Identiv, Inc. — Form 10-Q Summary
Filing identity: The supplied filing is Identiv, Inc.’s 10-Q, not a filing identified as INVE Technologies, Inc. The reporting period ended September 30, 2018; this summary reflects the filing’s stated registrant.
Business context and reporting period
Identiv is a security technology company operating in Premises, Identity, Credentials and All Other segments. Its offerings include physical access control and video security, smart card readers, and RFID/NFC products. Results cover the three and nine months ended September 30, 2018, compared with the corresponding 2017 periods. The company notes that demand can vary by quarter and typically strengthens in the second half.
Identiv acquired video security and analytics company 3VR on February 14, 2018. The acquisition added Premises revenue and contributed goodwill and acquired intangible assets. On November 1, 2018, after quarter-end, Identiv acquired Thursby Software Systems for approximately $3.1 million, including cash and common stock, with additional share-based earn-out consideration possible.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $20.0 million | $15.4 million | $56.8 million | $43.7 million |
| Gross profit / margin | $8.5 million / 42% | $5.9 million / 38% | $23.1 million / 41% | $17.2 million / 39% |
| Operating loss | $0.2 million | $0.4 million | $3.0 million | $2.6 million |
| Net loss attributable to Identiv | $0.3 million | $1.0 million | $5.3 million | $3.6 million |
| Net loss per share | $0.02 | $0.07 | $0.34 | $0.28 |
- Revenue grew 30% in both the quarter and year-to-date periods. Premises revenue rose 58% in Q3 and 51% year to date; Credentials rose 12% and 33%, respectively. Identity rose 12% in Q3 but declined 8% year to date.
- Q3 gross margin improved to 42% from 38%, including a higher Credentials margin. Year-to-date margin increased to 41% from 39%.
- Operating expenses increased 38% in Q3 and 32% year to date. General and administrative expense rose sharply, reflecting 3VR transaction costs and the absence of prior-year insurance reimbursements.
- Net interest expense declined to $0.3 million in Q3 and $1.2 million year to date, partly following repayment of the term loan. Year-to-date results also included a $1.4 million loss on debt extinguishment.
- Cash was $14.2 million at September 30, 2018, down from $19.1 million at December 31, 2017. Working capital was $15.8 million, versus $23.0 million at year-end 2017; total assets were $60.9 million and total liabilities $30.9 million.
- Operating cash outflow was $3.0 million for the first nine months, versus $5.1 million in 2017. Investing cash outflow was $2.0 million, including $1.4 million for 3VR net of cash acquired. Financing cash provided was $0.7 million; cash decreased by $4.8 million overall.
- At September 30, financial liabilities included $11.3 million drawn under the revolving facility and $2.0 million of acquisition notes payable. The remaining term loan was repaid in May 2018. The revolver matures February 8, 2019 and has a $16.0 million facility limit; the filing does not clearly state remaining borrowing availability.
Material changes, outlook and risks
- The 3VR acquisition was accounted for at a purchase price of approximately $6.2 million and added $5.8 million of goodwill and $6.3 million of acquired intangibles. Acquisition and transition costs of $0.5 million were expensed in the first nine months.
- Identiv issued the final 2.0 million shares of Series B preferred stock in May for $8.0 million gross proceeds. The preferred shares carry a 5% annual dividend for the first six years, accrue dividends in kind, and are currently convertible into 5.0 million common shares subject to specified terms and limits.
- Management said existing cash, operating cash generation and available credit were expected to fund working capital and operations for the next twelve months. The company has a history of operating losses and negative operating cash flow and cautioned that additional capital, if needed, may not be available on acceptable terms. No specific revenue or earnings guidance was provided.
- Risks highlighted include demand and seasonal variability, dependence on U.S. government spending and project timing, competition and product mix, purchase commitments tied to uncertain customer demand, debt covenants and the near-term revolver maturity, and potential impairment of acquired goodwill or intangibles. Management reported compliance with revolver financial covenants at quarter-end and stated there were no goodwill impairment indicators during Q3.
- The company recorded a $0.1 million tax provision for Q3 and $0.1 million for the nine-month period; deferred tax assets remained fully offset by a valuation allowance. The 2018 adoption of revenue standard Topic 606 had an immaterial reported effect on nine-month revenue and net loss.
- Shareholder derivative litigation remained a contingency: final judgment was entered for defendants in October 2018, and a plaintiff filed an appeal later that month. The company said it could not predict the outcome or reasonably estimate a possible loss; a material adverse effect is possible.
- Disclosure controls and procedures were reported effective at the reasonable-assurance level. No material change in internal control over financial reporting was reported for the quarter.
Important facts for investors to verify
- Whether revenue growth, particularly in Premises and Credentials, continues after accounting for the contribution from 3VR and seasonal demand.
- Current availability, renewal or refinancing plans for the $16.0 million revolving facility due February 2019, and ongoing covenant compliance.
- Cash conversion and working-capital trends, given operating cash outflow and the decline in cash during the first nine months.
- Integration performance and impairment assumptions for 3VR, as well as the potential cash, share dilution and earn-out effects of the 3VR and Thursby acquisitions.
- Developments in the derivative litigation appeal and any resulting financial exposure.