Identiv, Inc. (INVE) Q3 2012 Earnings Report, Transcript and Summary

Welcome to the Q3 2012 Identive Group Earnings Conference Call. My name is Leslie and I'll be your operator for today. [Operator Instructions] Please note that this conference is being recorded. I'll now turn the call over to Ms. Darby Dye. Ms. Dye, you may begin.

Thank you. Hello, everyone and thank you for joining us today. The purpose of today's conference call is to supplement the information provided in our press release issued earlier today announcing the company's financial results for the third quarter ended September 30, 2012. Speaking on today's call are Ayman Ashour, Chairman and CEO; and David Wear, CFO. Before we begin, I would like to remind you that various remarks we make on this call, including those about our projected future financial results, economic and market trends, and our competitive position, constitute forward-looking statements. These forward-looking statements and all other statements made on this call that are not historical facts are subject to a number of risks and uncertainties that may cause actual results to differ materially. The forward-looking statements we make today speak as of today and we do not undertake any obligation to update any such statements to reflect events or circumstances occurring after today. Please refer to the press release, our Annual Report on Form 10-K for the year ended December 31, 2011, and subsequent SEC filings for a description of factors that could cause forward-looking statements to differ materially from actual results. During this conference call, we will also be making reference to non-GAAP results or projections, including non-GAAP gross margin, operating expenses, adjusted EBITDA and earnings per share. Each of these non-GAAP measures exclude some or all of the following: acquisition, transition and integration costs; equity-based compensation expense; adjustments to earn out estimates; impairment charges; and amortization and depreciation. Identive uses these non-GAAP measures internally and believes they provide a meaningful way for investors to evaluate and compare our operating performance from period-to-period, but cautions investors to consider these measures in addition to, not as a substitute for, nor superior to Identive’s consolidated financial results as presented in accordance with GAAP. A complete reconciliation between GAAP and non-GAAP financial measures is included in today’s press release, which is available in the Investor Relations section of Identive’s website. As a reminder, today’s call is also available as a webcast with slides, which can be accessed from the Presentations, Reports and Webcast page within the Investor Relations section of our website at www.identive-group.com. If you are viewing the webcast, you may enlarge the slides of this presentation by clicking on the magnifying lens in the bottom right hand corner of your screen. I would now like to introduce Ayman Ashour.

