Identiv, Inc.

Good afternoon. Welcome to Addentive's presentation of its fourth quarter and fiscal year 2024 earnings call. My name is John, and I will be your operator this afternoon. Joining us for today's presentation are the company's CEO, Kirsten Newquist, and CFO, Justin Scarpulla. Following management's remarks, we will open the call for questions. Before we begin, please note that during this call, management may be making references to non-GAAP financial measures or guidance including non-GAAP adjusted EBITDA, non-GAAP gross margin, and non-GAAP operating expenses. In addition, during the call, management will be making forward-looking statements. 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, strategies, opportunities, and goals is a forward-looking statement. Actual results may differ materially from those expressed in these forward-looking statements. For more information, please refer to the risk factors discussed in documents filed from time to time with the SEC, including the company's latest annual report on Form 10-K and quarterly report on Form 10-Q, as well as our third quarter 10-Q once filed. IDENTIF assumes no obligation to update these forward-looking statements. I will now turn the call over to CEO Kirsten Newquist for her comments. Ms. Newquist, please proceed.

Thanks, Operator, and thank you all for joining our quarter four and fiscal year 2024 earnings call. Quarter four marked our first full quarter following the sale of our physical security business, allowing us to focus on becoming a leading peer play provider of specialty RFID and and Bluetooth Low Energy, BLE, solutions. The proceeds from the sale significantly strengthen our financial position and enable us to fund future organic and M&A-driven growth of our specialty IoT solutions business. During our last earnings call, we unveiled our perform, accelerate, transform, growth strategy, and go-to-market plan. and I'm happy to share that we have fully shifted into execution mode. We have made progress building our team, moving several key initiatives forward, and ensuring we have plans in place to drive operational excellence. As we've discussed, the objective of the PAT framework is to strengthen and optimize the performance of our core channel business, accelerate our growth through focused key initiatives, and ultimately transform the business into a market leader in specialty IoT solutions. To drive the commercial aspects of the plan, we are excited to have accomplished business leader, Kim McCauley, join Identif as the new head of our commercial organization. Kim will be integral to driving sales expansion in our core channel business within the perform pillar and leading our business development initiatives in the accelerate pillar. She has over 30 years of experience developing and implementing successful go-to-market strategies, as well as creating and managing high-performing sales teams. Kim knows how to successfully scale a growth business, having previously managed commercial sales of $650 million at Avery Dennison, including supporting the launch of RFID. Her initial focus will be on strengthening the sales organization and implementing the tools needed to streamline communication and proactively manage our sales pipeline, positioning us to scale the business effectively. Another key aspect of our plan is the transition of RFID production from Singapore to our low-cost facility in Thailand, which remains a top priority and continues to progress very well. In December, we achieved our year-end milestone of transitioning roughly 75% of our current volume to Thailand. Of the four remaining customers in Singapore, one will be discontinued and the other three are expected to be transferred to Thailand by the end of quarter two. The customer who we decided to discontinue is one of our lowest margin customers. Once all production has been transferred and the Thailand team achieves productivity on par with Singapore, We expect it to deliver a non-GAAP gross margin in the previously stated range of 26% to 28%. Our long-term non-GAAP gross margin target remains 35%. Our new product development, NPD, pipeline, plays a key role in driving our business growth. We are working on numerous active projects, both customer-driven and internally-driven, in response to evolving market needs. In the past quarter, we added several new customer-driven projects, including a new smart label for the authentication of consumables for home appliances, a rugged, Williott-based BLE device for use on metal and industrial applications, an in-play-based BLE smart label for use in the pharmaceutical cold chain, and a new BLE design for integration into reusable plastic containers for transporting food. These new projects represent high-value applications. Last week, we announced a new strategic partnership with Novanta, a technology solutions provider focused on the healthcare industry. This collaboration brings together Novanta's reader modules and APIs with Identif's inlay portfolio, streamlining the development process for OEMs to incorporate smart technology into their medical devices. It also allows us to offer a comprehensive consumable authentication solution to medical device and diagnostic OEMs. Our combined technologies are intended to help ensure that the correct consumables are used, properly calibrated, and correctly assembled into medical devices and diagnostic equipment, promoting accurate use and enhancing patient safety. In summary, 2024 was a transformative year for IDENTIV. with quarter four marking the beginning of the new streamlined identity. As a standalone, pure-play IoT solutions company, we have established a clear strategic plan to drive future growth, continuing to build a solid foundation as we actively strengthen our team with experienced professionals. I will share more details on these ongoing initiatives following Justin's review of our fourth quarter and fiscal year financials. Justin.

