets and liabilities related to our IOT business, while assets and liabilities related to our physical security business are being reported as separate line items labeled as current and non-current assets and liabilities held for sale. We exited Q2 2024 with $19 million in cash, cash equivalents, and restricted cash, a decrease of $5.4 million since December 31, 2023.
Justin Scarpulla: In the appendix of today's presentation, we have provided a full reconciliation of non-GAAP to adjusted non-GAAP financial information, which is also included in our earnings release.
Justin Scarpulla: Turning to the balance sheet, which now reflects the assets or liabilities related to our Iot business, well assets and liabilities related to our physical security business are being reported as separate line items labeled as current and non current assets or liabilities held for sale.
Justin Scarpulla: We exited Q2, 'twenty 'twenty four with $19 million in cash cash equivalents and restricted cash a decrease of $5 4 million since December 31 2023.
Justin Scarpulla: Now to discuss our expectations related to the asset sale transaction. Assuming the asset sale transaction closes as anticipated based on our most recent estimates for taxes, baker fees, and other one-time costs and adjustments, we currently expect net proceeds to be approximately 130 million. It is worth noting that once the transaction closes, we will be distinguishing our credit facility, which will be repaid with existing cash. In addition, upon closing, our expected net cash use over the next 12 months, Nat of Interest Cum, is in the range of $14 to $16 million. In our 10-2 filing, we will be providing a full reconciliation of the year-to-day cash flow. For completeness, we have included the full balance sheet in the appendix of today's earnings release.
Justin Scarpulla: Now to discuss our expectations related to the asset sale transaction.
Justin Scarpulla: Assuming the asset sale transaction closes as anticipated based on our most recent estimates for taxes banker fees and other one time costs and adjustments. We currently expect net proceeds to be approximately $130 million.
Justin Scarpulla: It is worth noting that once the transaction closes we will be extinguishing our credit facility was fully repaid with existing cash.
Justin Scarpulla: In addition, upon closing our expected net cash use over the next 12 months.
Justin Scarpulla: Net of interest income.
Justin Scarpulla: Is in the range of $14 million to $16 million.
Justin Scarpulla: And our 10-Q filing we will be providing a full reconciliation of the year to date cash flows for completeness. We have included the full balance sheet in the appendix of todays earnings release.
Justin Scarpulla: Lastly, our financial outlook. For Q3 2024, we currently expect revenue from our IoT business to be in the range of $5.8 to $6.1 million. If the strategic transaction does not close as anticipated, prior to the end of the third quarter, we expect aggregated revenue from our IOT and physical security businesses to be in the range of 24 to 26 million. This concludes the financial discussion. I'll now pass the call back to you, Careston.
Justin Scarpulla: Lastly, our financial outlook for Q3 2024, we currently expect revenue from our Iot business to be in the range of 5.8 to $6 1 million.
Speaker Change: The strategic transaction does not close as anticipated prior to the end of the third quarter, we expect aggregated revenue from our Iot and physical security businesses to be in the range of $24 million to $26 million.
Speaker Change: This concludes the financial discussion I'll now pass the call back to you Kirsten.
Careston: Thank you Justin.
Kirsten Newquist: So with that financial context, I'd like to dive into the progress we are making with our strategic growth plan. There are three pillars to our strategy, covering the short, medium, and longer-term horizons. The first pillar is to ensure that we have a clear focus for growing our core channel business. Fundamentally, this near-term strategy is about leveraging our broad set of existing customers, partners, and product portfolio to grow in the channel. We are strengthening new customer relationships, supporting our partners with joint marketing efforts, and adding products to our portfolio to grow our market share with our channel partners and customers.
Careston: So with that financial context, I'd like to dive into the progress we are making with our strategic growth plan.
Kirsten Newquist: There are three pillars to our strategy covering short medium and longer term horizons.
Kirsten Newquist: The first pillar is to ensure that we have a clear focus for growing our core channel business fund.
Kirsten Newquist: Sunday mentally this near term strategy is about leveraging our broad set of existing customers partners and product portfolio to grow in the channel.
Kirsten Newquist: We are strengthening these customer relationships supporting our partners with joint marketing efforts and adding products to our portfolio to grow our market share with our channel partners and customers.
