Good afternoon, and welcome to Identiv's Q1 2018 Earnings Call. My name is Devin and I will be your operator this afternoon. Joining us for today's presentation are the company's CEO, Steve Humphreys; and CFO, Sandra Wallach. Following management's remarks, we will open the call for questions. Before we begin, please note, during this call, management may 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 those 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 latest Annual Report on Form 10-K. Identiv assumes no obligation to update these forward-looking statements, which speak as of today. I would now like to turn the call over to the CEO, Steven Humphreys, for his comments. Sir, please proceed.

Thanks, operator, and thank you all for joining us today. The first quarter was a very strong start to 2018, building on the momentum we had coming out of 2017. We grew revenue 23% year over year, which is the fastest growth we've had in over six years. It's also two to three times the industry growth rate, showing that our strategy really is kicking in and we're taking market share. We also hit our seventh consecutive quarter of positive adjusted EBITDA, showing the consistency of the business model we built and positioning us as we scale to deliver positive net income. Now most importantly, probably are the next two bullets. The key components of our vision really are now in place to make the physical world digital. And we're already starting to expand into vertical applications that leverage the security platform, which is our core value-add, and the massive data flow it generates. Later on, we'll actually go into a few examples of the vertical applications that we've specifically deployed recently, and hopefully, will give you a sense for how we're leveraging the infrastructure we're deploying for security and then selling additional value-add into our customers. The other thing that really is promising for the way the year has started out are the product developments and launches that we've had. In fact, in the first quarter of 2018, we probably launched more products than we did in the entire second half of 2017, so a very good start to the year. The result of this, from the product launches and the strategy execution, is we're really realizing business strength across all our segments. And we expect our forecasted revenue growth of more than 20% for the year to be comprised of a balanced mix across Credentials, Identity, and Premises.…

Thank you, Steve, for providing the context for our financial results for the first quarter of fiscal year 2018. Revenue in the first quarter remained in line with revenue in the fourth quarter of 2017 at $16.5 million and a 23% increase compared with $13.4 million in the first quarter of 2017. This represents another change in our historical seasonality, with our Q1 results holding up to the Q4 results for the year we just exited. And our Q4 results increased over Q3 last year, again, our historically strongest quarter, so we continued to change the historical seasonality that we see, as we build momentum in the businesses. Our Premises segment generated $7.5 million of revenue in the first quarter 2018, up 6% sequentially from $7.1 million in the fourth quarter 2017 and up 40% from $5.4 million recorded in the comparable quarter of 2017. These increases were primarily driven by higher physical access control solution product sales, higher sales through our channel partners, increased product software sales, and sales of video technology and analytics hardware and software solutions, along with related services. Revenue from our Identity products, primarily smart card readers, reader modules, and chipsets were $2.8 million in the first quarter. This represents a sequential decrease of 25% from the $3.7 million of revenue in the fourth quarter of 2017 and a comparative decrease of 10% over the $3.1 million recorded in quarter one of 2017. These changes reflect lower sales of smart card readers in the Asia-Pacific region, partially offset by higher smart card reader sales in the Americas. Approximately 38% of our first quarter revenue or $6.2 million was derived from sales in our Credentials segment, which comprises both access control credentials and our transponder products. This revenue performance represents a sequential increase of 9%, from…

Thanks, Sandra. Now, before we go into our execution updates from the quarter, we'd like to put them in context with our vision, strategy, and the financial results we expect from executing our strategy. Our vision's always been to make the physical world digital and secure. We're laying the foundation for the connected world by securing the infrastructure in objects, while identifying people and resources. These Internet of Everything trends are happening today, and we are in a great position, because we have the complete product suite to address customer requirements. We have the deep channels to deliver solutions, and we have the industry reputation, and now improved financial strength to accelerate the initial success you've seen in our results. By delivering solutions that enable secure, convenient, frictionless access and identification. We're scaling into a much larger and sustainable business, driving substantial leverage in the model and multiplying the returns we can deliver to our shareholders, so that's the vision. Our plan to get there is a five-stage strategy, as you see here. First is the core, which is physical security and attaching digital identities to physical things. The trust we've built with our customers has enabled us to become one of the leading providers of physical security solutions, and very high switching costs then give us a platform to expand, continuing to address our customers' evolving physical needs. This business model is built for scale, and we believe that by leveraging our trusted brands, strong execution, and deep relationships with our customers, we can drive significantly higher growth and profitability. Now, from this established position in our core physical security markets, we're expanding into related security and business-enabling solutions, which is our second key initiative. As we talked about on the last call, there's a real opportunity for us…

We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is with Mike Latimore with Northland Capital Markets. Please proceed with your question.