Thanks, Kirsten. As Kirsten mentioned, 2024 was transformative for Identiv. Now a pure-play RFID company focused solely on IoT solutions, we've begun to execute our PAT strategic growth plan and are making good progress transitioning inlay production from Singapore to Thailand. Fourth quarter 2024 revenue was $6.7 million, exceeding the midpoint of our previously announced outlook by approximately $600,000. Q4 outperformance versus this revenue guidance was primarily due to one of our customers accelerating their delivery schedule from Q1 of 2025 to Q4 as a precaution ahead of transferring their production to Thailand. Although we do not anticipate any delays with our Thailand transition, this customer wanted to ensure that they had enough inventory on hand to mitigate any scale-up risk in Thailand. Fourth quarter gap and non-gap gross margin was negative 14.9% and negative 5.2%, respectively, compared to gap and non-gap positive gross margin of 16.2% and 19.5%, respectively, in Q4 2023. Factors impacting the decrease in gross margin included decreased utilization, the ramp up of our Thailand facility ahead of the transition out of Singapore, and the customer that phased out their legacy program earlier than expected. The customer program resulted in a non-cash inventory adjustment of $0.8 million and an additional $0.2 million attributable to the disposal of specific manufacturing equipment that cannot be repurposed for other customer orders. As we have previously communicated, completing the transition of RFID and BLE production from Singapore to Thailand remains a key priority for 2025. We have transitioned the vast majority of the customers and are making good progress on qualifying the last three customers to be transferred to Thailand. After multiple discussions with a low-margin legacy customer, we determined that continuing to support their business in Thailand is not aligned with our PAT growth strategy. By focusing our commercial and R&D efforts on higher margin opportunities in healthcare and other high-value segments, along with the full production in Thailand, we believe we can deliver a long-term target non-GAAP gross margin of 35%. GAAP and non-GAAP operating expenses for the fourth quarter of 2024, including research and development, sales and marketing, and general and administrative expenses, totaled 5.6 and 4.1 million, respectively, as compared to 5.2 and 4.1 million respectively in Q4 2023. The year-over-year change in our GAAP and non-GAAP operating expenses continue to reflect our focus on maintaining tight control over operating expenses. Fourth quarter GAAP net loss from continuing operations was 4.3 million or 19 cents per basic and diluted share compared to GAAP net loss from continuing operations of 3.3 million or 16 cents per basic and diluted share in the fourth quarter of 2023. Non-GAAP adjusted EBITDA for Q4 2024 was negative 4.5 million compared to negative 1.9 million in the fourth quarter of 2023. The year-over-year changes in GAAP net loss and EBITDA were primarily the result of lower year-over-year revenues, which resulted in the underutilization of our production facilities in Southeast Asia and the costs associated with the phase out of our legacy low margin customer project. 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. Turning to fiscal year 2024 financials. Fiscal year 2024 revenue was $26.6 million, a decrease of $16.8 million compared to the prior year period, primarily the result of lower sales of BLE transponder and mobile products. Fiscal year 2024 gap and non-gap gross margin was 1.3% and 8%, respectively, compared to gap and non-gap gross margin of 13.8% and 16.6%, respectively, in fiscal year 2023. The decline in gross margins is largely due to the production transition to Thailand. For all of fiscal 2024, we had operations running in both Singapore and Thailand versus both sites running in the second half of 2023. Additionally, we had to allocate significant resources in 2024 to Thailand ahead of this manufacturing transition out of Singapore. GAAP and non-GAAP operating expenses for fiscal year 2024, including research and development, sales and marketing, and general administrative expenses, totaled $28.3 million and $17.9 million, respectively, as compared to $19.5 million and $16.7 million, respectively, in fiscal year 2023. Included in the fiscal year GAAP operating expenses were $6.2 million in strategic transaction-related costs and $3.5 million in stock-based compensation. Fiscal year GAAP net loss from continuing operations was $25.9 million or $1.14 per basic and diluted share compared to GAAP net loss from continuing operations of $13.9 million or $0.66 per basic and diluted share in fiscal year 2023. Non-GAAP adjusted EBITDA for fiscal year 2024 was negative $15.8 million compared to negative $9.5 million in fiscal year 2023. The decrease was primarily the result of our lower year-over-year revenues and other factors as previously noted. Now, moving to the balance sheet. We exited Q4 2024 with $135.9 million in cash and cash equivalents in restricted cash, an increase of $111 million since December 31, 2023. In the fiscal year ending December 31, 2024, the $141.5 million net increase in cash from our investing activities was primarily attributable to the strategic transaction proceeds. This was offset in part by $13.6 million used in financing activities for the repayment of our credit facility, repurchases of our common stock, and taxes paid on the settlement of RSU releases. and 15.4 million used in operating activities. In the fourth quarter of 2024, we used 9.8 million in cash and restricted cash, of which 3.5 million related to tax payments related to our strategic transaction, 2.2 million in strategic transaction-related payments, and 1.9 million in share repurchases. This was offset by 1.3 million in interest income. Excluding payments made related to our strategic transaction and the repurchases of common stock and interest income, our Q4 operating cash usage was $3.5 million. Our previously stated expected net operating cash usage for the 12 months following the end of Q3 2024 remains in the range of $14 to $16 million, as previously disclosed. Our working capital exiting Q4 was $142.8 million. Our balance sheet remains strong, enabling us to pursue our organic and inorganic growth initiatives within the PAT framework. In our 10Q 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. As we discussed last November, our capital allocation plan prioritizes organic growth with a target allocation of 25 to 30% of net proceeds, strategic M&A, a 35 to 40% target allocation, and working capital, a 25 to 30% target allocation, in line with our PAT framework, with $10 million allocated to a stock repurchase program. In the fourth quarter of 2024, we utilized $1.9 million from our stock repurchase program to repurchase approximately 464,000 shares of stock. Lastly, our financial outlook. For Q1 2025, we currently expect net revenue in the range of $4.8 million to $5.1 million. Our Q1 2025 forecast was impacted by the previously disclosed customer pull-in out of Q1 2025 and into Q4 2024. This concludes the financial discussion. I'll now pass the call back to Kirsten.