Good morning. Thank you, Darby, and thanks to all of you for joining us today. Q3 revenues were poorer than we expected. Some of our U.S. government business didn't hit us till late in September -- or actually, early October, but we do have it. Our larger -- our large much delayed order for the Singapore metro started shipping in the -- late in the quarter. Nevertheless, Q3 was a critical quarter for Identive and significant progress was made in many areas. Our base operating expenses decreased by an additional 9% sequentially. Adjusted EBITDA improved substantially. Despite weaker sales levels, we lowered our adjusted breakeven drastically. You will see this in black and white when David Wear compares Q3 of this year to Q3 of last year. We are a lot better on the cash side than the guidance we gave, primarily because of the timing of our payment solution business. So $2 million collected over the weekend before the end of the month and without that -- and without the restricted cash numbers, which David will also go into, we were still ahead of our projection. So in this area, we performed particularly well. More importantly, we believe with the new capital we secured and announced this morning, we will be able to remove the concerns about our liquidity without dilution. This has obviously caused uncertainty. This, coupled with the position of a share overhang caused by the widely expected sale of shares from our second-largest shareholder has also gone. This position is totally now wound out and we believe across the board major progress has been made. Looking at our main business categories. We had record sales of smart card readers to the U.S. government agencies in Q3 supporting cyber-security programs and continued to expand into the Japanese telco market. Europe was very weak, but important new opportunities emerged in China and the Middle East. Transponders were poor in Q3 due to continued project delays such as the Singapore Metro, actually, principally. However, we saw a reversal in this trend at the end of the quarter where we announced some significant new orders. Our Nokia NFC business strengthened a lot during the quarter with increased tag-in-box demand. I will talk more about our progress in NFC in a moment. Recovery of our transponder business contributes to our stronger forecast for sales in Q4 and in 2013. We saw strong performance in our sports payment operations, processing transactions of approximately 900,000 with about $7 million in approximately 44 events during the quarter, and this is just on the business we actually processed. This does not include any of the other payment work we've done during the quarter, such as handling over 100,000 users during the Olympics at hospitality events in London. We also provided payment system for a new Stadium in Holland. This would be our first stadium in Holland and 14th overall. This increased payment activity drove higher percentage of our business in the consumer ID, which is an area of strategic importance for us. You will see that this 35% of our business now comes from consumer ID. In Identity Management and cloud solutions, the timing of access control orders from some U.S. government customers caused slippage into Q4. idOnDemand software as a service activity continued to be poor on the revenue front in Q3, but we have since then had a breakthrough with firm orders from our #1 top prospect, who will be deploying our cloud-based identity management solutions in Q4 and 2013. Our SaaS activity now is expanding with at least 4 Fortune 200 customers, who come from technology, insurance, utility and healthcare sectors. The selection of our idOnDemand solution is the beginning of a long-term close relationship with these customers, where Identive provides core value. Onto the next slide with the business overview. I'm looking now at the business and market activities in Q3. Despite record smart card readers sales, the U.S. governor revenues -- U.S. government revenues were overall weaker than expected for Q3. Normally, Q3 is seasonally strong for us and especially for sales of our access control systems. However, sometimes this gets shifted to October if the orders are coming through an integrator or an intermediary, which happened in this particular case. A lot of orders came in, in the last week and a lot of orders came in, in the first week of October. One of the orders that we received late in the month was an order for the U.S. Navy for our RUU systems or subsystems where we integrate contact, contact-less or scrambled keypad and fingerprint biometrics into a single unit that is used as the ultimate authentication device to confirm identity of an individual. We also delivered several important new products in Q3 and early in Q4. In September, we launched our Hirsch Velocity 3.5 with console-based version of our next generation access control and ID Management platform. This allows us to bring -- to move our large installed base of access control customers towards a more software-centric business model with the delivery of greater visibility and control through our solution. We also launched a host of new services and products which I'll discuss in a bit. In our emerging growth markets, we made significant progress in a number of areas in Q3. In addition to the new NFC orders I mentioned earlier, we continued our market development activities with ongoing presales engagement around our NFC tag management platform. Through our expanded IdentiveNFC.com online store, we launched a number of social media logo tags for applications such as Facebook "Like", "Follow us on Twitter", Pinterest, et cetera. These tags are now overtaking the traditional NFC tags on our IdentiveNFC.com online market. The market for SaaS-based identity management is still emerging and the cycle of customer education, pilot trials and finally conversion into enterprise deployment has proven to be very long. Our recent customer wins encompass several thousand users initially and will ramp up overtime. These selections are an important milestone and we are building on this. The opportunity here is significant and with the technology behind our idOnDemand solution, we are well positioned to give us a lead in this early market. In payment during Q3, we provided NFC phone payment tax to Yeldi, our partner in India, that is using these tags to equip Indian consumers with the means of making cashless payments. This new innovative application actually uses the NFC phones as mobile points-of-sale, initially, targeting people with no bank accounts to make cashless payments. The new stadium customer I mentioned in the Netherlands also applied for our cashless payment solutions during the quarter and contributed to strong performance of our payment solutions business in Q3. While market developments have led to improved outlook for our business in Q4, we still see weakness in Europe in particular, because of continued economic uncertainty. The pushouts of transponder business creates a challenge for us, so we end up moving from running well below capacity to running probably at the overcapacity during this quarter and Q1 in this particular area looking very well, but it is an area that's really challenging for us to be able to calibrate -- complete the right to make sure we're not disappointing our customers for delivery by being overbooked, but also not ending up with running significantly under capacity because we have not -- we don't have enough business because customers pushed out orders. This obviously gets a little bit easier as we bring more capacity online this -- late this month in Singapore, particularly. I would now like to hand you over to David Wear, our CFO who will take you through our results for Q3. And then I'll wrap up with some strategic comments and the outlook.