Hi, thanks. Congratulations on the quarter, looks great.

Thanks, Mike.

Just wanted to clarify a couple things that you said, did you say you expect year-over-year growth in all three of your business segments this year?

Yes, absolutely.

Okay. And then, on your Credentials segment, I mean, it's grown sequentially, I think for four quarters in a row now. And it sounds like you have some good visibility there, so I guess the - should we think about that continuing to grow sort of sequentially throughout the year?

Yes, I - as far as we can see and that we got pretty good backlog visibility, that's the segment that I mentioned we've got backlog already rolling into 2019.

Okay, great. And in terms of 3VR, any change in kind of what you forecast for revenue on that this year or whether your internal forecasts, I mean, any change in kind of what your revenue expectations are for 3VR?

No change. We guided to $10 million to $11 million and that they would contribute for the year. The activity is - not to get running away with numbers, because sales cycles are long, et cetera - the activity is very encouraging. There's a lot of interest. As I mentioned, we've had some very live and engaged demos at customer sites in Europe with some of our government customers, and with some expansion in the verticals that we're in already. So there's a lot of interesting activity out there. Additionally, I don't know if you saw in the - today, there were a couple other analytics companies just acquired in the industry market space, so I think a lot of people are recognizing it's the right technology and strategic position. So, long answer to your question, the straight answer is no change in the numbers, but underneath, the market is encouraging.

Okay, great. And then, I'm guessing the order sizes for 3VR, they even going to be all over the map. But is there sort of an average order size, as you think about here, like what would be a normal kind of initial purchase or annual purchase from a customer?

It is all over the map. It's somewhat similar to access control, except it tends to scale across a larger number of facilities, is what happens. So, if you can imagine a retailer putting in - our video platform would get somewhere around $7,000 to $10,000 per site, but you could easily have retailers that have several thousand sites. And so, customer-wide, it becomes a much larger number and a much larger lifetime value of the customer. But, actually, implementation by implementation, it's a similar order of magnitude. And that's just for the base platform and for the software on top of it, it's really all over the map. It can have recurring revenue component to it, upfront NRE, as well as software licensing. But that's early days and so we're just getting the revenue model figured out on that one.

Okay, and then the last, do you have gross margin by segment for the quarter?

Sandra, do you want to take that one?

Yeah. Yeah. Yeah, we normally show those in the prior chart, so just one second. And you want the GAAP gross margin, right?

Sure.

Okay, I've got that.

I guess I'll ask one quick question in the meantime. The relationship with Cisco, how is that going? Is that growing, kind of expect that to grow this year, just some general comments on that channel?

Yeah, yeah, continuing to grow. It was kind of hard to see in the ISC West picture there. But all of our signage and positioning, you had Identiv, 3VR, and Cisco, with the logo there. We had our usual joint Cisco customer event [at talk of] [ph] there. And we're having monthly and quarterly QBRs with them as well. So, it's a great relationship continuing. It's a big company; it always has this choppiness to it and complexities to it. But it's as good as we have hoped it would be.

Okay.

Okay, Mike, let me give you the numbers. So, Premises, GAAP gross profit margin was 55%, Identity was 33% and Credentials was 23%, so that's how we get to the total weighted average of 39% on a GAAP basis.

39%, okay, great. Thanks a lot.

Hey, Mike, before you drop off.

Yeah.

Just back on your Cisco question, another thing we talked about the IoT BTTN and such. The Cisco platform, their Kinetic platform, is so IoT centric, a lot of the applications that we're building, they're actually following on and looking for opportunities to extend. So I think there's an interesting leverage there, as we move into the application space, and especially IoT applications that they are very interested in, and it gives them a position that can help them keep competitive against some of the competitors that are actually coming after them, that we have some pretty good applications around. So I just wanted to add that part. That's part of the strategic interest that keeps them engaged with us.

Okay. Fair enough. Thanks.

Thank you.

Our next question is with Jack Vander Aarde with Maxim Group. Please proceed with your question.

Hey, guys, I just had a few questions kind of regarding the Premises segment. With the acquisition of 3VR now contributing to revenue, I know, you guys guided for the year roughly between $10 million to $11 million, I think. So for the Q1, did you guys provide explicit March quarter 3VR revenue?

Jack, this is Sandra Wallach. So we don't - we are not splitting out 3VR as part of our segment results. What we can tell you is that we're on track to hit the $10 million to $11 million that was the underlying assumption in our guidance, and that we have line of sight to the high-single-digits for our core Premises business, which again, was one of the assumptions that we shared as part of our guidance.

Got it, okay. And then, just a follow-up to that. So Premises' revenue for the quarter was up 40% year-over-year, but if I just - I assumed 3VR was linear across the quarters for fiscal 2018, and I take out $2.5 million, it seems that Premises' revenue was down year-over-year on an organic basis. What is driving, or what is hindering the organic Premises?

