Q3 2024 Identiv Inc Earnings Call
Good afternoon, welcome to Identive presentation of its third quarter 2024 earnings call.
Operator: Good afternoon.
Operator: Welcome to Identiv's presentation of its third quarter 2024 earnings call.
Operator: My name is Tom, and I will be your operator this afternoon. Joining us for today's presentation are the company's CEO, Kirsten Newquist. CFO, Justin Scarpulla, and Board Chairman, James Ousley.
Tom: My name is Tom and I will be your operator this afternoon.
Tom: Joining us for today's presentation are.
Tom: Are the company's CEO Kirsten newquist.
Tom: CFO, Justin Scarpulla and.
Speaker Change: And board Chairman James absolutely.
Operator: Following management's remarks, we will open the call for questions.
Speaker Change: Following management's remarks, we will open 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: 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: In addition, during the call, management will be making forward-looking statements. Any statement that refers to expectations, projections, or other characteristics of future events, including future financial results, future business and market conditions, and opportunities, and future plans and prospects, is a forward-looking statement. Actual results may differ materially from those expressed in 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 future financial results future business and market conditions and opportunities and the future plans and prospects is a forward looking statement.
Speaker Change: Actual results may differ materially from those expressed in these forward looking statements for.
Operator: 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 third quarter 10-Q once filed. Identiv assumes no obligation to to update these forward-looking.
Speaker Change: 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 third quarter 10-Q once filed.
Speaker Change: Identive assumes no obligation to update these forward looking statements.
Kirsten Newquist: I will now turn the call over to CEO Kirsten Newquist for her comments. and Kirsten Newquist, please proceed.
Speaker Change: I will now turn the call over to CEO, Here's didn't new quest for her comments Ms. Newquist. Please proceed.
Kirsten Newquist: Thanks, Operator, and thank you all for joining our earnings call, my first as CEO of Identiv. On September 6, we completed the sale of our physical security business to VitaProtect. Identiv has now transitioned to focus solely on building our IoT business and developing and supplying specialty RFID and Bluetooth low energy solutions to our customers. The transaction net proceeds are anticipated to be approximately $135 million after taxes, transaction costs, and other one-time costs. The proceeds significantly strengthen the company's financial position and also allow us to fund future organic and M&A driven growth of our specialty IOT business.
Ms. Newquist: Thanks, operator, and thank you all for joining our earnings call My first as CEO My dentists.
Ms. Newquist: On September six we completed the sale of our physical security business to protect.
Ms. Newquist: Identive has now transitioned to focus solely on building, our Iot business in developing and supplying specialty RFID and Bluetooth low energy solutions to our customers.
Ms. Newquist: Transaction net proceeds are anticipated to be approximately $135 million after taxes transaction costs and other one time costs.
Ms. Newquist: The proceeds significantly strengthen the company's financial position.
Ms. Newquist: And also allow us to fund future organic and M&A driven growth of our specialty Iot business.
Kirsten Newquist: With the closing of the transaction, we made significant progress on the development of our strategic growth plan in the third quarter. We have finalized our strategy and go-to-market plan while we continue to focus on strengthening our relationships with our channel customers and partners in the core business.
Ms. Newquist: With the closing of the transaction, we made significant progress on the development of our strategic growth plan in the third quarter.
Ms. Newquist: We have finalized our strategy and go to market plan, while we continue to focus on strengthening our relationships with our channel customers and partners in the core business.
Kirsten Newquist: After I discuss our third quarter results, I will be introducing our strategic framework and the key focus areas for driving long-term growth. Turning to our third quarter results. Our Q3 net revenue was $6.5 million, slightly above our previously announced guidance. Pressure on growth margins remained due to the dual manufacturing overhead costs that we are carrying during the transition from Singapore to Thailand. As previously discussed, the transition of RFID and BLE production from Singapore to our state-of-the-art facility in Thailand remains a key near-term priority. Our highly experienced operations team is making great progress toward this objective as we continue to move machines and add headcounts in Thailand.
Ms. Newquist: After I discuss our third quarter results I will be introducing our strategic framework and the key focus areas for driving long term growth.
Ms. Newquist: Turning to our third quarter results.
Ms. Newquist: Our quarter three net revenue was $6 5 million slightly above our previously announced guidance.
Ms. Newquist: Restaurant gross margins remained due to the dual manufacturing overhead costs that we are carrying during the transition from Singapore to Thailand.
Ms. Newquist: As previously discussed the transition of the RFID and the ethylene production from Singapore to our state of the art facility in Thailand remains a key near term priority.
Ms. Newquist: Our highly experienced the operations team is making great progress toward this objective as we continue to Miss machines and add head count in Thailand.
Kirsten Newquist: We expect nearly three quarters of our current volume will be transitioned to Thailand by year end. For three of our customers, we expect production will continue in Singapore into the first half of 2025 as additional time is needed for qualification and regulatory requirements before making the transition. Two of those customers are expected to move their production in the first half of 2025. Discussions with the third customer are ongoing. This particular customer represents roughly 10% of our volume, but has historically been one of our lowest margin customers. We continue to assess whether the transfer of those products to Thailand is justifiable from both a business and a long-term margin perspective.
Ms. Newquist: We expect nearly three quarters of our current volume will be transitioned to Thailand by year end.
Ms. Newquist: For three of our customers. We expect production will continue in Singapore into the first half of 2025 as additional time is needed for qualification and regulatory requirements before making the transition.
Ms. Newquist: Two of those customers are expected to move their production in the first half of 2020 five discs.
