Identiv, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited financial statements. The filing identifies the registrant as Identiv, Inc. (Nasdaq: INVE), notwithstanding the request metadata’s different company name.
Business context and results
Identiv provides secure identification and physical security products and services. Its reportable segments are Identity, including RFID, smart-card and logical-access offerings, and Premises, including physical access, video and related security solutions. Unless stated otherwise, amounts below are in millions of dollars.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $29.1 | $24.9 | $75.3 | $62.1 |
| Gross profit / margin | $11.1 / 38% | $9.9 / 40% | $27.7 / 37% | $25.1 / 40% |
| Operating income (loss) | $2.1 | $1.0 | $0.5 | $(3.1) |
| Net income (loss) | $2.5 | $0.4 | $3.5 | $(4.4) |
| Diluted earnings (loss) per share | $0.09 | $0.01 | $0.12 | $(0.29) |
| Operating cash flow | Not separately presented | Not separately presented | $0.005 | $(5.3) |
Q3 revenue rose 17% year over year; nine-month revenue rose 21%. Identity revenue grew 21% in Q3 and 28% year to date, while Premises revenue grew 10% and 12%, respectively. Overall margin declined as Identity’s lower-margin RFID transponder mix and investments in technology and manufacturing weighed on results. Premises Q3 margin improved to 57% from 55%, supported by higher-margin video analytics software.
Financial position and liquidity
- Cash and cash equivalents were $29.2 at September 30, 2021, up from $11.4 at December 31, 2020. Working capital was $53.4, versus $11.9 at year-end.
- Total assets were $98.8 and total liabilities were $22.6. No borrowings were outstanding under the East West Bank facilities at quarter-end. The facilities provide up to $20.0 in borrowing-base revolving capacity and a $4.0 non-formula revolving facility, subject to terms and conditions; substantially all assets collateralize the obligations.
- Nine-month cash flow: operating activities provided approximately $0.005; investing activities used $1.3, including $1.9 of capital expenditures; financing activities provided $19.6. Financing included $37.7 net proceeds from an April public stock offering, partly offset by debt repayments.
- Inventory was $21.6, up from $20.3 at year-end. Purchase commitments totaled $33.3, largely inventory-related, including $21.8 due in the remaining three months of 2021.
Material changes and unusual items
- In April, Identiv issued 3.78 million common shares at $10.65 per share and received approximately $37.7 net proceeds.
- The approximately $2.9 Paycheck Protection Program note was forgiven in May, generating a $2.9 gain in the first nine months. A separate $0.6 gain in Q3 arose from proceeds on the acquisition of a private company in which Identiv had invested; the investment had previously been fully impaired.
- Identity revenue growth reflected stronger RFID transponder and smart-card reader sales, including work-from-home-related demand and recovering commercial verticals. Q3 Identity sales in Asia-Pacific were affected by project timing after substantial deliveries in the first half.
- The company repaid the remaining $2.8 April 21 Funds notes in April. Long-term and current financial liabilities were both zero at quarter-end.
- Series B preferred stock accrued $0.9 in dividends during the nine months. As of September 30, it was convertible into approximately 5.96 million common shares, subject to stated terms.
Outlook, risks and contingencies
No numerical revenue or earnings guidance is provided. Management said existing cash, expected operating cash generation and available credit are expected to fund working-capital needs and operations for the next 12 months. Management also noted historically recurring operating losses and negative operating cash flows, and that future results may vary with RFID adoption, customer deployment timing and product mix. The filing says demand is generally stronger in the second half of the year and varies with government budget and project cycles.
Key disclosed risks include the 2021 global semiconductor shortage and dependence on suppliers and contract manufacturers; potential delivery delays or inventory shortfalls; COVID-19-related disruption and uncertainty; and the possibility that customer projects are delayed or canceled. The company had $1.6 of future sublease income due from a tenant that had been in default since April 2020, with no cash received from that tenant since then, and was negotiating a settlement with the lessor. It also reported $411,000 of accrued restructuring costs and a $269,000 contractual payment obligation. Management reported compliance with East West Bank financial covenants at quarter-end. Disclosure controls were assessed as effective at the reasonable-assurance level, with no material change in internal control over financial reporting reported during the quarter.
Important facts for investors to verify
- Whether revenue growth and Identity segment demand can persist, given project timing, customer concentration by application and supply constraints.
- Whether gross margins recover or remain pressured by product mix, manufacturing investment and component costs.
- How much credit is actually available under the borrowing-base facility and continued compliance with its financial covenants.
- Whether the delinquent subtenant obligation is resolved and whether purchase commitments can be adjusted without significant cancellation costs.
- The potential dilution from preferred-stock conversion, equity awards and other reserved shares; the filing reports approximately 5.96 million shares issuable on preferred conversion and 10.58 million shares reserved for future issuance across listed categories.
- How much reported nine-month profitability depended on the nonrecurring PPP forgiveness and investment gains, given operating income of only $0.5 and near-zero operating cash flow.