Kirsten Newquist: We think there is ample opportunity to expand within our current set of customers and the applications we are currently supporting. Our product focus continues to be HF, NFC, dual frequency, and BLE. We are also evaluating specialty UHF applications and will be thoughtfully expanding our portfolio to include UHF where we can differentiate ourselves and build a competitive DNA. These are not the high-volume, low-cost applications for retail or logistics where competitors have built their leadership, but rather use cases for new applications requiring specialized designs.
Kirsten Newquist: We think there's ample opportunity to expand within our current set of customers and the applications. We are currently supporting.
Kirsten Newquist: Our product focus continues to be HFF, NFC dual frequency and BLE we.
Kirsten Newquist: We are also evaluating specialty UHF applications and will be thoughtfully expanding our portfolio to include UHF, where we can differentiate ourselves and build a competitive advantage.
Kirsten Newquist: These are not the high volume low cost applications for retail or logistics, where our competitors have built their leadership, but rather use cases for new applications requiring specialized designs.
Kirsten Newquist: We will also continue to strengthen our BLE capability as new applications for this technology are identified. As I mentioned, we have several initiatives underway intended to ensure we successfully execute on our customer-driven product development pipeline, such as our new product development stage gate process, as these programs will be important in driving future growth and improved profitability of the core IoT business. For our second pillar, focus on driving high margin growth in the median term, we are evaluating high value and high growth segments outside of healthcare, where we can address customer needs with highly engineered solutions that can be introduced into the market in a shorter time frame via the healthcare customer.
Kirsten Newquist: We will also continue to strengthen our BLA capability as new applications for this technology are identified.
Kirsten Newquist: As I mentioned, we have several initiatives underway intended to ensure we successfully execute on our customer driven product development pipeline.
Kirsten Newquist: Such as our new product development stage gate process as these programs will be important in driving the future growth and improved profitability of the core Iot business.
Kirsten Newquist: For our second pillar focused on driving high margin growth in the medium term, we are evaluating the high value and high growth segments outside of health care, where we can address customer needs with highly engineered solutions that can be introduced into the market in a shorter timeframe via the health care customers.
Kirsten Newquist: We are doing a deep dive on three high value and high growth segments where we've had initial traction through our channel partners and believe we could see some significant expansion with a proactive direct go-to-market strategy in place. Those three areas are Smart Home Devices, Smart Packaging, and Specialty Retail. The growth in RFID inlays for specialty retail applications alone is expected to be over 25% CAGR over the next five years.
Kirsten Newquist: We are doing a deep dive on three high value and high growth segments, where we've had initial traction through our channel partners and believe we could see some significant expansion with a proactive direct go to market strategy in place.
Kirsten Newquist: Those three areas are smart home devices, smart packaging and specialty retail.
Kirsten Newquist: The growth in RFID inlays for specialty retail applications alone is expected to be over 25% CAGR over the next five years.
Kirsten Newquist: We are spending time in these ecosystems, estimating the underlying tams, understanding the key on met needs, and mapping out how intensive can support and effectively compete in these things. I am pleased to be working closely with our board advisor, Manfred Rietzler, the founder of SmartTrack, to support the development of our strategy and associated roadmap to drive success in these areas. Finally, our third strategic pillar is our longer-term, transformational growth strategy for high-value applications within the healthcare, medical device, and pharmaceutical industries. For this important strategic growth area, we are working closely with our two board directors who have deep roots in healthcare, Dr. Rick Kuntz and Laura Angelini.
Kirsten Newquist: We are spending time in these ecosystems estimating the underlying tans understanding the key unmet needs and mapping out how identive can support and effectively compete in these segments.
Kirsten Newquist: I am pleased to be working closely with our board advisor Manfred retailer the founder of Smart track to support the development of our strategy and associated roadmap to drive success in these areas.
Kirsten Newquist: Finally, our third strategic pillar is our longer term transformational growth strategy for high value applications within the health care medical device and pharmaceutical industries.
Kirsten Newquist: For this important strategic growth area. We are working closely with our two board directors, who have deep roots in health care, Dr direct Koontz and Laura Angiolini.
Kirsten Newquist: We have also engaged a healthcare-focused advisory firm, Let Your Speed, with whom I've worked in the past, to help us evaluate the broad range of healthcare-related IoT applications and identify those with the strongest market dynamics, large potential towns, and where we have the greatest potential for a long-term competitive advantage. With Fletcher Space Analysis and Market Input married up with our technical assessment, we have narrowed our focus to four priority areas. First, authentication of high-value consumables for diagnostic test equipment and medical devices.