Ms. Newquist: Discussions with a third customer are ongoing this particular customer represents roughly 10% of our volume that has historically been one of our lowest margin customers.
Ms. Newquist: We continue to assess whether or not the transfer of those products to Thailand is justifiable from both a business and a long term margin perspective.
Ms. Newquist: We continue to anticipate the non-GAAP gross margin of our core business to almost double reaching 26% to 28%. Once all production has been transferred to Thailand, and the team achieves full productivity.
Kirsten Newquist: We continue to anticipate the non-gap gross margin of our core business to almost double, reaching 26-28% once all production has been transferred to Thailand and the team achieves full productivity. In the long term, our goal is to achieve a non-gap growth margin of 35%.
Ms. Newquist: And the long term our goal is to achieve a non-GAAP gross margin of 35%.
Ms. Newquist: One of the aspects about Identive that is exciting to me is our ability to innovate and design technically sophisticated Iot devices.
Kirsten Newquist: One of the aspects of that identity that is exciting to me is our ability to innovate and design technically sophisticated IoT devices. To that end, our new Product Development Pipeline, NPD, remains robust. We are currently supporting numerous active projects, both customer driven and internally driven in response to market needs. In the third quarter, we added new projects, such as highly specialized BLE inlays to support cold chain monitoring for logistics and compliance. NFC smart labels for pharma and medical devices, and UHF sensing inlays for aviation. Additionally, projects that we have previously discussed continue to advance, such as authentication solutions for surgical consumables, smart labels for auto injectors, and smart labels for top shelf liquor brands.
To that end, our new product development pipeline and P. D remains robust.
Ms. Newquist: We are currently supporting numerous active projects, both customer driven and internally driven and response to market needs.
Ms. Newquist: In the third quarter, we added new projects, such as highly specialized BLE and they used to support cold chain monitoring for logistics and compliance.
Ms. Newquist: NFC smart labels for pharma and medical devices, and UHF sensing inmates for aviation.
Ms. Newquist: Additionally projects that we have previously discussed continued to advance such as authentication solutions for surgical consumables.
Ms. Newquist: Mart labels for auto injectors, and smart label for top shelf liquor brands.
An important aspect of growing our core channel business is developing and maintaining strong partner relationships.
Kirsten Newquist: An important aspect of growing our core channel business is developing and maintaining strong partner relationships. Many of our partners bring new opportunities, like our chip suppliers NXP, STM, and EM. And industry groups such as the NFC Forum, AXIA Institute, and AIM are driving knowledge and adoption of RFID solutions, and our participation enhances our visibility in the market.
Ms. Newquist: Many of our partners bring new opportunities like our chip suppliers and X P. S T N and M.
And industry groups, such as the NFC Forum.
Ms. Newquist: Ixia Institute and aim are driving knowledge and adoption of RFID solutions and our participation enhances our visibility in the market.
We recently announced a new strategic partnership with N play a wireless chip provider for BLA based solutions.
Kirsten Newquist: We recently announced a new strategic partnership with InPlay, a wireless chip provider for BLE-based solutions. The initial focus of this collaboration will be cold chain monitoring for maintaining temperature compliance in the food and logistics industry. Future applications may expand to industrial automation and healthcare. We see BLE technology as an important next generation technology, enabling new and more complex IoT applications fueled by the growth in BLE devices. Through our relationships with Williott and now InPlay, we have developed design and production expertise to be a market leader in the BLE category.
Ms. Newquist: The initial focus of this collaboration will be cold chain monitoring for maintaining temperature compliance and the food and logistics industries.
Ms. Newquist: Future applications may expand to industrial automation and health care.
Ms. Newquist: We see BLE technology as an important next generation technology, enabling new and more complex Iot applications fueled by the growth in belly devices.
Ms. Newquist: Through our relationships with Willeit and now in play we have developed design and production expertise to be a market leader in the baby category.
Ms. Newquist: In summary, the third quarter was transformative for Identive.
Kirsten Newquist: In summary, the third quarter was transformative for Identiv. We successfully concluded the asset sale transaction and now have a strong cash position to drive future growth. We have a clear vision of where we are driving the business and a strategic plan for how we are going to grow. The transition of production to Thailand is on track and our NPD pipeline remains strong.
Ms. Newquist: We successfully concluded the asset sale transaction and now have a strong cash position to drive future growth.
Ms. Newquist: We have a clear vision of where we are driving the business and our strategic plan for how we are going to grow.
Ms. Newquist: The transition of production to Thailand is on track and our NPD pipeline remains strong.
Justin Scarpulla: I'll now hand over the call to Justin to provide the details of our third quarter financials. Thanks, Kirsten. As Kirsten mentioned, the third quarter of 2024 was pivotal for Identiv. We were able to complete the sale of our physical security business, providing significant working capital. This is key as it allows management to focus solely on building our IoT business. Concurrently, in Q3, we were able to make significant progress towards our Strategic Growth Plan and the transition of production from Singapore to Thailand.
Speaker Change: I'll now hand over the call to Justin to provide the details of our third quarter financials.
Justin: Thanks, Kirsten as Christian mentioned, the third quarter of 2024 was pivotal for identity, we were able to complete the sale of our physical security business, providing significant working capital.
Justin: This is key as it allows management to focus solely on building our Iot business concurrently in Q3, we were able to make significant progress towards our strategic growth plan and the transition of production from Singapore to Thailand.
