Welcome to the Q3 2015 Identiv Earnings Call. My name is Ethan and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. With me on the call today are Steve Humphreys, CEO of Identiv, Brian Nelson, CFO and Jason Hart, President. In a moment, you 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 2014. Identiv assumes no obligation to update these forward-looking statements, which speaks as of today. I'll now turn the call over to Steve Humphreys for his comments. Steven?

Thanks, Ethan, and thank you all for joining. This is my first earnings call for Identiv in quite a while. As some of you know, I was the CEO when we brought the company public. So it’s a pleasure to be back here with the company I care for deeply working with Brian, Jason and the whole Identiv team. Now, one of the questions a new CEO is always asked is what changes are coming down. Now, in fact successful management transitions almost always are characterized by focusing on existing customers and building on the company's core strengths. It's not about new visions or wholesale changes in strategy, team or anything else. It is about focusing and serving customers. To the extent change is implemented, it’s to increase service to customers and to strengthen the channel and dedication to partners. That’s what we're doing and that’s what I'm committed to. It’s demonstrated in our third quarter results and will be in the quarters going forward. Now, last quarter's business discussion began with an emphasis on focus, partnering and growth. Our third quarter was built on strengthening exactly those priorities. Our business model is well underway with the transition from a direct sales, major customer approach to a leveraged partner and channel model. Now, the flagship partnership of this strategy is of course Cisco. Our Cisco partnership in physical access launched in earnest last quarter with joint events, the largest of which was at the ASIS Security Conference last month. We had a joint Identiv-Cisco booth, which was busy the entire show as we’re the joint partner in customer events we held in the evenings. Actual shipments of the ICPAM product, which is our platform for the Cisco channel began just last week. In just this first week, we processed orders…

Thank you, Steve. I will now turn to our financial results for the third quarter. Revenues in the third quarter were $17.2 million as compared with $15.6 million in the prior quarter, an approximate 10% sequential increase and compares to revenues of $22.7 million in the comparable quarter of 2014, a decrease of 24%. Our premises segment provided $6 million in revenue in the third quarter of 2015, which is up 31% sequentially from $4.6 million in the second quarter of 2015 and an increase of 21% from the $4.9 million in the comparable quarter in 2014. The growth sequentially and year-over-year is primarily a result of the company's continued efforts in the US federal government sector and as Steve mentioned earlier, our dealers’ adoption of our access credential, reader and platform solutions for premises. Revenue from our identity products which includes smart card readers, reader modules and tokens was $3.1 million in the third quarter of 2015, which is a sequential decrease of 5% from the second quarter and a decrease of 18% over the third quarter of 2014 revenues of $3.8 million. These changes reflect the weaker demand for these products on our international markets. Approximately 45% of our third quarter 2015 revenue or $7.8 million was derived from sales in our credential segment, a sequential increase of approximately 6% from the $7.4 million achieved in the second quarter and a 39% decline from the $12.8 million in the third quarter of 2014. These changes were primarily due to the timing of orders worldwide for products used in electronic game toys, applications and other Internet of secure things applications. As I will discuss later in my review of the balance sheet, we have built up significant inventories in anticipation of fulfilling backlog going into the fourth quarter and…

Alright, thanks Brian. Before we go into the Q&A. I just like to briefly summarize some of the growth drivers for the business. Also, some of the metrics we’re tracking internally, so you have an insight into what we’re focusing on and the levers we’re really keeping our hands on. And then, as well as some of our investor communication plans I’d like to touch on. When you think of our growth drivers, the Touch Secure reader sales really are very good surrogate for our overall strategy. They tie directly to partner enablement, channel sales and open standards. Another growth driver is clearly government sales. They represent a broad cross section of our products and partners, so it's really something that we’ll be tracking and reporting on very carefully. Third one that I touched on in my comments is the transponder verticals, where we are going after new customer segments, and new customers to broaden our base of revenue and our growth. And then fourthly certainly platform adoption by Cisco, our channels and other partners. So, those are the large growth drivers that we should keep in mind for our business. Additionally, those of you who’ve worked with me before know I'm very metrics driven, so there is a set of metrics that we've implemented and we’re going to be working with and testing, and probably adapting as we go forward, just thought was worth sharing with you. One of course is the probability weighted sales pipeline that's pretty straightforward. We are going to focus specifically also on partner sales and partner sales growth Also our identity credentials to reader attach rate ratio. This is where when we sell a reader how many credentials do we expect to sell into that customer and right now, we've got a target of…

[Operator Instructions] And our first question comes from Saliq Khan from Imperial Capital. Saliq please go ahead.

Giving the announcement of the different partnerships that we've seen with the likes of Cisco and Tyco, when do you anticipate that these engagements will turn into realized revenue?

So as we mentioned, we've already started shipping products and its early implementation and pilots, but we think it will be materially affecting our numbers certainly in the second half of 2016, and if it merges as we expect, we'll certainly see trends that are showing right in the first quarter and second quarter. And if the pipeline develops as it looks like it may, it could be fairly material, even as early as second quarter.

Do you find that for the stability of deployment by the partners could be a challenge as well going forward, and how do you anticipate this and what can you do in your end to bring about a lot more visibility within this?

