Good afternoon. Welcome to Identiv’s Q3 2018 Earnings Call. My name is Steve, and I will be your operator this afternoon. Following – 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 that 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 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 latest annual report on Form 10-K. Identiv assumes no obligation to update these forward-looking statements, which speaks as of today. I will now turn the call over to CEO, Steve Humphreys, for his comments. Sir, please proceed.

Thanks, operator, and thank you all for joining us. In the third quarter, we took more major steps towards our vision of delivering a platform to make the physical world as secure and convenient as the digital world, and we also made substantial progress, building a strong business to deliver that vision profitably. We also executed a subsequent event, the merger with Thursby Software Systems, that’s a further big step in both the vision and building our businesses’ strength, which we’ll talk about in a lot more detail later today. But first a few highlights from our third quarter. We continue to have strong revenue growth and to take market share. We grew 30% year-over-year, and year-to-date, we grew 30% as well. Now this is really the most important data point because growth can always hit in a single quarter or there can be a comparable quarter that’s more or less favorable but to have 30% growth throughout the year compared to nine months of last year, which shows the sustainability of our strategy, our execution and of our markets. And once again, more than half of our growth came organically also during both the quarter and year-to-date. So all of this shows that our strategy is really working. We’re clearly growing faster than our competition, faster than the market and building our strategic position. Now in addition to the sustained growth, the growth has been broad-based across our business. Our Premises segment grew 58% year-over-year. Now certainly, our 3VR acquisition contributed and we’re very happy with the progress we’re making there, but just as important, our physical security products drove well over half of this growth organically. In fact, we had record physical access panel sales and access reader sales. And as an aside, we did this while also…

Thank you, Steve, for providing the context for our financial results for the third quarter of financial year 2018. Our revenue in the third quarter was $20 million, a 30% increase compared with $15.4 million in the third quarter of 2017, and a 1% sequential decrease compared with $20.3 million in the second quarter of 2018. Our Premises segment generated 47% of our total revenue or $9.4 million in the third quarter 2018, up 6% sequentially from the second quarter 2018 and up 58% from the comparable quarter of 2017. These increases were primarily driven by higher physical access control solution product sales, higher sales through our channel partners, software licensing sales, as well as the sales of video, technology and analytics hardware and software products and related support services following the 3VR acquisition. Revenue from our Identity products, primarily smart card readers, reader modules and chipsets, was $3.8 million in the third quarter and drove 19% of our total revenue. This represents a sequential increase of 21% from the second quarter of 2018, as the result of higher smart card reader sales in the Asia-Pacific region, partially offset by lower smart card reader sales in the EMEA region. Comparatively, Identity revenue increased by 12% from the third quarter of 2017, reflecting higher sales of smart card readers in the Americas region, partially offset by lower smart card reader sales in EMEA. Approximately 34% of our third quarter revenue or $6.8 million was derived from our sales in our Credentials segment, which comprises both access control credentials and transponder products. This revenue represents a sequential decrease of 18% from Q2 of 2018, primarily due to lower access card products and RFID and NFC transponder product sales across all regions. Comparatively, Credentials revenue increased 12% from the third quarter of 2017.…

All right. Thanks, Sandra. In my opening comments and in Sandra’s financial review, we covered most of our core businesses’ strengths and recent events. And I think you can see the progress we’re making in our strategy, our execution and the development of our business. Now I’d like to look forward, where we think we’re hitting our inflection point and we’re positioned to deliver as profitable, growing and strategically positioned. To do this, I’ll focus on two things: our Thursby merger, what it means and how we expect to leverage our advantage together in several dimensions; and then our outlook for the balance of the year and into next year. So with Thursby Software Systems, we have a perfect fit with our Identity segment. We’ve known the people and the company as a partner since 2011. We aligned on our federal government focus. And their software gross margins are a substantial margin expansion opportunity for our combined business. Strategically, they connect in several key aspects with us: mobile apps, software and systems to enable secure and convenient access across smart cards as well as derived credentials across Apple iOS and Android mobile devices. These are all strengths of Thursby and directions that are core to Identiv’s platform. So you can hear the touch points that are core to our vision and I just wanted to highlight that upfront, but let me get into Thursby’s core business and core strengths. As you’ve heard, Thursby’s mobile apps and secure software platform enabled DoD-issued common access cards, federal personal identity verification ID cards, and mobile-based derived credentials to access, sign, encrypt and decrypt information and e-mails from Apple iOS and Android mobile phones or tablets. Now what all this means is with Thursby’s Sub Rosa software and with our smart card readers, armed…

Thank you. [Operator Instructions] The first question is from Mike Latimore with Northland Capital Markets.