Justin Scarpulla: Third quarter 2024 revenue was $6.5 million, $0.4 million above the upper range of our guidance, and a decrease of $5.2 million compared to the prior year period. The decrease in GAF revenue year over year was primarily the result of lower sales of BLE transponder and mobile products. Third quarter gap and non gap gross margin in Q3 2024 was 3.6% and 9.3% respectively, compared to gap and non gap gross margin of 11.2% and 14% respectively in Q3 2023. The decrease in gross profit margins was primarily attributable to lower sales, as previously discussed. which resulted in the underutilization of our production facilities in Southeast Asia.
Justin: Third quarter 2024 revenue was $6 5 million 0.4 million above the upper range of our guidance and a decrease of $5 2 million compared to the prior year period.
Justin: The decrease in GAAP revenue year over year was primarily the result of lower sales of BLE transponder and mobile products.
Justin: Third quarter, GAAP and non-GAAP gross margin in Q3, 2024 was three 6% and nine 3%, respectively compared to GAAP and non-GAAP gross margin of 11, 2% and 14% respectively. In Q3 2023.
Justin: The decrease in gross profit margins was primarily attributable to lower sales as previously discussed.
Justin: Which resulted in the Underutilization of our production facilities in South East Asia.
Speaker Change: As Kirsten also mentioned by focusing our growth efforts on higher margin opportunities in health care and other high value segments. We believe we can achieve a long term, 35% non-GAAP gross margin.
Justin Scarpulla: As Kirsten also mentioned, by focusing our growth efforts on higher margin opportunities in healthcare and other high-value segments, we believe we can achieve a long-term 35% non-gap gross margin. GAAP and non-GAAP operating expenses for the third quarter of 2024, including research and development, sales and marketing, and general and administrative costs, totaled $9.8 million and $5.1 million, respectively, as compared to $4.6 and $4.1 million, respectively, in Q3 2023. Third quarter GAAP operating expenses included $3.6 million in strategic transaction-related costs and $1.1 million in stock-based compensation. Third quarter gap net loss from continuing operations was $9.3 million or $0.40 per basic and diluted share.
Speaker Change: GAAP and non-GAAP operating expenses for the third quarter of 2024, including research and development.
Speaker Change: Sales and marketing and general and administrative costs totaled $9 8 million and $5 1 million respectively.
Speaker Change: As compared to $4, six and $4 1 million, respectively in Q3's $1 23.
Speaker Change: Third quarter GAAP operating expenses included $3 6 million in strategic transaction related costs and $1 1 million in stock based compensation.
Speaker Change: Third quarter GAAP net loss from continuing operations was $9 3 million or <unk> 40 per basic and diluted share.
Justin Scarpulla: compared to gap net loss from continuing operations of $3.7 million or $0.17 per basic and diluted share in the third quarter of 2023. The year-over-year increase in our net loss was primarily related to our strategic review costs and an increase in stock-based compensation costs incurred in Q3 2024. Non-GAAP-adjusted EBITDA loss for Q3 2024 was $4.5 million, compared to $2.3 million in the third quarter of 2023. The increase was primarily the result of our lower year over year IOT revenues, which also resulted in the underutilization of our production facilities in Southeast Asia.
Speaker Change: Compared to GAAP net loss from continuing operations of $3 7 million or 17 cents per basic and diluted share in the third quarter of 2023.
Speaker Change: The year over year increase in our net loss was primarily related to our strategic review costs and an increase in stock based compensation costs incurred in Q3 2024.
Speaker Change: non-GAAP adjusted EBITDA loss for Q3, 2024 was $4 5 million compared to $2 3 million.
Third quarter of 2023.
Speaker Change: The increase was primarily the result of our lower year over year Iot revenues, which also resulted in the underutilization of our production facilities in southeast Asia.
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.
Speaker Change: 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: Turning to the balance sheet, we exited 2-3-2024 with $145.7 million in cash, cash equivalents, and restricted cash. an increase of $121.4 million since December 31, 2023. In the nine months ended September 30, 2024, the increase in cash was a result of $143.4 million from investing activities, primarily as a result of our strategic transaction, offset in part by $11.7 million used in financing activities, which included $10 million for the repayment of our credit facility and $1.6 million in taxes paid on the settlement of RSU releases, and $10.4 million used in operating activities. Our working capital exiting Q3 2024 was $147 million.
Speaker Change: Turning to the balance sheet, we exited Q3, 'twenty 'twenty four with $145 7 million in cash cash equivalents and restricted cash.
Speaker Change: An increase of $121 4 million since December 31, 2023.
Speaker Change: In the nine months ended September 32024, the increase in cash was the result of $143 4 million from investing activities, primarily as a result of our strategic transaction offset in part by $11 7 million used in financing activities, which included $10 million for the repayment of.
Our credit facility and $1 6 million in taxes paid on the settlement of Archie releases and $10 4 million used in operating activities.
Our working capital exited in Q3, 2024 was $147 million, we strengthened our balance sheet positioning us to pursue our organic and inorganic growth initiatives.
Justin Scarpulla: We strengthened our balance sheet, positioning us to pursue our organic and inorganic growth initiatives.
Justin Scarpulla: Kirsten will be discussing our overall capital allocation framework, including our $10 million share repurchase program announced today. As of September 30th, our expected net operating cash use over the next 12 months is in the range of $14 to $16 million. excluding an estimated tax payment of $7 million related to our asset sale and any share repurchase activity.
Speaker Change: Houston, we will be discussing the our overall capital allocation framework, including our $10 million share repurchase program announced today.
Speaker Change: As of September 30th our expected net operating cash use over the next 12 months is in the range of $14 million to $16 million, excluding an estimated tax payment of $7 million related to our asset sale and any share repurchase activity.
Justin Scarpulla: In 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 today's earnings release.