Well, you've got to factor in that we only had half a quarter of 3VR, and then you'd actually have closer numbers. I don't want to go give you Hirsch's [ph] specific data there, but you only have half a quarter of 3VR. And so, yeah, the physical access business is growing organically.

Understood. That's very helpful to know. Thank you.

Yeah, sorry about that.

And then, for EBITDA for the year, you guys are still on track. Do you expect that to ramp primarily in the back half of the year, or will we see that increase in Q2 at all?

So our strongest quarters are Q3 and Q4, and our sweet spot for getting EBITDA to be in the range of positive that allows us to see net income positive is really in the $20 million plus range. So that is the seasonality that we would see in the second half of the year.

Okay, got it. And then, just one more, kind of a broader question of market. In terms of the FICAM initiative, are you guys getting a sense of increased customer demand related to FICAM initiatives for your Premises segment products?

Yeah, certainly. We've talked about this transition before is, what's happened is there had been a fair mix of non-FICAM and FICAM purchases going on, and even though FICAM isn't mandated, the costs have dropped so much on the FICAM solution that the majority of our sales going into the government at this point are FICAM ready, or directly addressing FICAM deployments. So, yeah, it is picking up, both in terms of it's the right default platform you should be deploying, and it is getting deployed in active FICAM implementations in more and more agencies.

Okay, and it's still like a 5 to 10 year potential growth driver? Is that still how you view it?

It is, yeah, yeah, and if you - when you think of a couple of million government electronically-accessed doors, and about $1,000 a door, that's the scale of the opportunity over that 10-year period.

A $1,000 a door, okay. And then, there was a presentation you guys put together, I think in September of 2017, outlining 200,000 potential government doors in an eight-door hypothetical system. Is that still the opportunity over a 10-year period you're looking at, or are those 200,000 doors - is there any context you can give me around the timing of how those would be replaced?

Yeah, those 200,000 doors are actually the doors that we already have under Hirsch access control, so that's the portion of the market that we are fairly confident, I should say, very confident, that we will have, as they convert to FICAM. And then, we have good visibility in there, because it's existing customers. And then, the broader market is where, in some cases, we have to drive for rip and replaces or operating side-by-side with other systems.

Got it. That's very helpful. Thanks guys, and great quarter.

Thank you.

Thank you.

Our next question is with Robert Hellauer with Casey Capital. Please proceed with your question.

Hi, Steve and Sandra. Thanks for taking my questions. It sounds like backlog is strengthening, and really across all business segments, so I was wondering if you could give a little more color around this or contextualize the growth by business segment.

So in terms of backlog related to growth by business segment, the physical security business, the Premises business, for example, is less backlog driven, because typically orders come in, we turn around and ship them, and as you might imagine, for security systems, they generally need a pretty short-term. And so the visibility in that segment is due to knowledge of the deployments that are going to happen over the next several quarters, as some government agency goes out, of course across several hundred facilities, so that's how we get visibility there, less backlog driven than deployment visibility driven. The Credentials side, on the other hand, is very much backlog driven in that, it's typically being built into the supply chain for our end customers, and so they'll be ordering several quarters out, as they manage their own supply chain. So some of our consumer oriented customers are already planning for the holiday season and next year. And then, the Identity business is a bit of a mix of both, in that you've got near-term orders, things like the government's secure sign-on desktops. But then a substantial portion of the Identity business is also in the OEM side, and so that again is a B2B business, whereby it's being designed in, and that will be long lead times and orders. So backlog more heavily driven in Credentials and Identity; less so in Premises. But it's becoming more so, but it's not as dominant a factor as it is in the other two sectors.

Okay, and how is the quoting volume trending in the Premises side?

We are running hard to keep up, is the best summary. We are growing without adding headcount, because we want to be careful on our OpEx side, and we're fine, we're able to deliver. But it does mean we have to stay very close to how fast we're turning around quotes, and the quoting activity is definitely kicking up. And especially now that we've added analytics and video, that's - that makes the quotes more complicated. The good news is they're larger and stickier, but we also have to have all the aspects of the solution that go into the quote, and there's a lot of activity and a lot of interest there.

That's really helpful. Thank you. So regarding 3VR, now that you've had time to look under the hood, are you as excited about that as when you first purchased it? And can you talk a little bit about how cross-selling is going and whether we should expect the 3VR portion of your revenue to be accretive in the second half of the year?