Yes. The reason that we've highlighted big partners is because the key to predictability is substantial pipelines and so without going into specifics that would disclose activities of individual partners, I mentioned the Cisco pipeline is already built to over $10 million. That's going to be the core for getting some predictability into it, as we start to get understanding of what the conversion rate is, the sell-through and upgrade is. Also part of the partnership in both cases with Tyco and Cisco is existing installed base and so we’re going to be selling - upselling into that installed base and getting repeat business and on Tyco’s side, a lot of the partnership is related to the government. So the FICAM upgrades that we mentioned are already underway and part of the roadmap. So there is current customers, current partners, there is new customers, current partners, and then ultimately there is going to be new customers and new partnerships such as Dimension Data. They start to grow and we’ll do our best to update you on development of conversion rates and pipeline in all those areas because I know you're trying to get your handle on it.

Got it. As I look at the geography right across Americas, Europe and Asia-Pacific, I know there has been a lot of focus around trying to make sure that more of the revenue comes from the Americas region. But within the near term, could the efforts in North America be offset to a certain degree by the international headwinds and how do we think about this and what can you do on your end to once again mitigate the risk?

Yeah. Good question. Actually, with some of these partnerships, that could bring some results in the international markets that are beyond what we might be expecting. So we had a Cisco sponsored event in the Middle East less than a month ago that was very well attended and has brought out some of the pipeline. So that Cisco pipeline, when I talk about it, is very much worldwide. Dimension data, if you know these guys, very global footprint as well. So it’s certainly accurate that we are making our infrastructure more efficient and a lot of that efficiency is coming out of our international operations. On the other hand, our partners are helping us internationally. I mentioned Abu Dhabi will also have a pretty substantial event with Cisco in Berlin in January. And as you know, Berlin is a real technology epicenter right now. So we expect some pretty good things out of that too. But we will try and deliver to you metrics and conversion rates as soon as they start to appear. And frankly, we tried to start indicating that already with volumes of the bundles, pipeline numbers, et cetera that are very tangible.

One last question guys and then I'll hop back in the queue. Within the other category, the other product category that you have, what level of competition are you seeing particularly from the Chinese market who tend to sell cheaper solutions that are just good enough?

And Saliq, when you mention the other category, you're talking about all other segment, which is the typical digital media and chipdrive?

Exactly, and those relatively small comparisons to the rest of the product category, but from the conversations that I've had previously, it seems to me that it was a faster growing category as well?

Yeah. As I mentioned earlier in my discussion, the digital media has all but languished, just based on like you said, commodity product. We chose not to invest in that area since we didn't see growth in it and the chipdrive product as well, it’s a product line that has been diminishing over time, and our goal and our focus as Steve mentioned throughout his comments is really building up our premises, core business and expanding other aspects of our business by that leverage.

Thank you, guys. I appreciate it.

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

Great. Thanks a lot. So on the inventory increase, is that related to current customers or is it more related to new customers there?

Yeah. Good question. Thanks, Mike. It's predominantly related to customers in our installed base and anticipation of their current backlog and fulfilling future orders.

Okay. And then within current strategy here, how important is the on-demand service, part of the mix, is that core, non-core, how do you view that?

It's really our core platform for issuance of the identities, the access cards, the credentials. So it's still very core to the business. In terms of emphasizing marketing that as an end-use product for identities to be issued on-demand, it's going to be less core, but the platform itself is fundamental to what we are delivering throughout our services.

And then on the, you had the non-core expenses, legal accounting, this quarter. What might it be like next quarter?

Can you repeat the question Mike?

Sure. You had the extra legal and accounting expenses this quarter, what might that amount be next quarter, the December quarter?

I can’t give you an estimate, but we’re looking at it declining as we continue through the various processes that those relate to.

Got it. And then I guess beyond that, I think you mentioned partner distribution to Europe. I guess is there a quarterly OpEx number you want to get down to and what might that be?

Yes. And we certainly are looking through as we do our 2016 planning, targeting the top line as well as what we might need from an operating base to be profitable. It's not anything that we're providing guidance on at this moment.

Okay. Got it. And then I guess just lastly, I think there was just prioritizing to some of your government and premise, but it seems to me like 20,000 channels that could get upgraded. Maybe, can you talk a little bit about the status of that, and the opportunity, timing of opportunity there?

Yes. You bet. That is indeed core to a lot of the upgrade cycle we were talking about in the government, largely through that Tyco relationship, the FICAM technology mandate, which I mentioned in my comments and that you’ve heard before is really what's driving it a lot. Underpinning it all is IPv6, which as you know is coming as a mandate for all information infrastructure and yes, that's driving our sales and upgrade strategy at across IRS, US Marshals, FBI, some of the others you’ve heard.

Okay. That's it. Thank you.

Thanks, Mike.

Thanks, Mike.

And it appears we have no further questions at this time. I would like to turn the call back over to Steve.

All right. Thank you, Ethan and thank you all for joining us. We look forward to seeing some of you at our upcoming investor conferences and especially in a few weeks in person or via webcast at our Investor Day on the 11th. So thank you, all and have a good evening.

Thank you, all.

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