Speaker Change: 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 Q4 2024, we currently expect revenue from our IoT business to be in the range of $6.0 to $6.3 million. This concludes the financial discussion.
Speaker Change: Lastly, our financial outlook for Q4 2024, we currently expect revenue from our Iot business to be in the range of 6.0 to $6 $3 million.
Speaker Change: This concludes the financial discussion I will now pass the call back to Justin.
Kirsten Newquist: I'll now pass the call back to Kirsten. Thanks, Justin. So with that financial context, I'd like to dive into our new growth strategy and why we believe Identiv is uniquely positioned to execute this strategy. Underpinning our strategy are several strong macro trends that are driving demand for RFID and next generation technologies like BLE. These include digitization and IoT expansion, enhanced security and anti-counterfeiting, regulatory compliance and safety, and sustainability in the circular economy. The digital identification of products through RFID and BLE helps link physical assets with digital systems, which provides users with compelling benefits, such as real-time tracking and visibility, enhanced product security and authentication, and engaging customer experience.
Speaker Change: Thanks, Justin.
Speaker Change: So with that financial context, I'd like to dive into our new growth strategy and why we believe identive is uniquely positioned to execute this strategy.
Speaker Change: Underpinning our strategy are several strong macro trends that are driving demand for RFID and next generation technologies like belly.
Speaker Change: These include Digitization and Iot expansion.
Speaker Change: Hence security and anti counterfeiting.
Speaker Change: Regulatory compliance and safety and sustainability in the circular economy.
Speaker Change: The digital identification of products for RFID, and BLE hopes linked physical assets with digital systems, which provides users with compelling benefits such as real time tracking and visibility.
Speaker Change: Enhanced product security and authentication and engaging customer experiences.
Kirsten Newquist: Furthermore, the data generated by RFID is being integrated into advanced analytics and artificial intelligence models, which enables improved decision-making across industries, increasing RFID's value proposition. As the number of RFID-enabled applications multiplies, these emerging use cases often demand new and more complex solutions to ensure their success and ultimately strong market adoption. We believe Identiv is uniquely positioned to support these types of complex requirements with our industry-leading innovation in highly engineered inlay design. rapid prototyping capabilities, and strong multi-component engineering and manufacturing capabilities.
Speaker Change: Furthermore, the data generated by RFID is being integrated into advanced analytics, and artificial intelligence models, which enables improved decision, making across industries, increasing rfid's value proposition.
Speaker Change: As the number of RFID enabled applications multiplies. These emerging use cases, often demand new and more complex solutions to ensure their success and ultimately strong market adoption.
Speaker Change: We believe Identive is uniquely positioned to support these types of complex requirements with our industry, leading innovation in highly engineered and they design.
Speaker Change: Rapid prototyping capabilities and strong multicomponent engineering and manufacturing capabilities.
Kirsten Newquist: To allow us to fully capitalize on the opportunities across multiple verticals, we will deploy our new Perform, Accelerate, and Transform growth strategy to drive revenue and EBITDA expansion. Perform, Accelerate and Transform is a framework that we will implement beginning in quarter one 2025 to strengthen and optimize the performance of our core channel business, accelerate our growth, and ultimately transform the business. First, PERFORM is focused on strengthening, optimizing, and growing our core channel business. The objective of PERFORM is to grow our market share and increase our profitability in the channel. We will focus on higher margin opportunities with our existing customers and channel partners, expand gross margins by completing the transition to Thailand, execute our MPD projects with discipline, and delight our customers with excellent customer support and timely product delivery.
Speaker Change: To allow us to fully capitalize on the opportunities across multiple verticals, we will deploy our new perform accelerate and transform growth strategy to drive revenue and EBITDA expansion.
Speaker Change: Perform accelerate and transform is a framework that we will implement beginning in quarter, one 2025 to strengthen and optimize the performance of our core channel business.
Speaker Change: To accelerate our growth and ultimately transform the business.
Speaker Change: First perform is focused on strengthening optimizing and growing our core channel business.
Speaker Change: The objective of perform is to grow our market share and increase our profitability in the channel.
Speaker Change: We will focus on higher margin opportunities with our existing customers and channel partners.
Speaker Change: Expand gross margins by completing the transition to Thailand.
Speaker Change: Execute our MPD projects with discipline and delight, our customers with excellent customer support and timely product delivery.
Kirsten Newquist: We are implementing a stage gate process to carefully manage our NPD project pipeline, which is designed to focus our time and R&D resources on the projects with the highest probability of success and discontinue those that we deem financially or technically unviable. We will be implementing clear metrics to monitor our progress with our core business performance. We plan to disclose several new metrics on our Q4 earnings call.
We are implementing a stage gate process to carefully manage our MPD project pipeline, which is designed to focus our time and the R&D resources on the projects with the highest probability of success and discontinue those that we deem financially are technically unviable.
Speaker Change: We will be implementing clear metrics to monitor our progress with our core business performance, we plan to disclose several new metrics on our quarter four earnings call.
Kirsten Newquist: Second, Accelerate is focused on specific initiatives to spur accelerated growth, each with a compelling return on investment. We have identified three distinct initiatives to accelerate growth. one related to developing business within health care. A second related to developing business within three high-value applications outside of health care. and a third related to expanding our BLE and multi-component technology platform. Our health care growth initiative will be led by a market and business development team to pursue end customers directly as opposed to through the channel. This team will focus on three priority areas. Medication Adherence for Home Use Drug Delivery Devices Consumable Authentication for Medical Devices and Diagnostic Test Equipment and Condition Monitoring for Biologics and Clinical Specimens.