Kirsten Newquist: We have also engaged a health care focused advisory firm, let your state with whom I've worked in the past to help us evaluate the broad range of health care related Iot applications and identified those with the strongest market dynamics large potential tans and where we have the greatest potential for long term competitive advantage.
Kirsten Newquist: <unk>.
Kirsten Newquist: With such a space analysis and market input married up with our technical assessment, we have narrowed our focus to four priority areas.
Kirsten Newquist: These medical devices use over 5 billion higher-value consumables globally per year that require authentication for genuineness, calibration, or assembly verification. We have several commercial programs today providing for authentication of ventilator, surgical, and diagnostic consumables through our HF technology. We see our customized HF inlays and encoding services as an excellent fit for this application, and there appears to be a good opportunity to expand. Second, NFC-enabled smart labels for drug delivery in the home setting.
Kirsten Newquist: First authentication of high value consumables for diagnostic test equipment and medical devices.
Kirsten Newquist: These medical devices ease over $5 billion higher value consumables globally per year that require authentication for a genuine this calibration or assembly verification.
Kirsten Newquist: We have several commercial programs today, providing for authentication of ventilator surgical and diagnostic consumables through our H App technology.
Kirsten Newquist: We see our customized H F N lays an encoding services as an excellent fit for this application and there appears to be a good opportunity to expand.
Kirsten Newquist: Second NFC enabled smart labels for drug delivery in the home setting.
Kirsten Newquist: These labels can provide important safety and dosing information to the patient, improve overall medication adherence, reduce the potential for counterfeiting, and provide pharmaceutical companies with easier management of recalls, expiration dates, and adverse events. It includes auto-injectors, as well as inhalers and pre-filled syringes, and potentially other drug delivery devices.
Kirsten Newquist: These labels can provide important safety and dosing information to the patient improve overall medication adherence.
Kirsten Newquist: Reduced potential for counterfeiting and provide pharmaceutical companies with easier management of Recall's exploration dates and adverse events.
Kirsten Newquist: That includes auto injectors, as well as inhalers, and Prefilled syringes and potentially other drug delivery devices.
Kirsten Newquist: Globally, there are over 1.5 billion taggable units between injectable devices and inhalers. The third area is cold chain condition monitoring and tracking for the pharmaceutical industry. Given the high growth of biologics in pharma, the need for more real-time monitoring and tracking within the cold chain is rapidly increasing. We believe the BLE devices we have partnered to develop support a solution that can provide the additional functionality and information to address these needs. The volume of tagval units in the global coal chain is between 4 and 8 billion units annually.
Kirsten Newquist: Globally, there are over $1 5 billion tangible units between injectable devices and inhalers.
Kirsten Newquist: The third area cold chain condition monitoring and tracking for the pharmaceutical industry gives.
Kirsten Newquist: Given the high growth of biologics and pharma the need for more real time monitoring and tracking within the cold chain is rapidly increasing.
Kirsten Newquist: We believe the BLE devices, we have partnered to develop support a solution that can provide the additional functionality and information to address these needs.
Kirsten Newquist: The volume of tangible units in the global Cold chain is between four and 8 billion units annually.
Kirsten Newquist: The Four Darius, clinical samples that require real-time condition and location monitoring could also leverage our BLE devices similar to the pharmaceutical supply chain. In the US alone, there are over 5 billion clinical lab tests done every year.
Kirsten Newquist: The fourth area.
Kirsten Newquist: Clinical samples that require real time condition and location monitoring could also leverage our BLE devices similar to the pharmaceutical cold chain and the U S alone. There are over 5 billion clinical lab tests done every year.
Kirsten Newquist: As we further explore and gain clarity on the high-value segments and opportunities for Identiv, we intend to prioritize and develop our go-to-market plan. Rest assured, we will carefully invest our capital in these new growth areas only when we have strong confidence and identity success and the potential for a compelling return on investment. Opportunities for inorganic growth will also be considered if there are significant synergies and the combined entity offers a compelling return for our investors.
Kirsten Newquist: As we further explore and getting clarity on the high value segments and opportunities for Identive, we intend to prioritize and develop our go to market plan.
Kirsten Newquist: Rest assured we will carefully invest our capital in these new growth areas only when we have strong confidence and identive success and the potential for a compelling return on investment opportunities.
Kirsten Newquist: Opportunities for inorganic growth will also be considered if there are significant synergies in the combined entity offers a compelling return for our investors.
