Identiv, Inc. (Nasdaq: INVE) — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. The filing identifies the registrant as Identiv, Inc.; it does not identify “INVE Technologies, Inc.” as the company name. Financial figures below are in U.S. dollars.
Business context and results
Identiv provides physical security and secure identification products and services through its Premises and Identity segments. Q3 revenue grew year over year, driven by Identity, while nine-month revenue and profitability declined. Management cited COVID-19-related customer-site access delays and weakness in certain end markets.
Key financial metrics
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $24.9m | $23.0m | $62.1m | $64.8m |
| Gross profit / margin | $9.9m / 40% | $10.5m / 46% | $25.1m / 40% | $29.1m / 45% |
| Operating income (loss) | $1.0m | $1.3m | ($3.1m) | $1.6m |
| Net income (loss) | $0.4m | $1.1m | ($4.4m) | $0.7m |
| Net income (loss) per share, diluted | $0.01 | $0.05 | ($0.29) | ($0.01) |
- Segments, Q3: Premises revenue fell 27% to $9.4m; Identity revenue rose 53% to $15.4m. Segment gross margins were 55% and 30%, respectively.
- Segments, nine months: Premises revenue declined 24% to $25.1m; Identity revenue increased 16% to $36.9m. Identity gross margin fell to 31% from 36%, principally due to product mix.
- Cash flow, nine months: Operating cash used was $5.3m, compared with $1.4m provided in 2019. Investing used $0.9m; financing provided $9.0m. Cash increased $2.9m to $12.3m.
- Liquidity at September 30: Current assets were $56.3m and current liabilities $43.9m; working capital was $12.4m and the current ratio approximately 1.28. Inventory was $20.4m, up from $16.1m at year-end 2019.
- Debt and obligations: Financial liabilities totaled $24.0m, classified as current, including a $13.8m revolving facility, $3.25m EWB term loan, $4.0m April 21 Funds notes and $2.9m PPP note. Contractual payment obligations were $1.2m; operating lease liabilities totaled $4.6m.
Material changes and unusual items
- Nine-month revenue fell 4%; Q3 revenue rose 8%. Asia-Pacific revenue increased substantially, while Americas revenue declined. Premises weakness reflected delayed customer-site access and reduced activity in retail, hospitality and education; Identity growth reflected RFID transponders and smart-card readers.
- Gross margin contracted six percentage points in Q3 and five points year to date. Management attributed Identity margin pressure to a greater mix of lower-margin RFID products and, year to date, the absence of a large 2019 reader order.
- Nine-month operating results included $1.645m of restructuring and severance expense, including a $1.199m impairment of a leased office right-of-use asset after the subtenant stopped paying rent. The company reported no further sublease receipts after Q1.
- Operating cash use reflected the net loss and a $6.9m cash outflow from net changes in operating assets and liabilities, including a $4.2m inventory increase.
- Q2 included a $0.261m reduction in Viscount earnout expense and settlement of the earnout through shares valued at approximately $0.489m.
Outlook, risks and contingencies
- No quantified revenue or earnings guidance was provided. Management said existing cash, operating cash generation and available credit were expected to fund operations for the next 12 months, while noting that future financing might be needed and could be unavailable on acceptable terms.
- COVID-19 created continuing uncertainty around customer demand, site access, supply chains, sales timing and payment cycles; management said the duration and financial impact could not be reliably predicted.
- The EWB revolving facility matures February 8, 2021. The $4.0m April 21 Funds notes had an initial nine-month term; unpaid balances would accrue 8% interest after that term, with additional warrants potentially issuable, and 12% interest and further warrants if unpaid by May 5, 2021. The filing reports covenant compliance at September 30, 2020.
- The company expected the approximately $2.9m PPP note, including accrued interest, to be forgiven in Q1 2021; forgiveness remains subject to applicable program rules.
- Management reported the shareholder derivative actions dismissed or affirmed in its favor during 2020. It cautioned that ordinary-course claims and other proceedings may arise; outcomes cannot be predicted with certainty.
Important facts for investors to verify
- Whether operating cash use, inventory growth and lower nine-month revenue persist, and whether reported cash generation supports the 12-month liquidity assessment.
- Current borrowing availability, covenant headroom and repayment or refinancing plans for the EWB facility and April 21 Funds notes, including any warrant-related dilution.
- Whether PPP forgiveness is obtained and whether COVID-19-related delays, customer demand and sublease default produce further costs or impairments.
- Whether Identity growth can be sustained without further gross-margin erosion, and whether Premises revenue recovers as customer-site access improves.
- Potential dilution from equity awards, warrants and Series B preferred stock; the filing reports 18,020,175 common shares outstanding as of November 10, 2020.