Welcome to the Q4 2014 Identiv Earnings Call. My name is Adrian and I will be your operator for today’s call. At this time all participants are in a listen-only mode. Later we'll conduct a question-and-answer session. Please note this conference is being recorded. I'll now turn the call over to David Isaacs with Sard Verbinnen. David Isaacs, you may begin.

Thanks, Adrian. With me on the call today are Jason Hart, CEO of Identiv; and Brian Nelson, CFO. In a moment, we will hear remarks from both of them and then we will take questions from sell-side analysts and registered investors. Before we begin, please note that during this call, we will also be making references to non-GAAP results or projections, including non-GAAP gross margins, operating expenses, and adjusted EBITDA. A complete reconciliation between each of these non-GAAP measures and the most directly comparable financial measures can be found in today’s press release, which is available on identiv.com. In addition, during our call today, we will be making forward-looking statements. Any statement that refers to expectations, projections, or other characteristics of future events, including financial projections and future market conditions is a forward-looking statement. Actual results may differ materially from those expressed in these forward-looking statements. For more information, please refer to the Risk Factors discussed in the documents filed from time-to-time with the SEC, including the Annual Report on Form 10-K for fiscal year 2013, and our subsequent quarterly report on Form 10-Q. Identiv assumes no obligation to update these forward-looking statements, which speak as of today. I'll now turn the call over to Jason Hart for his comments. Jason?

Thank you, David. Good afternoon, good morning everyone. Growth through deepening our relationships with our customers, expanding our market presence with new partnerships, becoming the flagship company in privacy and security to the expanding IOT market, and aligning around a new category we call the Internet of Secure Things. I'd like to welcome everyone today; we're going to cover our 2014 numbers. But I'd like to spend most of the time talking about and discussing the 2015 activities. A short recap on Q4 and the completion of our 2014 activities however it does need to be gone through some incredible achievements were made. After this, I'll hand the call over to Brian, and he'll cover in some depth the analysis of the numbers. We'll then conclude with discussion around our growth strategy for 2015, and importantly some the key activities and market conditions. I use the word simplification on almost every earnings call we had last year. 2014 was a year in which we accomplished quite frankly a staggering turnaround. We started the year focused on survival, cost cutting, bringing a company together that would enable us to have a platform. We achieved this; we reduced our headcount from 416 people down to 280 people. We consolidated our product lines; we aligned our products and our go-to-market strategy around this new category the Internet of Secure Things. We made a significant investment in R&D and new projects and we set ourselves up for growth in 2015, especially in our government and commercial sectors, markets that are well known to us, and begin to position ourselves for this third category, everyday items. We have seen changes such as a reset of almost 60% of our sales force. We addressed the capitalization requirements of the business. We exited 2014 frankly with a…

Thank you, Jason. Now turning to our financial results. Revenues in the fourth quarter were $19.4 million as compared with $19.5 million in the fourth quarter of 2013; this is a decrease of less than 1%. Revenues for the full-year of 2014 were $81.2 million and that compares to $74.3 million, so 9% increase year-over-year. Approximately 43% of our fourth quarter 2014 revenue or $8.4 million was derived from sales in our Credential segment as compared to revenue of $8.5 million in the fourth quarter of 2013 or 44% of revenues. Credential revenue accounted for $41.6 million for the full-year of 2014, up 37% from the $30.3 million in 2013. The company continues to see a strong demand for our tags and inlays to support electronic gaming, transit ticketing, as well as the other Internet of Things applications. Our premises segment provided $6 million in revenue in the fourth quarter of 2014 which is up 41% from $4.3 million in the comparable quarter of 2013. The growth in the quarter is primarily a result of the company’s continued investment in sales and marketing efforts for the U.S. Federal Government sector. Premises revenue accounted for $19 million for the full-year of 2014, down approximately 4% from the $19.7 million in 2013. The decrease again year-over-year was in part due to the strong second and third quarter 2013 sales driven by the ability for the U.S. government project completions prior to the government shutdown in October of 2013. Revenue from our identity products was $4.5 million in the fourth quarter of 2014 which was down 21% from the $5.7 million in the comparable quarter of 2013. Identity revenue accounted for $17 million for the full-year of 2014 which was down 15% from the $20.2 million in 2013. This decrease was in part…