Kirsten Newquist: In closing, I want to reaffirm my excitement about leading the IoT team through this transformational period. We have a lot of work to do to ensure the business has a strong foundation and we are focusing on the highest potential opportunities to grow the business. I'm confident that, with a clear vision, a comprehensive and disciplined plan for profitable growth, and focused execution, we can capitalize on the tremendous opportunity before us. I look forward to sharing more details on our next earnings call in November and meeting with investors in the coming months. With that, I'll turn the call back to you.
Kirsten Newquist: In closing I want to reaffirm my excitement about leading the Iot team through this transformational period.
Kirsten Newquist: We have a lot of work to do to ensure the business has a strong foundation and we are focusing on the highest potential opportunities to grow the business.
Kirsten Newquist: I'm confident that with a clear vision, a comprehensive and disciplined plan for profitable growth and focused execution, we can capitalize on the tremendous opportunity before us.
Kirsten Newquist: I look forward to sharing more details on our next earnings call in November and meeting with investors in the coming months with that I'll turn the call back to Steve.
Steven Humphreys: Thanks Kirsten, I won't add any further comments since Kirsten's comments and leadership stand on the road. I'm personally very thankful to have found such an excellent leader to take our business forward and realize the tremendous opportunity we have. Since this will be my last earnings call, I'd like to thank you all for your support and also thank our people, partners, and customers. I look forward to remaining as a substantial investor and supporter of the business as Kirsten and her team take it forward. With that, I'd like to open the call to your questions. Operator, please open the question queue.
Kirsten Newquist: Thanks, Kirsten I won't add any further comments since cures Ken's comments in leadership stand on their own.
Steven Humphreys: I'm personally very thankful to have found such an excellent leader to take our business forward and realize the tremendous opportunity we have.
Steven Humphreys: Since this will be my last earnings call I'd like to thank you all for your support and also thank our people partners and customers.
Speaker Change: Look forward to remaining as the substantial investor and supporter of the business as Kierston enter team takes it forward.
Steven Humphreys: With that I'd like to open the call for your questions. Operator, Please open the question queue.
Operator: Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Your first question for today is from Jaeson Schmidt with Lake Street.
Steven Humphreys: Okay.
Speaker Change: Certainly at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
Jaeson Schmidt: Yes, thanks for taking my questions. And thanks for all the color.
Jaeson Schmidt: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Kirsten Newquist: You noted phasing out 10% of this year's volume related to low margin business, but just curious, once you've been looking at the current pipeline, are there any projects within that pipeline that you deem as low probability and don't meet the newly implemented criteria?
Jaeson Schmidt: Your first question for today is from Jason Smith with Lake Street.
Kirsten Newquist: Hey, guys. Thanks for taking my questions and thanks for all the color I'm sure you noted phasing out 10% of the serious volume related to low margin business, but just curious once you've been looking at the current pipeline are there any projects within that pipeline that you deem as low problem.
Speaker Change: Ability and don't meet the newly implemented criteria.
Kirsten Newquist: Okay.
Kirsten Newquist: Yeah, so, I mean, we're assessing the new product development pipeline continuously, right? And oftentimes, as projects start, they look pretty promising, but as they go through development, you learn more things either about the requirements or what's required or what the use case is that we do, you know, want to discontinue. So, we're certainly taking a very good look at the current pipeline, and there certainly will be some that we decide to discontinue, ultimately, because they don't meet the criteria that we're setting up, and that's normal.
Speaker Change: Yeah. So I mean, we're assessing the new product development pipeline continuously right and oftentimes as project starts they look pretty promising but as they go through development you learn more things either about the requirements are with required or what the use cases that we do well.
Kirsten Newquist: Want to discontinue that so we're certainly taking a very good luck at the current pipeline and there certainly will be some that we decided to discontinue ultimately because they don't meet the criteria that we're setting up and that's normal I mean, that's you know any kind of new product development pipeline, you will have a certain amount that fall out over the course of it and we just wanted to make sure.
Kirsten Newquist: I mean, you know, any kind of new product development pipeline, you will have a certain amount that fall out over the course of it. We just want to make sure we're being very disciplined and that as soon as we know they're not gonna meet the criteria, we stop putting resources on them.
Kirsten Newquist: We're being very disciplined and that we as soon as we know they're not going to meet the criteria that we do stop putting resources on them.
Kirsten Newquist: Yeah.
