Identiv reports fourth quarter and fiscal year 2017 results

Recent business highlights

• Achieved 13% year-over-year revenue growth in the fourth quarter of 2017
• Acquired video technology and data analytics company 3VR, strengthening position in Premises security
• Strengthened financial position with financing of up to $20 million and elimination of 50% of term debt
• Amended financing agreement with improved line-of-credit terms, providing additional financial flexibility to execute on growth strategy
• Released ICPAM 3.1 with Input Modules, Data Center Rack Solution, and Mx-1 Controller Integration
• Continued volume shipments for NFC applications in apparel & home security
• Invested in Engineering leadership to accelerate delivery of products

Fourth quarter 2017 financial results

Revenues for the fourth quarter of 2017 were $16.6 million, compared to $15.4 million in the third quarter of 2017 and $14.6 million in the fourth quarter of 2016, reflecting a sequential increase of 7% from the third quarter of 2017, and a year-over-year increase of 13% from the fourth quarter of 2016.

Revenues in the Premises (PACS) segment grew 20% sequentially and grew 5% year-over-year. Contributing to the sequential growth in the fourth quarter were strong controller and access reader sales and deliveries for Government orders. Year-over-year growth was mainly driven by increased revenue from services and software, in line with the Company’s focus and its recently launched Identiv Global Services program. Revenues in the Identity segment increased 9% sequentially and decreased 6% year-over-year. The fourth quarter benefited from continued strong sales of reader chipsets and payment modules, as well as strong demand from distribution and OEM partners for applications like secure printing. New distribution partnerships for international regions were signed during the quarter. Revenue in the Credentials segment decreased 6% sequentially and grew 48% year-over-year. The year-over-year growth reflects an increase in RFID and NFC transponder sales, predominantly to key accounts in the U.S. and Asia-Pacific regions, as well as continuing growth in access cards sales domestically.

GAAP gross margin was 30% in the fourth quarter of 2017, compared to 38% in the third quarter of 2017 and 43% in the fourth quarter of 2016. The sequential gross margin decrease mainly reflects an increase in gross margin in the Premises and Identity segments, offset by lower margin in the Credentials segment due to a transponder related inventory reserve adjustment associated with a customer relationship which ended at the end of 2015 and the Company’s decision to discontinue plans for alternative use of the product.

Non-GAAP gross margin was 43% in the fourth quarter of 2017, compared to 40% in the third quarter of 2017 and 45% in the fourth quarter of 2016.

GAAP operating expenses were $7.0 million in the fourth quarter of 2017, compared to $6.2 million in the third quarter of 2017, and $6.4 million in the fourth quarter of 2016, reflecting a sequential increase of 12% and a year-over-year increase of 10%. The increase predominantly reflects general and administrative expenses, which in the previous and comparable quarter were lower due to reimbursements received from insurance providers.

Non-GAAP operating expenses for the fourth quarter of 2017 were $5.8 million, compared to $5.2 million in the third quarter of 2017 and $5.4 million in the fourth quarter of 2017, reflecting a sequential increase of 12% and a year-over-year increase of 8%. Non-GAAP operating expenses were in line with the Company’s stated target of less than $6 million quarterly of business-related operating expenses.

GAAP net loss totaled $4.5 million, or $(0.31) per share in the fourth quarter of 2017, compared to $1.0 million, or $(0.07) per share in the third quarter of 2017, and $1.1 million, or $(0.10) per share in the fourth quarter of 2016. The increase in the quarter mainly reflects the transponder related inventory reserve adjustment noted above and the loss on extinguishment of debt.

Non-GAAP adjusted EBITDA for the fourth quarter of 2017 totaled $1.3 million, compared with $0.9 million in the third quarter of 2017 and $1.1 million in the fourth quarter of 2016.
 

Fiscal year 2017 financial results

Fiscal year 2017 revenue was $60.2 million, an increase of 7% from $56.2 million in fiscal year 2016. The increase was predominantly driven by a 21% increase of revenues in the Credentials segment resulting from high demand in RFID and NFC transponder inlays for library and higher value applications in brand authenticity and consumer experience as well as access cards. Revenues from the Identity segment grew 11%, driven by strong demand for smart card readers, chipsets and OEM modules for payment and identity applications. Revenue in the PACS segment decreased by 2%, mainly reflecting lower revenue from controllers and access readers, partially offset by increasing revenue from software and services.

Fiscal year 2017 GAAP gross margin was 37%, compared to 42% in fiscal year 2016. The lower gross margin in 2017 mainly relates to a transponder related inventory reserve adjustment in the Credentials segment made in the fourth quarter of 2017, as well as product and channel mix, with the faster growing Credentials segment contributing a higher proportion of revenue in relation to the higher margin Premises segment in 2017 versus 2016.

GAAP operating expenses, including research and development (R&D), sales and marketing (S&M), general and administrative (G&A), and restructuring and severance charges were $26.8 million in fiscal year 2017, compared to $34.9 million in fiscal year 2016, a decrease of 23%.

Non-GAAP operating expenses were $22.6 million in fiscal year 2017, compared to $27.2 million in fiscal year 2016, a decrease of 17%. The decrease was primarily driven by lower expenses across all categories as well as decreased general and administrative expenses due to lower legal and accounting professional fees associated with non-core business activities.

Fiscal year 2017 GAAP net loss was $8.1 million or $(0.61) per share, compared with GAAP net loss of $13.7 million or $(1.25) per share in fiscal year 2016. Fiscal year 2016 results included restructuring charges of $3.1 million.

Full year 2017 non-GAAP adjusted EBITDA was $2.7 million, compared with a non-GAAP adjusted EBITDA loss of $(2.1) million in full year 2016, predominantly reflecting the higher revenue and the lower operating expense base.

Cash was $19.1 million at December 31, 2017, compared to $15.7 million at September 30, 2017, and $9.1 million at December 31, 2016. The increased liquidity predominantly reflects the proceeds from an underwritten offering of common stock in May 2017 and the issuance of convertible preferred stock in December 2017.

See note regarding “Use of Non-GAAP Financial Measures” below for a discussion of the non-GAAP measures used in this press release.
 

Fiscal year 2018 guidance

For the fiscal year ending December 31, 2018, the Company expects revenue to be between $74 million and $78 million, and non-GAAP adjusted EBITDA between $4 million and $6 million.
 

Management commentary

“2017 was a year of significant progress for Identiv,” said Steven Humphreys, Identiv CEO. “The business returned to annual growth, with the fastest growth occurring in the fourth quarter, demonstrating our building momentum. We’ve solidified our business platform, reaching key parameters of our mid-term target business model, which has led to positive non-GAAP adjusted EBITDA for the first year since 2010. Our business performance has allowed us to significantly strengthen our balance sheet, positioning us well for organic and inorganic growth in 2018. We believe we are at one of the most exciting inflection points for our company in years. Our core markets have substantial growth opportunities as the physical world leverages access control, RFID, IP, video, mobile and smart card technologies. With the recent addition of 3VR’s analytics platform and the launch of our Identiv Global Services offering, we believe we’re positioned to be one of the leading providers of next-generation security and information slutions for the physical world. We’ve now established our position as the trusted provider for frictionless, cost-effective, high-security solutions for premises and identification, enabling a new level of security and business intelligence for our customers.”