Thanks, Brian. I think it’s good to see that the company's platform has become strong. We -- you saw changes in our R&D increasing the level of investment in our products, you've seen us becoming again very focused on sales and marketing with an increase in our sales and marketing activities. We are all but complete in the platform creation that we embarked on at the very beginning of 2014, and I want to thank the staff, management, board, our Financial Advisors, and partners, for their support in doing that. You will see all of our attention now focused on going from a base platform of zero to a growth mode. We are poised with the change in the new sales force, the addition of new products, and the focusing and depletion of some of the old products around a growth mode, $195 million to $105 million in our category is a great achievement. We think we are very confident of being able to do that and I'll discuss some of the reasons why, now. So as we move into this growth mode, we are at an unprecedented time in history, with the explosion of connected devices this Internet of Things growing to be more than likely over 20 billion objects over the coming five years, and yet security and privacy are getting worse. From sitting Presidents and Prime Ministers to Corporate Executives and members of boards this is a topic that’s being discussed now at all levels. It is the first time in history that this is occurred it's almost a perfect storm. The ability to leverage two of our core competencies our two primary competencies, security and the Internet of Things, puts Identiv in an incredible position to be able to harness that. The work done in 2014…

Thank you. We'll now begin the question-and-answer session. [Operator Instructions]. And we have Bryan Prohm from Cowen & Company online question, please go ahead.

Hey, thanks. Good afternoon Jason and Brian. How are you doing guys?

Hey, Bryan.

Hey, good, Bryan.

Hey, let me clarify one thing around first quarter. So last quarter’s when you talked about the wide range of revenue $18 million to $28 million you’re coming around $19 million, but when you talked about the potential for what didn’t come in based on visibility the time to be more impactful in Q1. Are we still in that ballpark portion the things that didn’t come in down the stretch are likely to hit in Q1? Thanks.

All right. Thanks Bryan. Hope the snow is not keeping you too bogged in. The -- what we’re seeing is an increase in the pipeline and we had some wins this quarter and a couple that pushed out from last quarter, multimillion dollar wins that was one in government, one in the aviation industry, we are subject to deployment schedules with them. So at the moment what we’re doing is giving annualized guidance. Good news is the projects very healthy. In addition to the couple of projects that we did mention we’ve seen others. And again we announced a new product yesterday. That product is on the back of a new project win in the consumer goods area for a new uTrust Sense outline. So the bottom-line is we’re still giving annual guidance. The revenue remains lumpy on deals subject to customer appointments.

Understood. And we are pretty late in the quarter; I mean are you confident we get sequential growth in revenue from here or is that?

Yes, what's the question at the moment we are not getting guidance yet on Q1? But again I think if you look at it on an annualized basis for the model, we are confident about the annual number which some of it -- some of which is going to move around.

Understood, all right. So I understand the long implementation timeline here and you’re adding more -- new customers all the time. So let’s talk about the challenge of delivering on the growth target because if I do the math and get the midpoint outlook suggest almost 25% growth at $100 million year-over-year. How many different ways can you build this up? Is this contention upon one or more of the three business outperforming or adding -- doubling the number of partners’ year-over-year and at that midpoint are you still growing faster than the market? Thanks.

Again, great question. So what we do now is that the investment we made in 2014 in R&D to get our products back into the government sector has really given us a boost in that area. We’re seeing new projects and we’ve had some early contract wins early in the year that have now allowed us to model out for the year an increase in our premises and an increase in our information business. The part of the business that frankly I don’t have a lot of historical information which is why we are cautious on providing revenue guidance is in our everyday items. As you know, we had a couple of very big and successful beachhead wins. We also had a couple of smaller wins since then and those projects are different phases of that appointment. So the range is really is a result of we’re a part of a design in with some of these organizations. We don’t know what they’re going to be adding in terms of their own deployment and our success is obviously dependent upon their success in rolling out this products. So quick summary so you can kind of think of the model. The base 20% is coming off the business we know, information and premises. The variance is coming from the projects that are new to our business but are in that extremely hot and exciting category of Internet of Secure Things.

All right. Understood. And talking about that category from a gross margin perspective is that in your credentials historically has been the lowest of the segment. So that speaks well of the gross margin expansion through the year is that fair?

Yes, it is, and I think that what we’ve done if you look at the new types of products we’re bringing out the higher value products, for example, the one project we’ve been working on is a consumer product with put the uTrust Sense temperature device which is a sticker that sold for a reasonable margin more than the margin of some of the higher volume tag products that includes some of the security and NFC technology and microprocessors. So we see that as we move into that specialized area that the everyday items, margins definitely improve, and we begin to get away from being a Chinese competitive environment for manufacturing. The area that does help us this year with margins is our physical assess, have premises business and have information business. The growth their as you know, are at much high margins and that is driving we believe an overall margin improvement especially now we have products around the government approved product list; it was something that has hampered the business for the last couple of years.

