Good afternoon. Welcome to Identiv's Third Quarter 2017 Earnings Conference Call. My name is Melissa, and I will be operator this afternoon. Joining us for today's presentation are the Company's CEO, Steven Humphreys; and CFO, Sandra Wallach. Following their remarks we will open the call for questions. Before we begin, please note that during this call management will be making references to non-GAAP measures or projections, including adjusted EBITDA. In addition, during the call, management 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 documents filed from time to time with the SEC, including the company's annual report on Form 10-K for fiscal year 2016. Identiv assumes no obligation to update these forward-looking statements, which speak as of today. I will now turn the conference over to CEO, Steven Humphreys, for his comments. Sir, please proceed.

All right. Thanks, Melissa. Good afternoon, everyone, and thanks for joining us today. The progress we made during the third quarter had its challenges but also marked key steps in our three year growth plan of significantly scaling the company and in getting better predictability in our near-term results. Our Identity and Credentials businesses are performing particularly well, but our physical access revenues have grown more slowly. As we discussed on our call a few weeks ago, we didn't see the usual seasonal acceleration from the government fiscal year-end, which impacted our results for the quarter. And [ph] in our scale, one quarter's variance can alter a year's results even though it doesn't reflect the overall market nor our opportunity within the market. We're still encouraged by the balance in our business and our competitive advantages within each segment as we build towards optimal scale. Whether it's growth in our transponder or smart card reader businesses, our expanding channel relationship with Cisco, our strong core government business, or our recently launched Mx-1 controller, we continue to strengthen our position. Looking specifically at our PACS segment. This segment encountered some hurdles during the quarter despite growing 10% sequentially. On our business update call on October 23, we talked about why we reduced our revenue guidance for 2017, but let me explain why we adjusted it down by $5 million instead of a lower amount. This was because of a few factors: First, as we talked about a few weeks ago, we received more than $1 million of government orders either late in the quarter or just after it ended and we didn't get the seasonal government fiscal year-end boost we usually do. To add to that the launch of our Mx-1 single-door edge controller was behind schedule and came at the…

Thank you, Steve, for providing the context for our financial results for the third quarter of 2017. As Steve mentioned on October 23 after the close of the market, we provided a set of preliminary third quarter 2017 results with total revenues in the range of $15 million to $15.5 million and non-GAAP adjusted EBITDA of $0.5 million to $1 million. Today, we will provide the full financial results as committed. Revenue in the third quarter of 2017 was $15.4 million, a 4% sequential increase compared to $14.8 million in quarter 2, 2017 and in line with the $15.6 million in the comparable quarter of 2016. Our physical access control segment generated $6.4 million of revenue in the third quarter 2017, up sequentially from $5.8 million in the second quarter and down 11% from $7.3 million recorded in the comparable quarter of 2016. While revenue increased sequentially, we did not experience the historical seasonal demand from the federal year-end government partially due to the timing of orders arriving late or just after the quarter. Revenue from our Identity products, primarily smart card readers, reader modules and chipsets, was $3.4 million in the third quarter. This represents a sequential decrease of 16% from the $4.1 million in the second quarter of 2017, reflecting lower sales of smart card readers and a decrease of 2% over the $3.5 million recorded in quarter 3 of 2016. Approximately 36% of our third quarter revenue or $5.6 million was derived from sales in our Credentials segment, which comprises both access control credentials and our broader Internet of Things transponder products. This revenue performance represents a sequential increase of 12% from $5 million recorded in the second quarter of 2017 and a comparative increase of 16% from $4.8 million recorded in the third quarter of 2016.…

Thanks, Sandra. Picking up from where I left off, I'll spend most of the rest of this call getting deeper into our progress across our three segments, both near term and long term, and I'll bring it all back together with our three year growth plan and the long-term business model we're working towards. In my opening remarks, I talked about the market opportunity in federal access security. We continue to believe that our FICAM solution is a quality price and performance leader in the federal government. Now on top of this position, a further step ahead is our Mx-1 single-door edge controller, which is FICAM-compliant out of the box because it's built on our proven Mx-1 platform. The Mx-1 has been very well received in the market with demand ahead of our initial expectations. As I mentioned before, it represents a key piece of our controller suite of products, providing the best of all worlds for our access control customers. What makes it particularly appealing is the fact that it comes at a lower entry price point and works extremely well within a small and medium business customer environment, and it aligns well with major trends, like Power over Ethernet and wireless locks, which extends physical access to doors not served before. Now to be clear, our initial Mx-1 launch is into our core federal government and commercial Hirsch channels. Over the next few quarters, we'll launch productizations and configurations of the Mx-1 that are specifically tailored for the SMB market, for our Cisco commercial channel, for the Cisco federal government channel as an access control hub for wireless locks and other market segments. So you can get a sense of why we're so excited about this addition to our product line. But each market segment and configuration requires…

Thank you. [Operator Instructions]. And we'll go to Mike Latimore with Northland Capital Markets.

Thanks a lot. I think some of the examples there. On the Credentials side of the business, how many customers would you say are going to be some sort of volume shipment in the fourth quarter?

Well, we break out our Top 10 customers in each segment, and you can see how that spreads out. There isn't heavy concentration. But when you look at our top 10 Credentials customers in the third quarter, they represented about 16% of our total revenues and 44% of the segment revenues to get a sense of 0.25 million to 1 million plus customers.

There also has been a pretty consistent set of customers in that top 10. So we haven't seen any churn or any customers drop out. So we feel as we're tracking the customer concentration, we're also seeing the same names repeat quarter after quarter. So we're aware of where they are in the portfolio.

Okay, got it. Then on the premises side, it seems like you have a number of drivers there, Mx-1, Cisco, FICAM, services. I guess any way to sort of prioritize those in terms of the drivers? Or do you expect them all to be similarly helpful [Indiscernible]?