Speaker Change: Second accelerate is focused on specific initiatives to spur accelerated growth each with a compelling return on investment.
Speaker Change: We have identified three distinct initiatives to accelerate growth.
Speaker Change: Unrelated to developing business within health care.
Speaker Change: A second related to developing business within three high value applications outside of health care.
Speaker Change: And a third related to expanding our BLE and multicomponent technology platform.
Speaker Change: Our health care growth initiative will be led by a market and does his development team to pursue end customers directly as opposed to through the channel.
Speaker Change: This team will focus on three priority areas.
Speaker Change: Medication adherence for home use drug delivery devices.
Speaker Change: Consumable authentication for medical devices and diagnostic test equipment.
Speaker Change: And condition monitoring for biologics and clinical specimens.
Speaker Change: We have confirmed through primary and secondary market research that each of these views. These areas has significant unmet needs and a meaningful addressable market that can be addressed through RFID and be able to use solution.
Kirsten Newquist: We have confirmed through primary and secondary market research that each of these areas has significant unmet needs and a meaningful addressable market that can be addressed through RFID and BLE solutions. For example, medication non-adherence has been cited at up to 40 to 50% in chronic conditions in the U.S., causing nearly $100 billion in preventable medical costs per year. Collectively, across these three priority areas, the total addressable volume is over 10 billion units annually, or roughly $1.5 to $2 billion in RFID and BLE inlay sales.
Speaker Change: For example, medication non adherence has been cited at up to 40% to 50% and chronic conditions in the U S, causing nearly a 100 billion and preventable medical costs per year.
Speaker Change: Collectively across these three priority areas. The total addressable volume is over 10 billion units annually or roughly one and a half to $2 billion in RFID and BLE and late sales.
Kirsten Newquist: The second growth initiative will focus on non-healthcare high-value segments. We intend to address three specific use cases. Inventory management for plastic pallets and bins to support recycling initiatives mandated by retailers. Smart Packaging for Luxury Products to Combat Counterfeiting and Home Device Consumable Authentication to Reduce Counterfeiting and Ensure Proper Assembly and Use. Through our channel partnerships, we have early traction in each of these use cases and can see the value that RFID and BLE provide. The EU's forthcoming digital product passport regulations also provide some significant tailwinds for growth in these areas. Similar to the healthcare initiative, a segment-specific market and business development team will be established to secure new partnerships and serve end customers.
Speaker Change: The second growth initiative will focus on non health care high value segments.
Speaker Change: We intend to address three specific use cases inventory management for plastic pallets and Ben to support recycling initiatives mandated by retailers.
Speaker Change: Smart packaging for luxury products to combat counterfeiting and home device consumable authentication to reduce counterfeiting and ensure proper assembly and use.
Speaker Change: Through our channel partnerships, we have early traction in each of these use cases and can see the value that RFID and BLE provides.
Speaker Change: The he is forthcoming digital product passport regulations also provide some significant tailwind for growth in these areas.
Speaker Change: Similar to the health care initiative, our segments specific market and business development team will be established to securing new partnerships and serve end customers.
Kirsten Newquist: The third growth initiative is expansion of our BLE and multi-component technology platform. BLE is a next generation technology for IoT, providing benefits for certain applications that are challenging to address with traditional RFID technology. Gartner recently named Ambient Invisible Intelligence, made possible by BLE, as one of the top tech trends for 2025. We intend to continue expanding our BLE capabilities and technologies through our current NPD projects such as the ongoing pilot programs with Energis, utilizing the Williott BLE technology, our new partnership with InPlay, Williott's go-to-market efforts with big box retailers, as well as our own go-to-market strategy within health.
Speaker Change: The third growth initiative is extension of our BLE and multicomponent technology platform.
Speaker Change: Clearly the next generation technology for Iot, providing benefits for certain applications that are challenging to address with traditional RFID technologies.
Speaker Change: Gartner recently named ambient Invisible intelligence made possible by BLE as one of the top tech trends for 2025.
Speaker Change: We intend to continue expanding our capabilities and technologies to our current MPD projects such as the ongoing pilot programs with <unk> utilizing the will it be early technology, our new partnership with in play.
Speaker Change: Really its go to market efforts with big box retailers as well as our own go to market strategy within health care.
Kirsten Newquist: As with PERFORM, we plan to disclose Accelerate-specific metrics for tracking progress on these three growth initiatives on our Q4 2024 EARMINGS call.
Speaker Change: As we perform we plan to disclose accelerates specific metrics for tracking progress on these three growth initiatives on our quarter four 2024 earnings call.
Kirsten Newquist: The third part of our strategic framework is transform. This pillar focuses on driving significant business expansion and capability growth through M&A. M&A is an important component of our growth strategy and is intended to enable us to expedite achieving EBITDA break-even. We are assessing potential tuck-in M&A opportunities that fit our growth strategy and acquisition guidelines. We intend to focus on targets that not only bring scale, but are also accretive financially and bring strong synergies, additive talent and complimentary products. In a nutshell, our ideal tuck-in target is a company with $5 to $30 million in annual revenue, that's EBITDA positive, ideally with EBITDA margins greater than 10%, and has a valuation of less than 10 times EBITDA post-synergies and between one to two times revenue, depending on profitability.
Speaker Change: The third part of our strategic framework is transform this pillar focuses on driving significant business expansion and capability growth through M&A.
Speaker Change: M&A is an important component of our growth strategy and is intended to enable us to expedite achieving EBITDA breakeven.
