Business context and reporting period
This is Identiv, Inc.’s (Nasdaq: INVE) unaudited Form 10-Q for the quarter and nine months ended September 30, 2019. The filing names Identiv, Inc., not “INVE Technologies, Inc.” as stated in the request metadata. Identiv provides physical security, access-control, identity and RFID products and services through its Premises and Identity segments. Unless noted, dollar amounts below are in millions.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $23.026 | $20.022 | $64.785 | $56.844 |
| Gross profit / margin | $10.526 / 46% | $8.484 / 42% | $29.113 / 45% | $23.145 / 41% |
| Operating income (loss) | $1.252 | $(0.155) | $1.629 | $(2.958) |
| Net income (loss) attributable to Identiv | $1.069 | $(0.287) | $0.670 | $(5.338) |
| Basic and diluted EPS | $0.05 | $(0.02) | $(0.01) | $(0.34) |
- Segments: Q3 Premises revenue increased 38% to $12.938 million; Identity revenue declined 5% to $10.088 million. For nine months, Premises revenue rose 28% to $32.939 million and Identity revenue rose 2% to $31.846 million. Nine-month segment gross margins were 53% for Premises (56% prior year) and 36% for Identity (28% prior year).
- Cash flow: Nine-month operating cash flow was $1.370 million, versus cash used of $3.011 million in 2018. Investing used $1.489 million, including $1.287 million for the Viscount acquisition; financing provided $0.595 million. Cash increased by $0.186 million to $11.052 million.
- Liquidity and debt: Working capital was $12.7 million. The $20 million revolving facility had $14.863 million outstanding, classified as current; there were no long-term financial liabilities. A separate payment obligation was $2.052 million. The revolver matures February 2021, bears interest at prime plus 0.75%, and requires at least $4 million cash. Identiv reported compliance with financial covenants at September 30, 2019.
- Balance sheet: Total assets were $76.490 million and total liabilities $39.746 million. Current assets were $47.089 million against current liabilities of $34.426 million.
- Preferred-stock impact: Nine-month preferred dividends accreted by $0.780 million, leaving a $0.110 million loss available to common shareholders despite $0.670 million of net income attributable to Identiv. The preferred shares were convertible into approximately 5.403 million common shares at period-end.
Material changes versus the prior comparable period
- Nine-month revenue rose 14%, with reported growth across both segments; Premises growth included Viscount products acquired in January 2019. Gross margin improved four percentage points to 45%.
- Identiv reported operating income in both Q3 and the nine-month period, compared with an operating loss in each 2018 comparison. Nine-month net income improved from a $5.333 million loss to $0.670 million income; the prior-year period included a $1.369 million debt-extinguishment loss.
- Q3 and nine-month growth in gross profit was partly offset by higher R&D and selling and marketing costs. Nine-month R&D rose 16%, selling and marketing 12%; G&A declined 6%.
- Cash from operations turned positive, but receivables were a significant cash use: the cash-flow statement reports a $3.667 million increase in accounts receivable.
Outlook, management commentary, risks and unusual items
- Management provided no specific numerical revenue, earnings or cash-flow guidance. It said existing cash, operating cash generation and available credit were expected to fund working-capital needs for the next 12 months, while noting that future losses or capital needs could require financing; additional capital may not be available on acceptable terms.
- Management described seasonality, including stronger typical demand in the second half and sensitivity of government-related sales to budget cycles, shutdowns and continuing resolutions. International revenue can depend on large projects and order timing.
- Premises’ nine-month margin was pressured by first-quarter inventory-reserve adjustments. Identity margin benefited from product mix and a large U.S. Navy Reserve reader order. Management cautioned that margins may vary with product mix, pricing, volumes, component availability and inventory write-downs.
- The Viscount earnout liability increased by $0.175 million in Q3 to $0.375 million based on reassessed revenue-target probabilities. The Thursby earnout was assessed as remote and assigned no value.
- Adoption of lease accounting in 2019 added operating lease right-of-use assets of $5.133 million and lease liabilities totaling $5.323 million at September 30. Future undiscounted lease payments were $6.093 million; the filing also disclosed $2.1 million of future sublease rental income.
- Inventory purchase commitments totaled $13.767 million, primarily due within the remaining three months of 2019; the company warned that demand changes could result in supplier cancellation charges. The filing also describes pending shareholder derivative litigation; the company said it could not predict the outcome or estimate a possible loss range, which could be material.
- Deferred tax assets were fully offset by a valuation allowance. Management cited cumulative historical losses and uncertainty in forecasting future results.
Important facts for investors to verify
- Whether revenue growth and improved margins persist, particularly given Premises’ acquisition contribution and Identity’s quarterly revenue decline.
- Receivables collection, inventory levels and operating cash generation, alongside the sizeable inventory purchase commitments.
- Revolver availability under its borrowing-base conditions, covenant headroom, and the company’s ability to maintain the $4 million minimum-cash requirement.
- Potential dilution from preferred-stock conversion, equity awards, warrants and acquisition-related earnouts.
- Progress and potential financial impact of the derivative litigation, and the assumptions underlying Viscount earnout valuation and goodwill impairment assessments.