Thank you, Ayman. So now I'm moving to Slide 8. I'll take you through our results in a little more detail. At $22.9 million, Q3 revenue was 4% lower than in Q2 and 14% below the revenue reported for the third quarter of 2011, primarily as a result of the order slippage and the delays that's Ayman just discussed. Non-GAAP gross profit margin improved by 0.5% quarter-on-quarter as a result of an improved sales mix and was down slightly year-over-year with 2011 benefiting from stronger cost absorption in our transponder business. At $10.7 million, non-GAAP operating expenses were 10% lower than the previous quarter and down 15% from the same quarter a year ago. The restructuring programming we initiated in June is showing good results and our main focus has been on lowering cost through the rationalization and the streamlining of our organization on a global basis. Much of our work has been in consolidating activities and resources through integration of support functions in our acquired and existing businesses, leading to improvements in efficiency and a reduced cost structure. We are on track to realize savings of between $4 million and $5 million this year compared with the first quarter expense levels and close to $7 million on an annualized basis. Because of the timing of our restructuring activities, we did not record any charges in Q3 but do expect to record between $0.4 million and $0.6 million for restructuring during the fourth quarter. The overall cost of the restructuring activity remains in line with that previously disclosed. Lower operating expenses resulted in a significant reduction in our adjusted EBITDA loss compared with the previous quarter. Even more encouraging is that our breakeven point for adjusted EBITDA is now significantly lower than it was a year ago at between $23 million and $24 million in revenue per quarter versus $27 million to $28 million last year. Looking at our GAAP results, revenues remain unchanged, but gross profit percentage is lower. This measure includes amortization and depreciation expense which largely accounts for the differences quarter-on-quarter. The prior year also benefited from a onetime credit, without which, gross profit percentage would be similar to the current year. GAAP operating expenses are also lower by quarter-on-quarter and year-on-year, reflecting the restructuring savings previously commented on. This measure also includes amortization, depreciation and equity-based compensation, which accounts for the higher absolute values reported. Moving now to Slide 9 and looking below the adjusted EBITDA line. As explained in our press release, we conducted an interim review for impairment in Q2 and recorded preliminary charges totaling $45.4 million for impairment to goodwill, intangible and fixed assets in our Q2 financial statements. During Q3, we completed our impairment analysis and recorded a further $5.8 million of charges for impairment of goodwill and intangibles, which is reflected in our Q3 results. These charges have no impact in our day-to-day operations and will not result in any future cash expenditures. They do however, reduce the amount of amortization taken as the non-cash charge against the earnings each quarter. You can see this in the amortization and depreciation line, the amount recorded in Q3 was half the amount shown in Q2, resulting in significant improvement in EBIT. Equity-based compensation costs of $0.5 million in Q3 2012 reflect charges taken for the voluntary salary reductions of Identive's executive officers, effective in June, and option grants made to directors and employees in September. Other items excluded from adjusted EBITDA are consistent with past quarters. Looking now at the balance sheet, we ended Q3 with $8.3 million in cash, cash equivalents and restricted cash. This was better than expected, largely due to an $82 million in cash receipts in our payment solutions subsidiary at the end of the quarter. Payment solution collected the cash soccer fans at stadiums where its cashless payments solution is used. And as there were games that took place on the last day of the quarter, the cash was recorded in Q3. Payment solutions reflects its liability to stadium patrons associated with these receipts is in the accounts payable line which increased during the quarter. The remaining accounts payable increase related to supplier payments for inventories purchased in the quarter in anticipation of the increased demand of the fourth quarter. The restricted cash of $2 million relates to a Letter of Credit for new transponder production equipment in Singapore and to a receivables financing line we used in Q3. This was terminated at the end of October with the closure of our new debt facility. The termination of the factoring line required the classification of the related cash assets as restricted. The counterpart to this balance is within the accrued expenses line which increased by nearly $2 million during the quarter. As discussed on Slide 9, we completed our impairment analysis and recorded a net $5.8 million additional charge in the quarter. During the second quarter, the company allocated an impairment loss related to long-lived assets, the plants and equipment that should have been allocated to intangible assets. This was corrected in the third quarter. Turning now to Slide 11. Our cash flow management improved in Q3 and we ended the quarter with cash and cash equivalents of $6.3 million, unchanged from the previous quarter end. Significantly, we generated $2.1 million of cash from operations in the quarter. This largely comes from working capital improvements related to accounts payable and the receipt of approximately $2 million in our payment solutions business as previously stated. The principal use of cash in the third quarter, I set out in the slide, which relate to funding ongoing post-acquisition expense, interest and debt service. With that, I'll turn the call back to Ayman.