Speaker Change: We are assessing potential tuck in M&A opportunities that fit our growth strategy and acquisition guidelines.
We intend to focus on targets that not only brings scale, but are also accretive financially and brings strong synergies additive talent and complementary products.
In a nutshell, our ideal tuck in targets as a company with $5 million to $30 million in annual revenue that is EBITDA positive.
Speaker Change: Ideally with EBITDA margins greater than 10%.
Speaker Change: And has a valuation of less than 10 times EBITDA post synergies and between one to two times revenue depending on profitability.
Kirsten Newquist: Adding scale and capabilities and increasing utilization of our state-of-the-art time facility are our near-term priorities.
Speaker Change: Adding scale and capabilities and increasing utilization of our state of the art ton facility or our near term priorities.
Kirsten Newquist: Moving on to capital allocation. Our capital allocation plan is designed to utilize a portion of our transaction proceeds for targeted investments that align with our perform, accelerate, and transform strategic framework and will drive our future growth. As I stated earlier, our total net proceeds from the transaction are approximately $135 million. Our first priority is to invest in organic growth. Our current plan is to allocate 25 to 30 percent of the net proceeds for investing in our core business and key growth initiatives to perform and accelerate parts of our PAT framework. We are currently targeting 35 to 40% for strategic M&A, the transform part of our strategic framework, and 25 to 30% is currently targeted for future working capital purposes.
Speaker Change: Moving on to capital allocation, our capital allocation plan is designed to utilize a portion of our transaction proceeds for targeted investments that align with our perform accelerate and transform strategic framework and will drive our future growth.
Speaker Change: As I stated earlier, our total net proceeds from the transaction are approximately $135 million.
Speaker Change: Our first party is to invest in organic growth.
Speaker Change: Our current plan is to allocate 25% to 30% of the net proceeds for investing in our core business and key growth initiatives the.
Speaker Change: The perform and accelerate parts of our P. A T framework.
Speaker Change: We are currently targeting 35% to 40% for strategic M&A.
The transform part of our strategic framework.
Speaker Change: And 25% to 30% is currently targeted for future working capital purposes.
Kirsten Newquist: And the final component, as announced today, is a $10 million stock repurchase program.
Speaker Change: And the final component as announced today is a $10 million stock repurchase program.
James Ousley: I'd like to now turn the call over to our chairman, Jim Ousley, for an overview of our share repurchase program, as well as the board's recommendations for updating IDENTIS corporate governance. Jim, over to you. Thank you, Kirsten. Given the significant transformation underway at Identiv, the Board of Directors has decided this was the appropriate time to review our corporate governance policy to better align with the company's new strategic direction and the interest of our shareholders. Pending final approval, the board intends to recommend the following updates to Identiv's corporate governance policies and procedures.
Speaker Change: I'd like to now turn the call over to our chairman Jim Owsley for an overview of our share repurchase program as well as the board's recommendations for updating identive corporate governance.
Jim over to you.
Jim Owsley: Thank you Kirsten given.
Speaker Change: Given the significant transformation underway at Identive. The board of directors have decided this was the appropriate time to review, our corporate governance policies to better align with the company's new strategic direction and the interest of our shareholders.
Speaker Change: Pending final approval the board intends to recommend the following updates to Identive corporate governance policies and procedures first solicit stockholder approval at the 2025 annual meeting to eliminate our classified board structure.
James Ousley: First, solicit stockholder approval at the 2025 annual meeting to eliminate our classified board structure. Secondly, In uncontested elections, the board would consider the resignation of any director who does not receive a majority vote. And third, amend our equity compensation plan to eliminate the ability to reprice options without prior stockholder approval.
Speaker Change: Secondly.
Speaker Change: In uncontested elections, the board would consider the resignation of any director, who does not receive a majority vote.
Speaker Change: Third amend our equity compensation plan to eliminate the ability to reprice options without prior stockholder approval.
James Ousley: We are taking two additional important actions. We are actively recruiting board of director candidates with deep, additive expertise that will be valuable in guiding us through this transition.
Speaker Change: We are taking two additional important actions we are actively recruiting board of director candidates with deep additive expertise that will be valuable in guiding us through this transition.
James Ousley: And lastly, the Board of Directors has approved a share repurchase program authorizing the company to purchase up to $10 million of its common stock. This strategic move reflects the board's confidence in the new growth strategy and the strong conviction that Identiv's current share price is undervalued relative to its long-term opportunity. We think these corporate governance changes are in the best interest of Identiv and our stockholders.
Speaker Change: And lastly, the board of Directors has approved a share repurchase program authorizing the company to purchase up to $10 million of its common stock.
Speaker Change: This strategic move reflects the board's confidence in the new growth strategy and the strong conviction that this current share price is undervalued relative to its long term opportunity.
Speaker Change: We think these corporate governance changes are in the best interest of Identive and our stockholders. We look forward to providing you lots more detail in the future I will now turn it back to Kirsten. Thank you.
James Ousley: We look forward to providing you much more detail in the future.
Kirsten Newquist: I will now turn it back to Kirsten. Thank you. Thanks, Jim. In conclusion, we have been and continue to see strong macro trends that are driving robust demand for RFID and next generation technology. This demand provides identities that tell WINS to grow and reach profitability. Identif's long track record of innovation is widely recognized. We have the right capabilities and RFID-related technology required for emerging applications across several high-value verticals. And we now have ample financial resources that we believe will allow us to execute our perform, accelerate, and transform strategy and drive meaningful returns and shareholder value.
Kirsten Newquist: Thanks, Jim.