Kirsten Newquist: Okay, that makes sense. And then just as a follow-up clarification on that 60 to $70 billion EBIT upgrade target, does that assume a gross margin in that 26 to 28% range? Or does that assume that you can get above 30%?
Speaker Change: Okay that makes sense and then just as a follow up a clarification on that $60 billion to $70 billion EBITDA break even target does that assume gross margin in that 26% to 28% range or does that assume that you can get above 30%.
Kirsten Newquist: It seems we are getting right, right close to that 30%.
Speaker Change: It seems getting right right close to that 30%.
Jaeson Schmidt: Okay, perfect. Thanks a lot.
Speaker Change: Okay perfect. Thanks, a lot.
Speaker Change: Youre welcome.
Operator: Your next question for today is from STACT with BRIELY.
Speaker Change: Your next question for today is from Stacy T with B Riley.
STACT: Hi, thanks for taking the question. I'm asking for Craig Ellis regarding some of the questions. So first, I was wondering if Christian or maybe Steve, if you could break down some of your plans going forward for the AWPEX, when we're looking at the Taiwan facility, based on your strategic moves for the head cons, how do we think about it going forward? Do we expect that to go off maybe sequentially near the second half of the year? But if you can pick that down a little bit, thank you.
Speaker Change: Hi, Thanks for taking the question I'm asking for Craig Ellis regarding how long the questions.
Kirsten Newquist: So first I I was wondering if kirsten.
STACT: Or or maybe Steve if you could break.
STACT: Break down some of your plans going forward for the Opex.
STACT: When we're looking at the Thailand facility.
STACT: Based on your strategic moves for the head count.
STACT: Do we think about it going forward.
STACT: Do we expect that to go off maybe sequentially near the second half of the year.
STACT: You can break that down a little bit thank you.
Kirsten Newquist: Yeah, so in terms of the overhead manufacturing expense, you know, we're certainly in the mode of we're still ramping up in Thailand. And we're training the staff; we're giving the staff in place. So we're definitely still in the process of ramping up in Thailand, and unfortunately, that has to be faced a little bit ahead of when we can ramp down in Singapore. So we still have a couple quarters where things are going to continue to grow. And then, and then we'll see as we are completing the transition at the end of this year and only supporting these three customers going into next year. You'll start to see a steady reduction.
Speaker Change: Yeah. So so in terms of how how the many of the overhead manufacturing expense. We're certainly in the mode of we're still ramping up in Thailand.
Kirsten Newquist: And we're training the staff, we're giving the staff in place that we are definitely still in the process of ramping up in Thailand, and unfortunately that has to be phased a little bit ahead.
Kirsten Newquist: When we can ramp down in Singapore. So we have still a couple of quarters, where things are going to continue to grow.
Kirsten Newquist: And then and then we'll see as we are.
Kirsten Newquist: Completing the transition at the end of this year and only supporting these three customers going into next year, you'll start to see a steady reduction.
STACT: That's helpful. Thank you. And if I can just ask the follow-up regarding the cash burn going forward, how do you think when we take that into account in your short-term, mid-term, and long-term plan over the next two quarters versus what we have for the current quarter and whether or not we're mitigating cash flow or needing more of that going forward to run the business? Thank you.
Speaker Change: Got it that's helpful. Thank you and if I can just ask a follow up regarding the cash burn going forward. How do you think when we play that into our account of your short term midterm and long term plan over the next few quarters versus what we have.
Speaker Change: For the current quarter.
STACT: And whether if we're on mitigating on cash flow or a meeting.
STACT: Maybe more of that going forward throughout the business. Thank you.
Justin Scarpulla: I can take that one. This is Justin.
STACT: I can take that one this is dustin.
Justin Scarpulla: Put out the 14 to 16 guide this time of need notice prior guide was higher than that so we've sharpened our pencils.
Justin Scarpulla: Taking a look at what our next 12 months are as far as the linearity over the next 12 months that's going to be.
Justin Scarpulla: We put out the 14 to 16 guide this time, and you notice our prior guide was higher than that. So we've sharpened our pencils and taken a look at what our next 12 months will be. As far as linearity over the next 12 months is concerned, that's going to be pretty linear over the next four quarters, so if you're looking for a quarterly guide, I think that 14 to 16 is going to be pretty, pretty easy over the next 12 months. I think that's answering your question. Was there a follow-up to that?