Thank you, David. I'd like to start out by a slide that reminds you of how we're looking at our investment in our business in 3 broad categories: The hyper growth or mega trend areas, growth in our addressable markets and growth of our existing markets. I'll move on now and just give you an update on how we fared and how we're faring right now in these 3 areas. In NFC, our tags, readers and SDK offerings continued to gain visibility for Identive and to help us educate the market about NFC applications. Presales engagements with our cloud-based NFC marketing platform continues to be robust and our launch of our public -- of our direct-to-consumer Tech Trail platform later this month will make it available for individuals for convenience and fun applications, and for businesses who wish to harness NFC as a marketing strategy for their business. As a reminder, our revenue expectations for NFC software services remain very modest in the near-term as this market is simply too early to have significant scale. However, NFC -- the NFC wave continues to grow and Identive intends to stay on top of it. The investments we're making now strengthen our position in this emerging hyper growth area. Our new tech trail platform will be launched later this month in San Francisco at the arena event. Our engagement with the tech community also results in a number of new NFC readers and SDKs which will be launched and added to our online market in the coming weeks. Some of these products have been debuted with some of our partners with great feedback. Being designed in is a key goal for us in NFC. We have now clearly established Identive as a critical player in the NFC ecosystem as a whole. From NFC inlays, to NFC tags, to readers, to SDKs, to payment and access control applications. We believe no other company has similar breadth and exposure. The conversion of idOnDemand trials to SaaS customer deployments is now underway. And this is a significant milestone for us. For 2012, we had to make a big reset on our revenue expectations in SaaS but we now believe breakthrough is before us. We continue to expand our payment products and solutions into new geographies and markets. From our tomPAY NFC phone tags to our comprehensive cashless payment systems and now, new contracts for our readers that we won for vending applications in Europe. Our converged access products address a trend towards convergence of physical and network access on a single credential. And in this area, we are actually targeting an adjacent $1 billion market and we're seeing growth every single month since this activity came on stream in early July. We have improved our ability to grow in our existing market with new velocity access software early in Q4. The release of our software for the Swiss education market has also helped quite a bit. We're seeing already significant uptick here. We now have some limited capacity for SmartCore products in Germany and we have expanded our tag manufacture capacity in Singapore and this is coming on stream this month. Now, let us look at the outlook for Q4 in 2013. We expect the Citizen ID business in Europe to continue to be poor, at least through the rest of the year. We expect the U.S. government business to improve. We had indicated previously that we think this year will be between $19 million and $23 million. We now expect it to be between $20 million and $21 million, so it is better than last year. So we're looking at Q4 U.S. government business being somewhere between $5 million and $6 million, which is good given that we are in the middle of an election cycle. One of the programs that stalled earlier this year was upgrades for federal courthouses with the U.S. Marshals and this now is picking up again. The IRS project continues at its slower pace. This clearly remains an anchor business for us and we continue to do very well in it and be very well-positioned for future activity. The recovery in our transponder business is encouraging. We have seen sharp drops for the whole year and we now expect it to pick up to levels surpassing last year. We are coming closer to the point where many of our products that we have been working on, on the development and technology side will be hitting the market. We are seeing good reception from our key products like Velocity and new products like our new IOS reader, the iAuthenticate. We have moved up to a new level of engagement with idOnDemand and the deployment of SaaS solutions to several thousand users in the coming months. Revenue from idOnDemand is not yet significant, but we are building on this milestone achievement for new customer penetration. Our relationship with Verizon business in Asia/Pacific is expanding and provides significant new opportunities in the government and enterprise sectors. As I referenced earlier, we're looking for uptick this quarter with idOnDemand and we're looking for closer to 500K this quarter and somewhere next year between $2 million and $3 million with significant potential upside. In addition to stronger sales outlook, our ongoing restructuring plans has lowered our breakeven point, as David mentioned, and brought us closer to our long-term business model. We are working to build on these improvements. And with the beginning of recovery of our stock price and more healthy cash position, issues of growing concern and NASDAQ listing resolved, intensive reviews of goodwill and intangibles are behind us and we are moving forward with renewed momentum. In terms of Q4 guidance, we expect sales in the range of $26 million to $28 million with adjusted EBITDA somewhere between $1.5 million and $2 million. Non-GAAP EPS of between minus $0.02 or $0.02 loss to breakeven. We expect our cash position to be closer to $7 million to $8 million range as we build up our working capital, in this case particularly, it would be receivables. Remember, when we look at our Q3 finishing, we really look at it at being better than our guidance that we gave, but we look at it at about $4.3 million rather than the $6.3 million or $8 million because we had payment solutions, a lot of the cash came in and went out and the other cash, as you heard from David, was -- some of it was financing left that had to be paid back and some of it was line of credit -- a letter of credit for the new machines in Singapore. So very preliminary basis for 2013, we expect sales of between $105 million and $115 million and EBITDA of between $4 million and $6 million. The expected interest charge for next year is expected to double from the current level, so we're probably in terms of interest overall for next year, we're looking at something in the range of about $2.5 million. With that, I'd like to ask the operator to open the call for Q&A. Thank you.