Kirsten Newquist: In conclusion, we have been and continue to see strong macro trends that are driving robust demand for RFID and next generation technologies. This.
Kirsten Newquist: This demand provides identive the tailwind to grow and reach profitability.
Kirsten Newquist: I then for its long track record of innovation is widely recognized.
Kirsten Newquist: We have the right capabilities and RFID related technology required for emerging applications across several high value verticals.
Kirsten Newquist: And we now have ample financial resources that we believe will allow us to execute our perform accelerate and transform strategy and drive meaningful returns and shareholder value.
Kirsten Newquist: The leadership team has taken significant steps towards transforming Identiv, and we believe the company is well positioned to capitalize on the exciting opportunities ahead.
Kirsten Newquist: The leadership team has taken significant steps towards transforming identive and we believe the company is well positioned to capitalize on the exciting opportunities ahead.
Kirsten Newquist: With that, I'd like to open the call for your questions.
Kirsten Newquist: With that I'd like to open the call for your questions.
Operator: Operator, please open the question queue. Thank you. 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. That confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd 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. Once again, please press star 1 on your touchtone phone to ask a question.
Speaker Change: Operator, please open the question queue.
Speaker Change: Thank you 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'd like to remove your question from the queue for participants using speaker equipment. It.
Speaker Change: May be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Speaker Change: Once again, please press star one on your Touchtone phone to ask a question.
Kirsten Newquist: Thanks, Operator, and thank you all again for joining us today. We appreciate the continued support of our employees, partners and shareholders.
Speaker Change: Thanks, operator, and thank you all again for joining US today. We appreciate the continued support of our employees partners and shareholders in the coming months, we will be prioritizing investor outreach meeting with existing and prospective investors present, our new growth strategy and capital allocation plan and objectives.
Kirsten Newquist: In the coming months, we'll be prioritizing investor outreach, meeting with existing and prospective investors, present our new growth strategy, and capital allocation plan and objectives.
Speaker Change: For today's Q&A. In addition to Justin and me, we have our chairman of the board, Jim Ousley, Amir Cogent Yahtzee and Manfred Mueller.
Kirsten Newquist: For today's Q&A, in addition to Justin and me, we have our Chairman of the Board, Jim Ousley, Amir Koshniati, and Manfred Mueller. So, Operator, let's please proceed with questions.
So operator, let's please proceed with questions.
Operator: Absolutely, thank you.
Speaker Change: Absolutely. Thank you. The first question comes from Craig Ellis with B Riley Securities. Please proceed.
Craig Ellis: The first question comes from Craig Ellis with B. Riley Securities. Please proceed.
Stacy Cho: Hi, this is Stacy Cho, I'm for Craig, and thanks for taking the question, Kirsten. Congratulations on the great first quarter without the premises business. And I just have a quick question about how do you think about when we think about the near-term confidence in attaining the 27% plus or 25% plus non-GAAP gross margin in mid-2025, if that timeline has changed since the last time? Thank you.
Hi, This is stacy to all four of Craig and thanks for taking the question Kristin Congratulations on the great first quarter without the premises business and I. Just a quick question about how do you think about when we think.
Speaker Change: About the near term confidence in attaining the 27% plus or 25% plus of them non.
Speaker Change: non-GAAP gross margin in the 2025, if that timeline has changed since the last time. Thank you.
Kirsten Newquist: Yeah, no.
Speaker Change: Yeah, no. So as I mentioned, we're making great progress with the transition of our production from Singapore to Tyler and the team is working really hard our customers are partnering with us to make sure that we can qualify the new site and get their production moved so it's going very smoothly.
Kirsten Newquist: So as I mentioned, we're making great progress with the transition of our production from Singapore to Thailand. The team is working really hard. Our customers are partnering with us to make sure that we can qualify the new site and get their production moved. So it's going very smoothly. So as I said, we anticipate about 75% to be transitioned by the end of this year. We have a couple of remaining customers that will go into the first half of next year. So we're feeling very confident that we'll be all the way through the transition, for sure, by the end of 2025.
Speaker Change: So as I said, we anticipate about 75% to be transitioned by the end of this year. We have a couple of remaining customers that will go into the first half of next year. So we're feeling very confident that will be all the way through the transition for sure by the end of 2025 now of course, we need to give our team there a little bit of time to get up to speed.
Kirsten Newquist: Now, of course, we need to give our team there a little bit of time to get up to speed to learn all the ins and outs of the production. But as soon as they've reached their full productivity, we feel confident in the 26% to 28% non-gap growth margin rate.
Speaker Change: To learn all the ins and outs of the production, but as soon as they've breached.
Speaker Change: Their full productivity, we feel confident in the 26% to 28% non-GAAP gross margin range.
Speaker Change: Yeah.
Stacy Cho: Got it. Thank you.
Speaker Change: Got it thank you.
Justin Scarpulla: And if I can have a follow-up question on maybe the cash burn intensity that we discussed before. When we think about the trajectory of the fiscal one year of $15 million or the following year $25 million, is that still within our plan? And how do we think about that when we are trying to discuss the path to profitability for the company?
Speaker Change: If I can I'll have a follow up question on maybe the cash burn intensity that we discussed before when we think about the the trigger.
Speaker Change: Victory of the physical one year old $15 million or the following year and $25 million.
Speaker Change: Is that still within our our plan and how do we think about that when we are trying to discuss the passive profitability for the company.
Justin Scarpulla: This is Justin. Happy to answer the question. Can you rephrase what you meant when you said 25 million?