So on that first part, yes, I would certainly say in the second half of the year that will be accretive. On the first part, it's - I think the strategy in the alignment is even stronger than we thought. I mean, we started talking to them in July of last year, and now you are starting to see, I mean, you just saw Canon acquiring BriefCam, which is an analytics company and milestone. I'm sorry, Nortek just acquired IntelliVision, which is another analytics company. And so people are seeing that you need to - you really do need to have this in your platform. I think we got ahead of it, and we've also - because we're two fairly manageably sized companies, we're doing these integrations very fast that you saw. We've already got our Velocity and 3VR integration we showed at ISC West, and the so we can show the customers the benefits right off the bat. And then, we're also fairly flexible. When the customer says that's great, here's the aspect of benefit I'd like to see, we can adjust. And 3VR has a culture, as Identiv has that culture. I should stop using them separately, because we combined have that culture. So it's exciting, it is. But, the cautionary tone is it's long sales cycles. You have to be a trusted vendor, and so there's plenty of diligence that customers will do. So for the first eight months, it will largely be companies that we're already in either customer base or the pipeline that are driving meaningful numbers. But in terms of demos, on-site visits, and quoting, it's moving fairly quickly. One area, for example, we're seeing more than we expected was international. Our international sales team has a lot of experience with video, as it turns out, and we're filling up all their bandwidth available with combined customer opportunities.

Thanks. That's really good color. It actually leads into my third question, which is about Europe. I've been reading a lot about the GDPR implementation. It sounds like some of the IT teams there are panicking, given the implementation date coming up here pretty soon.

Right.

Have you guys - is any of the activity around 3VR related to that or even on your core Premise infrastructure business, are you guys starting to see some of that kind of GDPR demand filter through to your business?

Yeah, the General Data Protection Regulation is a - it's kind of like Y2K, it drives a lot of activity and it drives a lot of fear. So on balance, it's probably net neutral. Some - we've always had a heritage of a focus on IT security, even when it wasn't popular in the physical security space. So we've been seen as leaders that way. And so, we are getting some positive movement, because we're one of the trusted IT security providers and we can talk to GDPR when other companies are not quite as proactive with it. But there are other companies that are a little bit immobilized by it. So they just want to wait and see how the first enforcement actions come through from Brussels, and then decide how much they have to act on. And that's the same kind of thing that has happened with other big C changes like this. So it's a bit of both I would have to say. It's certainly a big topic. One area that it's very helpful is it's an opportunity to come in and talk is, you just tell the customers we want to come in and talk to you about GDPR, and how we fit in, and how we can help you solve it. That almost always gets a meeting, so that's very helpful. But like I said, then about half the time, you find people that wanted the meeting, so they can just duck and cover, and others who wanted the meeting to actually do something about it.

Right, but are you expecting to generate some revenue as we kind of move into the back half of the year in Europe, just based on some implementation there?

Yes, for sure. You know, it's always hard to tell what is really driving and motivating. The biggest motivator for purchases still is systems that just can't do what the company is trying to get them to do or the customer is trying to get them to do. And our systems tend to be very flexible, easily integrated. And so - and then with our Identiv Global Services, we can get to the yes-can-do. The GDPR compliance is one of those, yes-can-do things for us.

Great. And then my last question, you actually just hit on it, it sounds like you guys rolled out the Identiv Global services in Q1. Can you talk a little bit about how you envision the revenue ramp there, and kind of how we should be thinking about gross margins on that side of the business? That's my last question, so thank you very much.

Sure, thank you. And so the gross margins are in - similar to the physical access business, they're in the mid-60%s, so it's not a hourly body shop kind of business. It is value-added solutions we're delivering. And it's going to be similar to the vehicle [ph] side of the business and that it is long sales cycles, of course, you're talking about big projects. We've got some quick hits that have already come in place, because we had some pent-up demand from customers who were saying we need extra help, and as we launched IGS, we were staffing it up to serve those customers. So, I'd say it's the - a quick pick-up in the next couple of quarters, then probably sales cycle time will take a little move through, and then it will be really hitting its pace into 2019.

At this time, this concludes the company's question-and-answer session. If your question was not taken, you may contact Identiv's Investor Relations team at inve@liolios.com. I'd now like to turn the call back over to Mr. Humphreys for closing remarks.

All right, thanks a lot, Devin. I appreciate it. And thank you all for joining us today. We will be at the Houlihan Lokey conference next week in New York City with some side meetings as well. So, hopefully, we can see a number of you there. This has run a little bit long and apologies for that, but we wanted to communicate very tangibly all the things we've got going on that are going to be driving our revenue model going forward, because there is a lot going on and a lot being executed by this company, altogether underneath the vision that we've had actually in place for years. So, thank you for joining us today, and look forward to seeing you either next week in New York or at our next investor [opportune meeting] [ph]. Thanks, and have a good day.

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