Hi Guys. This is Von [ph] on for Mike Latimore. I have two questions. One is like, how much of the growth in Credentials is typically from new customers going live versus current customers expansion – expanding? And I have a follow-up.

Okay. So I’ll repeat it because you were a little bit weak there. The question was how much of the growth in Credentials is typically coming from new customers versus current consumers expanding. And we have our COO, Manfred Mueller, who runs up part of the business that can give a from-the-street answer.

So the Credentials part, which is a combination of both access cards as well as transponders. So on the access card segment, I would say 80% is based on current ones, which are expanding; and 20% is new ones. On the transponder side, in terms of the new business that we are adding, we’re constantly expanding the pipeline. And I believe we have talked about this in prior quarters as well. I would say a solid 25% to 30% number in terms of new customers being added over – every quarter is probably a good assessment. Certainly, new customers don’t contribute immediately in terms of high revenue, but it’s just going to be giving us more breadth in terms of, like, pipeline and giving us the right base for future growth.

And my second question is, what are the top three, four applications showing most growth for Credentials?

So the question, I think, was the top three or four applications for the – driving the most growth for Credentials. Again, I’ll turn it over to Manfred.

All right. So I can comment on that. I would say there is a couple of major trends out there. One, certainly, is anything related to NFC applications, which are adopted throughout multiple verticals out there. So most of our top growth projects right now and also most of the – some of the most attractive ones out there are related to various verticals, like in the apparel industry, in the toy industry. There is sports companies out there. We have companies in the pharmaceutical and in the health area out there that are adding NFC RFID technology to any of their products out there. And it’s either a combination – it’s basically a combination of both consumer experience so that there’s an enhanced use case out there or its brand authenticity in that area. So the lion’s share of all these, let’s say, new application basically fall into that camp. And you might remember about one year, 1.5 years ago, when Apple finally had adopted NFC technology to their iPhone, it was basically the first boost. And then there’s a new one very recently because the new iPhones have, like, the RFID polling, always on, which means it makes them an even more attractive, let’s say, end point device out there. So that will be triggering some more demand going forward. And another area out there – and that’s also one of the areas where we are really expanding out there in terms of, like, growth. And that’s also related to some of the extended production capacity that we just have added in our Singapore plan is related to UHF, and most of the use cases in that area and the implications are in very classic asset tracking and inventory management areas.

Okay, thanks.

The next question is from Jack Vander Aarde with Maxim Group. Please go ahead.

Hi Guys. So I was just curious to know in terms of the FY 2018 guidance, I see that the revenue range has tightened to $76 million to $78 million. And then I just had a question about the EBITDA range tightening. The prior guide reference was to a $4 million to $5 million EBITDA. I recall it was $4 million to $6 million. Was that restated at one point?

No, the guidance that we came into the year and shared was $4 million to $6 million, and we’ve tightened it now to $4.5 million to $5 million.

Okay. And then, I guess, I missed the GM breakup by segment? Could you just quickly provide that again?

Absolutely. So Premises, on a GAAP to gross margin basis was 57% for the quarter, 56% year-to-date. Identity was 35% for Q3 and 35% year-to-date. And Credentials was 26% for the quarter and 25% year-to-date.

Got it. That’s helpful. Thank you. And then with the FY 2019 initial outlook, I think you said mid- to high teens is the initial outlook, with at least 50% of the growth driven by organic. Can you talk about how you think of Thursby contributing to that mid-to high teen growth?

Yes. So right now, we are projecting that Thursby is going to add $5 million, $5.5 million of top line to our guidance for next year and that we’ll sit on top of our organic growth.

Okay, great. Thank you guys and great quarter and that’s all for me.

Thanks Jack.

The next question is from Jaeson Schmidt with Lake Street Capital Markets. Please proceed.

Hi guys, thanks for taking my question. I apologize if I missed it, but could you comment on if you’re seeing anything out of the ordinary from a pricing standpoint across any of the three segments?