Justin Scarpulla: Linear over the next four quarters. So if you're looking for a quarterly guide I think that 14 to 16 is going to be pretty spread pretty evenly over the next 12 months I think that to answer. Your question was there a follow up to that.
STACT: Yeah, if we can thank you, Justin, for answering that, and maybe just one last question is, when do we think about when we want to go forward with building both businesses, and can you help us understand this sequential growth with identity and premises, the seasonality going forward, do we expect that to go back to about the normal level, or how should we think about that going forward? Yeah, I think going forward, you know, if all goes as planned.
Speaker Change: Yeah, if we can thank you Justin for answering that.
STACT: Maybe just last question is that how do we think about when we wanted.
STACT: Wanted to go forward with building the bulk business and Oh can you help us understand about the sequential growth what I've done it in premises.
STACT: The seasonality going forward do we expect that to go back to about the normal level or how.
STACT: How should we think about that going forward.
Justin Scarpulla: Yeah, I think going forward, you know, if all goes as planned, the physical security business within this quarter will be part of a separate company under VitaProtect. So, if you look at our recent release we just put out, everything we're reporting now is under our IoT Go Forward business. So, I'm not going to answer what the Go Forward looks like from the physical security side, but for the identity side, the IoT side, yeah, I think that our Go Forward is, and you'll see because we put out what our Q3 revenue is, it's going down slightly from Q2.
STACT: Yeah, I think going forward.
Justin Scarpulla: If all goes as planned the physical security business within this quarter will be a.
Justin Scarpulla: Part of a separate company under beta protect so if you looked at our if you look at our press release, we just put out everything we're reporting now is under our Iot go forward business, So I'm going to I'm not going to answer what the go forward it looks like from physical security side, but for the identity side Iot side.
Justin Scarpulla: I think that our go forward is and Youll see because we've put out what our Q3.
Justin Scarpulla: Revenue is going down slightly from from Q2, So a lot of the seasonality you saw in the past when you were talking about a combined.
Justin Scarpulla: So, a lot of the seasonality you saw in the past when you're talking about a combined business, that third-quarter spike was within our physical security side due to federal year end, and most of that is going away. So, when you're looking at it from a pure IoT perspective, a lot of that seasonality that you had historically seen for Identiv as a combined company will be going away. So, we did give the Q3 guide. I would factor that one in. I think that answers your question on seasonality because, historically, our seasonality spike has been in the Q3 quarter. That's related to our physical security business.
Justin Scarpulla: Is that third quarter Spike was within our physical security side due to federal year end and most of that is going away. So when youre looking at it from a pure Iot perspective, a lot of that seasonality that you had historically seen for identive as a combined company will be going away. So we did give the Q3 guide I would factor that one and I think that answers your question.
Justin Scarpulla: Seasonality because historically our seasonality.
Justin Scarpulla: Mike has been the Q3 quarter like I said, that's related to our physical security business.
Speaker Change: Thank you.
Justin Scarpulla: Sure.
Operator: We have reached the end of the question and answer session, and I will now turn the call over to Steve Humphreys for closing remarks.
Justin Scarpulla: We have reached the end of the question and answer session and I will now turn the call over to Steve Humphreys for closing remarks.
Steven Humphreys: Okay, thanks, operator. And thank you all for joining us this evening. We'll certainly continue to update you on the business progress and, especially, the KPIs, as Kirsten described. And, of course, on our progress and timeline for closure of the transaction. If you have any questions, please reach out to our investor relations at ir.identiv.com. So, thank you all again for joining us, and have a very good evening.
Steve Humphreys: Okay. Thanks, operator, and thank you all for joining US. This evening I will certainly continue to update you all on the business progress and especially with the Kpis that Houston has described and of course on our progress and timeline for closure of the transaction. If you have any questions. Please reach out to our investor relations at IR at <unk> Dot com. So thank you all again for <unk>.
Steven Humphreys: Joining us and have a very good evening.
Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Speaker Change: This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Steven Humphreys: Upon closure, we expect to add about $130 million in net cash after taxes, bankers fees, and one-time costs. One other clarification I'd like to make about our reported financials. In today's earnings release, in accordance with GAP, our financials are now being reported as continuing operations, our IOT business, and discontinued operations, our physical security and reader business. Now Justin will cover these in further detail in the financial discussion, but before that, I'd like to turn the call over to Kirsten for her update on the current IOT business. Kirsten, over to you.