Understood. Last question for me and then I'll pass it along. How many partners whether it’s in the ICAN program or overall did you have at the end of 2014 and what's the goal for that number in 2015? Thanks.

Yes, great. We will get back to you with the precise number. We have over 75 ICAN partners, but I think really what you’re asking is of the 75, how many aggressively active? And you’re obviously aware of Verizon, now 3M, STANLEY, Tyco, and another one that we haven’t named yet. So we have a number of very large partners that are delivering on very large projects behind them. But in addition to that a lot of their run rate comes from our long-term loyal Identiv Partners they are in that 75 category.

Understood. All right. Great, thanks for taking all my questions gentlemen and good luck for this year.

Yes, not a problem. Yes, thanks, Bryan.

And our next question comes from Mike Latimore from Northland Capital. Please go ahead.

Yes, on the everyday items category their I guess, as you look out over 2015 is the guidance assuming contribution from new customers or is it assuming that the customers you had last year continue to order at a kind of reasonable run rate let’s say?

Thanks Mike for the question. Actually a bit of both. We are aware of some new customer wins in that category we’re optimistically excited about the size and scope. But the number of them are at different stages, so some have traditional customers. We've seen because of the quality of their products our ability to deliver, the confidence these customers now have that the business is well-capitalized and can deliver and backup what its delivering, we've now seen many of the large customers from 2014 roll into 2015, and we have no reason to expect that there will be a change in their price. What is encouraging is the rate at which we are acquiring new customers in that category and at present some really nice challenges for us and that comes down to capacity planning. So we’ve been expanding our activity and resource there to be able to deliver. But when we look at the revenue growth it is two phases: it is obviously being able to deliver the predictable contracts we have, and be able to augment that with some of the new wins that we are now aware of.

And Mike, this is Brian. One other aspect of the existing customer base, as Jason mentioned, when we add the value services and just are providing a commodity, we become a lot more sticky to that customer and a lot more customers are going to continue to grow with us.

Yes, we saw Identiv Labs just be a phenomenal move. We have some internal guys that are market first rate and some of the best guys in the industry, and the creation of that team not only boosted morale, but it also allowed us to go win and deploy experts from security to silicon to manufacturing and win some new deals that frankly we have predicted we would win last year.

And then did you happen to have a gross margin by the revenue segments you mentioned for the quarter?

We do disclose that when we file the K.

Okay.

So we can give you some detail on that.

And then what is your current sales headcount and where do you think that is by year-end?

Yes, we’re not sure we actually disclosed the full sales account it’s about 75 people and it will continue to increase. We have re-diverted budget to our sales and marketing activity. You’ll see our G&A went down, and a lot of that G&A and the margin changes are allowing us to fund the increase in sales and marketing and frankly our R&D growth.

Yes, and again we hate to do this, see Mike, all the detail for the headcount for our sales and marketing, G&A, R&D, will be in the K that we are filing shortly.

Sure. And just last question on the 3M partnership what is -- what are the products involved there and maybe the industry verticals into which you might sell?

The initial part of that partnership is with their access control team. We are embedding their technology into some upcoming products and they have taken some of our products, some of their core competency, and embedded into their products. So for us it’s in the order of thousands of units, potentially tens of thousands of units that will ship over the next few years and same for them. So it’s substantial as buy-sell. But importantly it starts to build a stronger customer-focused relationship with 3M and obviously 3M is a well established brand.

Thank you.

You’re welcome.

[Operator Instructions]. And we have Jeff Kessler from Imperial Capital online with a question. Please go ahead.

Thank you. First question is does the agreement with 3M include technology that you would be embedding from the old Cogent organization?

Hi, Jeff. Absolutely. Yes, in fact the 3M organization as you know it sells a market leading product in that space. And we are embedding some of the technology into our products we see it as best of breed, our customers see it as best of breed. We went through a build versus buy scenario for a government and in the end concluded that a relationship with 3M as the market leader in that category made sense. In turn 3M did the same with our technology and it’s caused a great bilateral agreement between the two organization.

Okay, great. The second question is particularly on the everyday things in terms and sense, one of the key areas is building a what we might call an ecosystem around that so that all areas of your organization and all areas that your organization is involved itself into and sales are supported by outside both vendors and as well as technology partners. What are you doing to build up that ecosystem so that if this thing does takes off the way you think it is you are not going to -- you are going to have support both internally and externally to not explode?

All right, Jeff, it’s almost like I set you up with that question.

That’s all right, right about it every day so.