I expect them all to be similarly helpful at different paces. Services is obviously something that can move quickly because you can expand your sales and your current customers and just offer services as their next deployments happen. So that moves up. And then Mx-1, of course, because it's a new product coming into the marketplace and people understand can adopt it, that can be more near term. Although I was trying to be careful in terms of some of the broader markets like SMB, that will be a subsequent launch. So I don't want to get ahead of that. And then in terms of scale, of course, federal government and FICAM is one of the largest scale opportunities there. But the timing on that can be lumpy and can take time, but it's certainly deploying right now. In fact, FICAM opportunities, we'll be seeing in the form of services actually early on, where they're starting to say, Look, tell us exactly how a migration and deployment should happen. And we're picking up the services revenues, where, in the past, we would have left those aside, the integrator would have taken them, and we would have waited for the equipment revenues to come through. Does that answer the question?

Yes, yes. And on the services side, I mean, that's kind of -- I mean, you have to hire and -- I assume you have to hire additional consultants and people to implement. I mean, is that -- is there somebody that's going to sort of manage a kind of services group peer and build that out over time? And how many people do you expect to hire?

Yes. So we've had a professional services group for years, actually for decades. So it's a part of the service that we've always provided. And to be clear, we're not doing this on a system integrator or [Indiscernible] or hourly basis. What we do is we say, Okay, you're going to be deploying across 200 sites and five agencies. Here is the architecture you should apply. Here is the type of configurations you should do. And here's what the roll-out should look like. And it's very much on a services package basis, not an hourly basis. Our new head of sales, as you might know, is from Oracle. And so we're picking up their playbook and their approach to services, which creates a partnership for the lifetime of the relationship, not simply an hourly basis. So we don't expect to hire a lot of people in the space actually. We're going to get more and more leverage out of them, and we do already have a platform and a system up and running on it.

Great. And then on the Identity side, did the federal government spending pattern have any influence on Identity in the September quarter?

So, the short answer is no because the way -- most of our Identity federal government sales are smart card readers that go into laptops and desktops which are going throughout the year. And also, what happens is the federal employees buy them directly through PXs [ph] and everything else and then get reimbursed. So it's much more of a steady flow business and isn't really driven by federal government budget cycles.

Got it. Okay. And then just on the segments, there might have been the slides I might have missed it. But what were the gross margins by segment?

So on a GAAP gross margin basis, physical access is 53% GAAP gross margin, Identity was 36% and Credentials was 22%.

Okay, great. And I guess just last question. What's the latest number on the NOL you guys have?

I don't think it's changed much since last quarter. Let me find that and I can get back to you.

Okay, great. Thanks a lot.

Thank you.

Thanks, Mike.

[Operator Instructions]. We'll take a question from Saliq Khan with Imperial Capital.

Hi, guys.

Hi, Saliq.

Just a couple of questions on my end. First one is, Steve, when you've talked about the opportunities that you have in the consumer market, you named a couple of heavy hitters, like Nike and Nest. So in order for you to take advantage of this opportunity in front of you, do you need to hire more people to help grow and then manage this opportunity?

Yes, a great question. The answer is unequivocally no. We've got our engineering development center in -- both in Singapore and in Germany. It's in place and it's handling the throughput. You might look at, like, one inside sales support person for the volumes, that sort of nature of things. But no, when Sandra talked about holding OpEx at a $6 million average throughout 2018, we're confident that we're going to do that while we're also supporting the growth we're talking about.

If you're higher a little bit -- if you're going to be able to hold this OpEx greater than the $6 million mark and you see this great opportunity ahead of you, what types of efficiencies are you building internally that makes -- that you actually take advantage of this opportunity?

Well, the nice thing about it is most of them scale up. So when you look at -- in the Credentials space, for example, whether it's the access cards or it's the transponders, the design-in takes time. But then fulfilling the supply chain is something that we have capacity for in our Singapore facility that we are 50% utilized. So we have plenty of capacity there without addition. And then on the sales and development side, it can sometimes be an additional engineer, but it's not an army of engineers you need. What you need is a few, very experienced people in the space, which we already have. That's the team we've got. And then it's the customer side that often has an army of engineers on and working with us. So we can scale up on the space in all the segments, both in the smart card readers, in Credentials and in premises.

And Steve, when you -- when we talk about the fact that you guys did not see the usual seasonal acceleration that you were looking for from the government side, what is it that you can do and you have to be able to build in more visibility? I recognize that on the government side, it might be more difficult. But in other avenues or in other segments of you businesses, how do you build in more visibility you have currently?

You bet. So on the government side, as I said, one of the main changes we've made is to directly connect with the end users. And frankly, they were hungry for that connection. And so working directly with them will give us better visibilities that we know site by site and location by location, where they're deploying and when. And then also, we can help break down any technical barriers to them, actually making their deployments happen and basically removes some of the excuses, frankly, that system integrators sometimes throw out there and that they use as a way to generate more and productive money, to be blunt. So we get visibility there. Then the other part, as I mentioned, in other parts of our business, we have a pretty good backlog visibility. We're already building backlog well into 2018 in our Credentials business and in our smart card reader business. So we think our visibility is increasing over time in all segments.

Thank you, Steve.

Thanks, Saliq.

Thank you. At this time, this concludes the company's question-and-answer session. I'd now like to turn the call back to Mr. Humphreys for closing remarks.

All right. Thanks, Melissa, and thanks again everyone for joining us on our call today. We appreciate your support and look forward to speaking with you at our investor events and our next earnings conference call. Thanks, and have a good afternoon. Melissa, I think you can close the call.

Thank you for joining us today. You may now disconnect.