Yes, a good question. We don’t talk a lot about pricing because we’re fortunate to not have substantial pricing pressure anywhere in our business model, and you can see with the expanding gross margins that we’re not having prices driven down. And in fact, we’re driving down COGS. So Premises, in particular, has always been resistant on a price perspective. So we really see very little price pressure there; Identity as well, smart card readers and the solutions there, very little. Sometimes, on the Credentials side and, in particular, on the transporter as well as access cards, on a deal-by-deal basis, it can be competitive and price-competitive, I mean. But our positioning, especially in that category, is very much around higher-end, value-added applications. And that’s where some of the larger corporates turn to us and that, therefore, gives us something of an umbrella related to price. So I’d want to give you some color and I didn’t want to be so glib, but price really has not been creating pressure by average unit prices on a year-over-year basis.

No, that’s very helpful. And then looking at the Premises segment, I don’t know – you mentioned seeing strength from both commercial and federal in the TS Readers. Do you expect both of those markets to continue to show momentum? Or was this commercial strength more of a – I don’t want to say one-time phenomenon but kind of more of a near-term event.

Yes, a really good question. We actually think it is a secular event. It’s an ongoing event for three reasons, both kind of near, medium term and vision-wise. Near and medium term, we’ve got some very nice – speaking of price positioning, price competitive positioning on our products, we’ve got some OEM solutions whereby we’re taking our technology and putting it in readers of even some Silicon Valley start-ups and others that are in the physical security space. And we’re then leveraging their volumes as they grow. And then thirdly, as I mentioned, TS Readers, the readers at the door, are really a strategic initiative for us. We see that as the fundamental sensor to this situationally aware physical environment, where we’re going to be putting more and more in there, certainly first the RFID. You should have audio, you should have video, you probably should have infrared, and you probably should have Bluetooth and WiFi radios all in there. And we’ll be adding more and more value into our readers. And so – but we’re doing it carefully. The market can only absorb it at certain rates, but that’s the category that we really expect to be, long term, strategically growing for us. And I think we’re starting to see that just now.

Okay. And the last one from me and I’ll jump back into queue. Can you remind us how we should think about your quarterly breakeven revenue run rate and with the Thursby acquisition if that changes anything?

You mean about the seasonality?

More so just with the Thursby contribution, if that changes the breakeven revenue run rate.

Oh, fair point on the breakeven revenue run rate. I don’t – Sandra and I are looking at each other across the table. I don’t think it changes dramatically the breakeven revenue run rate. It is true Thursby gross margins are in that 70% plus that you would expect with the software business. But from the numbers, as Sandra indicated, it’s starting out of the small portion of the business. So it’s not going to fundamentally change it, but it definitely strengthens the business. And there’s an indication of our intention of driving more software content and higher gross margin content, but that’s going to be over the next several quarters and couple of years.

Okay, thanks for your guidance.

Thank you Jaeson.

[Operator Instructions] The next question is from William Gibson with Roth Capital Partners. Please proceed.

Hi Steve. You’ve already owned Thursby for a week and you talked about wanting to buy capabilities that you can leverage, but what’s the environment like out there in being able to do that on an accretive basis? I would think pricing is a real problem.

You have a very good question. And I think that’s why you see our transactions involve a substantial portion of equity because I think they see the opportunity in our business together. And I’ve talked about Thursby being relatively small at this point, but you can hear all the leverage points. So I think the ability to drive our overall value that they can participate in is an opportunity that we have that someone like a Cisco or a major, Fortune 100 acquirer can’t offer, you better get it in your upfront consideration or you’re pretty much done. So that’s certainly part of where we commence the value. And then the rest is along things like culture alignment. We have been working with Thursby, for example, for seven-plus years. And the companies that we tend to bring in on an inorganic basis are accretive partly because of the relationships we’ve already got and the strategic complementarity.

Thanks Steve.

Thanks William.

[Operator Instructions] 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 his closing remarks.

All right. Thanks, operator, and thank you all for joining us. As you all know, we’re very active in the investor and with our commercial community. And we welcome you to join us at any of our events. Next week, for example, we’ll be at the Roth Tech Day in New York. Also, on the business side, the Thursby team, next week, will be at TechNet Asia-Pacific, which is sponsored by the Armed Forces Communications and Electronics Association in Honolulu. Also, on the business side, on December 6, we’ll be hosting an opening celebration for our expanded Washington D.C. office. And then back on the investor side, we’ll be at the Imperial Capital Conference in New York on December 12. So thank you very much for joining us for this discussion today, and we look forward to seeing you at any of these events and we hope you all have a very good evening.

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