One of the big value differentiators in this market will being able to have an ecosystem of platform that takes all of the complexity of security, data transmission, interaction, communication with mobile devices, and wraps that up into a service and IPOI, as well as the manufacturing of the hardware. So in our case you trust things, is a sticker like a microprocessor and sensor that can be struck on to a pharmaceutical product or under a consumer good or a cull chain good and deployed into the field by a manufacturer. When a consumer uses the NFC enabled phone or Bluetooth enabled phone and presents it to the sticker, it will give them everything from temperature data through to potentially other sense of data. And that comes back through a platform. That platform is accessible by the manufacturer to be able to gather their information in a secure way and understand their own supply chain and have a better knowledge of their customer and what they’re experiencing, as well as giving the consumer the safety that the product is authentic and that it was delivered in a way that the manufacturer had prescribed e.g. the temperature haven't been violated. So when I look at the business over the course of the next three years, I believe that's where the market is going to evolve to. It won’t be as simple as a tag with a serial number on it. It will be in fact intelligent devices in an ecosystem that manufacturers can consume without having to go and build out the complex security required to make that work.

You come here the point that might be interesting because it obviously it took HIG a longtime, a very longtime to put its together and that there COs platform is taking a longtime. You’re coming in with some wind at you are back given the fact that this is that these pieces are out there already. You’re not doing this -- you're not doing all this Greenfield on your own there is an industry behind you now. Are there vertical markets that have a greater propensity to take a look at this right now than other vertical markets?

Yes, and Jeff, I think one important differentiator between us and many others that are looking at this is we are very much an open standards approach. Customers can choose to pick just individual discrete components of what we deliver, although we find that most customers because of the complexity prefer one throughout to choke. So we’ve taken the view that because of this open approach and the high level of open and auditable security that an endpoint customer can own their encryption case, unique differentiator. So specifically though to the vertical markets we and as I mentioned we have more than 10 different large projects underway, I can't go into a lot of details about each specific one, but I can tell you that we are seeing the mostly in consumer led products from medical devices where they want authenticity in their consumable through to wearables where they want to integrate physical assess and computer IT assess with the wearable or payment with the wearable. So our expertise in this area is unparalleled because of their manufacturing and our security backgrounds.

Okay. And now you talked a bit about the improving stickiness that you’re getting what is the -- I guess what is the value proposition that you’re selling to your perspective clients that is going to make that sale above and beyond your competition. What are you offering that will make them love for a longer period of time and keep them as a customer in addition to acquiring them as a customer away from somebody else?

There is a lot of reasons that customers select us depending upon which market or business problem we've gone after. But the common thread amongst all of them has been we are a full service shop, they don’t have to buy credentials or cards or stickers from one vendor, and software from another, and readers from somewhere else, and desktop pieces from somewhere else, and security audits from somewhere else, and try and build data centers to us, we give them the option of a single top, a single pricelist, and one support organization, one set of consulting, one lab to help with the designing. So it’s that ability to do the full 360 degrees of a customer’s business output that makes us unique.

Okay. Finally, one quick question, HIRSCH was used to be premier provider in a lot of ways in terms of -- just in terms of their brand name to their government. What pieces are still left in terms of goodwill from the old days and what pieces are you adding from the new days to get you back to a premier position?

Great question. So HIRSCH has been a phenomenal product since the early 80s as you know, it’s primary product of course was the ScramblePad and that's what guided to prominence in many of the government agencies. We have embarked through 2014 on a massive R&D effort in that product line that became a portion of our premises business. We’ve also opened it up because I believe that the business needs to have greater partnership with the companies that would have traditionally being competitors to HIRSCH and our technology is given its open standards base allow us to drive greater revenue by partnering. But also if you think about the highest value of what the HIRSCH business was it was the ScramblePad, everything else was driven on the back of that. So you will see us with announcements to come in that area and the opening up of the technology so that we can play more homogeneously with other panel vendors in the space.

Okay, very good. Thank you very much.

You’re very welcome, Jeff. Thank you for the great question.

Thank you.

We have no further questions at this time. I'll now turn the call back over to Jason for final remarks.

Great, thanks, Adrian. Thank you everyone for the questions. I want to thank the team for a good 2014, frankly a historic 2014. We went from survival, thinking about survival at this time last year to a -- thinking and focused entirely on growth for 2015, we are excited about the opportunities and the platform company that we have. So with that, thank you all and we'll talk to all next quarter. And one last thing we do have a number of Investor Relation activities over the next month or so. Please look at our webpage. I believe Leonard, as we have three different events and I look forward to meeting many of you there. Thank you all.