[Operator Instructions] First question comes from Bryan Prohm with Cowen and Company.

This is Brian, I'm in for Matt. A couple of quick questions here. Ayman, let me start on the outlook. On your prepared remarks, you mentioned the company has significant new wins and there's strong markets develop -- there's a strong market development in NFC. That is broadly in line with your announcement last month of about 15 million new NFC transponder orders. Could you elaborate a little bit more on what generally is driving that growth? It sounds like it's coming primarily from the smartphone market. You specifically mentioned Nokia. Or is it more broad-based?

I think it is actually -- it is very broad-based. Because of reasons of confidentiality, we're unable to disclose the customer. When the customer launches their products, it will become clearer. But at the time, we actually -- we have been working very closely with -- on a number of large NFC applications. This application actually started out at about 10 million pieces. It has grown to 16 million and we expect it to grow again to probably 20 million. And it is not a tag in the box application, it's a different application. But I'm afraid I'm unable to comment on it right now. But all I can tell you is that we're actively building it and expect to be delivering on that this quarter and next quarter. In terms of where the NFC growth is coming from, it is really coming from all over the place right now. And when we -- it is coming from -- in terms of the online market, it is coming from probably any company that you can hear of, it's probably a candidate that's probably doing business with us on the online market buying products in small quantities. Some are buying in bigger quantities and then the design ins for many different applications, be it for tag-in-box or tag-in-box equivalent and various other applications. It's really everywhere. A lot of payment and payment-like applications and advertising-type applications. So it is getting very, very busy right now.

Okay. So quick follow up to that, to your comments just now. Based on your topline guidance for next year, what percent of that would NFC represent? I think...

