Identiv, Inc. Q3 FY2024 earnings call

• Completed sale of Physical Security business to Vitaprotech, with net proceeds strengthening financial position for IoT growth.
• In Q3, made progress on production transition from Singapore to Thailand, expecting ~3/4 of current volume to transition by year-end; some customers to continue in Singapore into first half of 2025.
• New product development pipeline is robust with projects in cold chain monitoring, pharma/NFC smart labels, aviation UHF sensing, etc.
• Announced strategic partnership with InPlay for BLE-based cold chain monitoring; sees BLE as important for next-gen IoT applications.
• Implemented Perform, Accelerate, Transform growth strategy: Perform focuses on core business optimization; Accelerate includes initiatives in healthcare, high-value non-healthcare applications, and BLE platform; Transform focuses on M&A for expansion.

Third quarter net revenue was $6.5 million, slightly above previously announced guidance. GAAP gross margin was 3.6% and non-GAAP gross margin was 9.3% in Q3 2024, down from prior year due to lower sales and underutilized production facilities. The company sold its Physical Security business to Vitaprotech, transitioning to focus solely on IoT, with net proceeds after taxes anticipated at ~$135 million. The IoT business focuses on developing and supplying specialty RFID and Bluetooth low energy solutions.

• Q4 2024 IoT revenue expected in range of $6.0 million to $6.3 million.
• Capital allocation: 25%-30% of net proceeds for core business/key growth initiatives, 35%-40% for strategic M&A, 25%-30% for working capital, and $10 million stock repurchase program announced.

• Pressure on gross margins due to manufacturing overhead during transition from Singapore to Thailand.
• Uncertainty in production transition for some customers, including one representing ~10% of volume with low margins.
• Timing and execution risks associated with M&A activities for growth.

Q: About near-term confidence in attaining 26%-28% non-GAAP gross margin.

A: Confident in transition of production to Thailand by end of 2025, with team needing time to reach full productivity but expecting to achieve 26%-28% non-GAAP gross margin once there.

Q: About cash burn trajectory.

A: Confident in $14 million to $16 million net operating cash use over next 12 months, not expecting a $25 million cash burn in the following year.

Q: About M&A timing for reaching $65 million revenue.

A: Actively looking at potential acquisition targets now, but no specific timing in place yet.

Q: About pharmaceutical penetration.

A: Active new product development projects in pharmaceutical area, with focus on building business development and marketing teams to pursue opportunities in medication adherence, consumable authentication, etc.