Identiv, Inc. — Q2 2020 Form 10-Q
Entity note: The supplied filing is for Identiv, Inc. (Nasdaq: INVE), not a company named INVE Technologies, Inc. It covers the quarter and six months ended June 30, 2020. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context and reporting period
Identiv provides physical security and secure identification products, software, systems, and services. Its two reportable segments are Premises, serving physical security markets, and Identity, serving logical access, cybersecurity, and RFID markets.
Financial results and material changes
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $19.1 | $22.2 | $37.2 | $41.8 |
| Gross profit / margin | $7.7 / 40% | $9.9 / 44% | $15.2 / 41% | $18.6 / 45% |
| Operating income (loss) | $(2.3) | $0.8 | $(4.1) | $0.4 |
| Net income (loss) | $(2.7) | $0.4 | $(4.8) | $(0.4) |
| Diluted EPS | $(0.17) | $0.01 | $(0.30) | $(0.05) |
- Q2 revenue declined 14% year over year; first-half revenue declined 11%. Premises revenue fell 30% in Q2 and 21% in the first half, while Identity revenue was roughly flat in Q2 and down 1% for the first half.
- First-half segment gross margins were 55% for Premises (up from 52%) and 31% for Identity (down from 38%). Management attributed Identity margin pressure to a greater share of lower-margin RFID transponder sales and a large higher-margin reader order in the prior-year period.
- First-half research and development expense rose 22% to $5.0 million; selling and marketing fell 5% to $8.7 million, and general and administrative expense fell 11% to $4.3 million. Restructuring expense was $1.5 million, including a $1.2 million impairment of a leased asset after a subtenant stopped paying rent.
- Cash used in operating activities was $4.3 million, compared with $2.4 million provided in the first half of 2019. Investing activities used $0.6 million, primarily for capital expenditures. Financing activities provided $8.8 million, largely from new borrowings and notes.
Liquidity, debt, and other key metrics
- Cash was $13.1 million at June 30, 2020, up from $9.4 million at year-end 2019. Working capital was $11.2 million, down from $11.7 million. The company reported $3.0 million of cash at foreign subsidiaries.
- Financial liabilities totaled $23.4 million before debt issuance costs: $12.7 million drawn on the revolving facility, a $3.8 million EWB term loan, $4.0 million in April 21 Funds notes, and a $2.9 million Paycheck Protection Program (PPP) note. The balance sheet classifies $23.0 million, net of debt issuance costs, as current and reports no long-term financial liabilities.
- The EWB revolving facility had a $15.5 million limit and matures in February 2021. A May amendment temporarily reduced the required cash held at EWB to $3.0 million and set minimum trailing six-month EBITDA thresholds; the company said it was compliant with financial covenants at June 30.
- The April 21 Funds notes are secured, subordinate to EWB, and initially bear no interest for nine months; higher rates and additional warrants may apply if they are not repaid on time. The PPP note bears 1% interest, is due in two years, and may qualify for forgiveness under program rules.
- Total assets were $78.5 million and stockholders’ equity was $32.5 million. The company also disclosed $15.5 million of purchase and other contractual commitments, mostly inventory-related commitments due in the remaining half of 2020.
Outlook, management commentary, and risks
Management said existing cash, expected operating cash generation, and available credit should fund working-capital needs and operations for the next 12 months. This is a management expectation, not formal earnings guidance. The filing notes that the pandemic’s duration and business effects were uncertain and could materially affect 2020 results.
- Management attributed sales delays primarily to COVID-19 restrictions affecting partners’ access to customer sites and closures or disruption in retail, hospitality, education, and other markets. It also cited delayed international projects and potential extended customer payment cycles.
- Identiv launched products addressing health and safety needs, including contact-tracing and occupancy tools, a touchless reader, and a temperature-tracking tag; it also introduced subscription-based offerings.
- Liquidity risks include operating losses and negative operating cash flow, covenant and borrowing-base requirements, debt maturities, and the possibility that additional capital may not be available on acceptable terms. The April 21 Funds financing and equity-linked warrants add potential cost and dilution.
- The company had 5.6 million common shares issuable upon conversion of preferred stock at June 30, plus other outstanding equity awards and warrants. Preferred dividends accrue in kind.
- A shareholder derivative action was affirmed in the company’s favor on appeal; related state cases were dismissed without prejudice in May and June 2020. The filing reports no material changes to previously disclosed risk factors other than COVID-19-related risks.
Important facts for investors to verify
- Whether COVID-related delays continued to affect Premises demand, customer-site access, and collections after June 30.
- Available borrowing capacity under EWB’s facility, covenant compliance, and the company’s ability to meet debt maturities and required cash and EBITDA thresholds.
- Whether the April 21 Funds notes were repaid by the nine-month deadline and whether PPP loan forgiveness was obtained.
- Whether operating cash flow improved and inventory and purchase commitments remained aligned with customer demand.
- The potential dilution from preferred-stock conversion, warrants, stock awards, and any additional financing.