I think in terms of -- again, if you remember, we always look at NFC in 2 different areas. There is one area which is the infrastructure: the tags, the inlays, the SDKs, the readers. And the other area is the software and the services. In terms of the infrastructure, I would say, probably getting somewhere north of $5 million, could be as much as $10 million, but it is too early to tell right now. In terms of the software services, it will be in the few hundred thousands because it's still in the very early stages of deployment. And in a few weeks, in San Francisco, you will be able to have a lot better color on the software services and the platform that we're launching, keeping in mind that one of the things that we've learned during the last few months is the criticality of being able to make the platform accessible to non-NFC users, so people will be able to access it with a QR code or with a NFC. So that's one of the important modifications we made.

Great. Last question for David. What's the company's current cash position, and does that projected cash position that Ayman stated at the end of the quarter include the $7.5 million you just tapped from the new agreement?

I think -- we're not quite sure we understood your question correctly, Brian. You're asking about the cash position at the end of the quarter of the $7 million to $8 million number that I gave reflecting the new cash, and the answer is yes.

So it's inclusive of the money that's being tapped from the agreement announced today?

Absolutely, yes. Because if you -- just to give you a quick answer on that is, if we look at the effective cash position at about $4.3 million or thereabout which is better than we projected last quarter, we then add to it the new cash minus expenses. And then look at the buildup of receivables during the quarter, you end up with a number in that range. Keeping in mind that we're also paying -- at the same time, we continue to pay down debts every quarter as you can see. David, I don't know if you want to add to that?

No, I mean, I think that's just about right. The other question I think you asked, Brian, was, what's the cash position today? And the position today is over $10 million, including the new facility.

Our next question comes from Ellen Mo with Imperial Capital.

This is Ellen, in for Michael. Just a couple of questions. The first one: Given that the U.S. government business has slippage into Q4 and then the strength in the U.S. government agency orders, what do think would be the potential impact of a change of administration? And number 2, how is your identity as a service progressing? So, what's been the feedback on your pilot and your sense of a timeframe [indiscernible], for closing one of the larger customers?

I'm sorry, I only got the first question. The second question, the sound was not very clear. So...

Okay. So the second question was just the identity of the service and how is that progressing and what's been the feedback on your pilot? And if you have a sense of the timeframe for closing one of the larger customers?

Very good, I got it. Okay, in terms of the government programs that we're working on, a lot of it was initiated during the Bush administration and I'm sure you guys at Imperial would be familiar with HSPD-12, et cetera. And they were strengthened during the Obama administration with support from both sides. So we don't really -- we're not really -- we're not working in anything where 1 party supporting and the other is opposing. So security, cyber security and sort of IT security identity, all of that are areas that both the Republicans and the Democrats in Congress agree on and has not really been affected by the politics. The effect that we've seen when things have slowed down is budget freezes and the budget uncertainty cause confusion. So we don't really expect to see a change, except for short-term hiccups in the overall demand requirements and direction. So that's on the first question. On the second question, we actually have and what I'm telling you on the call is that we have received the first order from our #1 target prospect in this area and we are -- we expect to be deploying a few thousand for that customer this quarter and we expect follow-on orders in the -- during 2013.

Okay, great. Just one last question. So just regarding CapEx execution, what are the expectations for the rest of the year and into next year? And how much would that effect the expansion of transponder capacity?

I'm sorry; again, I cannot hear exactly what you're saying.

Sure, sure. So what are your CapEx expectations for the balance of 2012 and into next year? And how much would that effect the expansion of transponder capacity?

Okay, I think you're asking about the CapEx and the transponder capacity, so I'll -- we're not expecting a significant CapEx the balance of this year or next year, unless we see a major uptick in volume. In terms of the overall capacity right now, for -- and remember in transponders, we have 2 processes. One process is the inlay and we believe right now it varies depending on the mix, but we believe we have the capacity in inlay manufacturing of somewhere between 140 million to 180 million inlays between Singapore and Germany. And on the converted product, which is taken the inlay and making it into a ticket or a tag, the capacity is somewhere, again, depending on the complexity of the product, somewhere between 45 million to probably 70 million or 80 million. And we've been building up or converting our secondary process because that brings us closer to the market and actually increases the ASP.