Justin: This is Justin happy to answer the question can you rephrase. What you meant when you said 25 million I wasn't following that we did put out just to answer. Your quick question I think that we did put out 2000 $14 million to $16 million over the next 12 months, we feel pretty strongly that that is a good number.
Justin Scarpulla: I wasn't following that. We did put out, just to answer your quick question, I think that we did put out 14 to 16 million over the next 12 months. We feel pretty strongly that that is a good number and similar to what we had said last quarter as well. So we're confident in the 14, 16 for the next 12 months, but I wasn't sure what you meant by the 25 million that you referenced. Yeah, it's just the following year, if that's within the range that you're thinking about, about the 25. Well, we don't give guidance post, we wouldn't give cash for guidance past the next four quarters, but no, it would, it would not be 25 million the following year.
Justin: And similar to what we had said last quarter as well. So we're confident in the $14 16 for the next 12 months, but I wasn't sure what you meant by.
Justin: 25 million that you referenced.
Speaker Change: Yeah. It's just a following ear assets are within the range that you're thinking about about the 25.
Speaker Change: We don't give guidance post we wouldn't give cash flow guidance.
Speaker Change: Absolute next four quarters, but no it.
Speaker Change: It would not be $25 million then the following year. So I think that that is too high okay.
Justin Scarpulla: So I think that that that is too high.
Stacy Cho: Okay. Okay, got it. Yeah. Okay.
Justin: Okay got it yeah, Okay, and if I can just squeezing one more thank you Justin.
Stacy Cho: And if I can just squeeze in one more. Thank you, Justin. So, thank you for breaking down, you know, the capital allocation. It's very helpful.
Speaker Change: So we thank you for breaking down you know the capital allocation. That's very helpful. When we think about during the M&A.
Stacy Cho: When we think about during the M&A, is there a potential acquisition timing that you think could help you get to the $65 million in revenue?
Speaker Change: Is there a potential acquisition timing that you think could help you get to the 65 million in revenue.
Speaker Change: Yes, I mean, we are actively looking at potential acquisition acquisition targets now and obviously that is one of our three strategic pillars and are definitely where we're doing that assessment now. So it is a priority we don't have any specific timing our timeline and <unk>.
Justin Scarpulla: Yes, I mean, we are actively looking at potential acquisition targets now, and obviously that is one of our three strategic pillars, and definitely we're doing that assessment now.
Justin Scarpulla: So it is a priority. We don't have any specific timing or timeline in place at this point, but it is something that we are actively looking at. Got it. Thank you.
Speaker Change: At this point, but it is something that we are actively looking at.
Speaker Change: Got it thank you.
Craig Ellis: Once again, if you have a question or a comment, please indicate so by pressing star one on your touchtone phone. Okay, we have a follow-up coming from Craig Ellis with B. Reilly. Please proceed.
Speaker Change: Once again, if you have a question or comment please indicate so by pressing star one on your Touchtone phone.
Speaker Change: Okay, we have a follow up coming from Craig Ellis with B Riley. Please proceed.
Craig Ellis: Hi, Hey, guys.
Craig Ellis: Hi, hey guys. Sorry, I guess I just have one more.
Speaker Change: Sorry, I guess I just have one more so can you talk about the any potential a large.
Kirsten Newquist: So, can you talk about any potential large pharmaceutical companies penetration within the medical and, you know, given the strong relationship that Identiv has had previously and given Kirsten's strong background coming from the area?
Speaker Change: Pharmaceutical companies penetration are within the medical and.
Speaker Change: And you know given the strong relationship with the Atlanta has had previously and given a persons from background coming from that area.
Kirsten Newquist: Yeah, so certainly pharmaceutical is definitely an interesting area for us. We have active NPD projects underway. They're still in the NPD process, so new product development process, and we're working collaboratively to come up with solutions.
Speaker Change: Yeah, So certainly pharmaceuticals definitely an interesting area for us we have active MPD projects underway.
Speaker Change: They're still in the NPD process, so new product development process, and we're working collaboratively to come up with solutions.
Kirsten Newquist: We also, this is an area that is an area of focus for us as we are building our new business development and marketing development team. So, it's definitely an area that we're gonna also look for additional opportunities. So, definitely a strong area of interest and we have a decent amount of activity underway working on on projects to support that area.
Speaker Change: We also this is an area that is a area of focus for us as we are building, our new business development and marketing and development teams. So it's definitely an area that we're going to also look for additional opportunities. So definitely a strong area of interest and you know we have a decent amount of activity underway.
Speaker Change: On on projects to support that area.
Kirsten Newquist: Got it, thank you.
Speaker Change: Got it thank you.
Speaker Change: Yeah.
Kirsten Newquist: I'd now like to turn the floor back to management for any closing remarks. Well thank you again for joining us. We really do appreciate it. As I mentioned before, we will be prioritizing investor outreach and we have coming up the Craig Hallam Alpha Select Conference in New York in November. We'll be at the Imperial Capital Security Investors Conference in December and we're definitely looking forward to speaking and meeting many of our investors in the coming months. Thank you all very much. Thank you. This concludes today's conference and you may disconnect your lines at this time.
Speaker Change: I'd now like to turn the floor back to management for any closing remarks.
Speaker Change: Well. Thank you again for joining us we really do appreciate it.
Speaker Change: As I mentioned before we will be prioritizing investor outreach and we have coming up the Craig Hallum Alpha Select conference in New York in November will be at the Imperial capital Security Investors Conference in December.
Speaker Change: And we're definitely looking forward to speaking and meeting many.
Speaker Change: Many of our investors in the coming months. Thank you all very much.
Speaker Change: Thank you. This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Operator: Thank you for your participation.