Our last question comes from Bhakti Pavani from C.K. Cooper. Bhakti Pavani - C. K. Cooper & Company, Inc., Research Division: Could you guys talk a little bit about what's the backlog number at the end of the quarter?

One of the methodologies -- we changed our methodology on the backlog, so we now take out the recurring service numbers. So when we take out the recurring service numbers, it's $13 million. When we add the recurring service numbers back, that comes back to about $17 million. And we have taken out some of the long-term transponder orders that we have had on the book. So we've taken out during the last quarter, so about $1.7 million worth of orders that were on the books. I think David has been changing a lot of the methodology. And David, perhaps you want to talk a little bit more about that.

No. I mean, I think you answered the question very well, Ayman. I think the only difference or the only thing I'd add is that, as Ayman iterated, previously the backlog included what I would call a service portfolio which doesn't get exhausted. It's sort of -- it's contractual and typically continues year-to-year. So going forward, obviously, one of the things we will be doing is tracking our product and service backlogs separate from our service maintenance portfolio. And obviously, we'll provide future updates in future earning calls.

Yes, I believe, because we've now hit the milestone with the service exceeding 10% of the revenue that we have to report that separately, so that sort of triggered the more accurate measurement for the backlog, Bhakti. Bhakti Pavani - C. K. Cooper & Company, Inc., Research Division: Okay. And during what timeframe or during what period of time is this backlog convertible into revenues?

Generally, a lot of our backlog tends to be in for out. There will be some stuff left over. But, as you know, our business is -- we only have the 1 10% customer, the U.S. government. And even with the U.S. government, a lot of our businesses comes across into many, many orders. But David, perhaps you can talk a little bit to that if you care to.

No, I mean, I think, Bhakti, as Ayman said, 10 typically is [indiscernible] in the infrastructure and ID solutions, or ID in the cloud management side, so I don't expect a significant change. I mean, the orders, quarter-on-quarter, tend to be relatively consistent recently. So yes, it isn't a long period of conversion. Bhakti Pavani - C. K. Cooper & Company, Inc., Research Division: Okay. My other question was related to the iAuthenticate reader that you recently introduced. Would you, by any chance, have information on the accessible market? Because it said that it is available to the federal employees, 5 million federal workers, but was not clear on what percentage of the federal employees will have the access. I mean, can use the reader, maybe? If you could shed some light.

Well, I think the whole concept of Bring Your Own Device is a big thing that is happening everywhere and the U.S. government is no exception. So this will be the first product -- or this is the first product that will be able to authenticate credit cards and the like. I cannot tell you how many employees of the U.S. government have iPhones or iPads. I just don't have that sort of information. However, I can give you a little bit more, sort of better information in terms of telling you that we've -- we're already seeing significant order activity on that product and we probably have about $250,000 this quarter from this product and we have not even started shipping yet. So -- the other thing to keep in mind that the PIV is a, and the government market is a start. But clearly, the same applies into a lot of enterprise that have high security or network security and yet, their employees, executives or what have you, have iPads at home or traveling with an iPad, rather than a laptop and want to be able to access their email. So they'll be able to use this product with government-like grade or high-grade security to access their networks and their emails. Bhakti Pavani - C. K. Cooper & Company, Inc., Research Division: Oh, okay. And just a follow-up on the comments that you made. Since you are already seeing significant order activity in this product line, would you have any revenue expectations for this product, particularly in 2013?

Yes, but I'm not going to share them with you right now. I think we're sort of -- we don't really want to be sort of -- we're trying to be as forthcoming as possible in terms of giving you color on the revenue and where it's coming from, et cetera. But I don't think I want to get into a product line by product line for obvious competitive purposes.

I would now like to turn the call back to Darby for final remarks.

Thank you, and thank you for joining us today. We look forward to providing you with further updates on the progress of Identive's business and to speaking with you again on our Q4 earnings call in a few months. Goodbye.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.