Good afternoon. Welcome to the Identiv’s Q4 and Full Year 2018 Earnings Call. My name is Shenay [ph], and I’ll 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 that during this call, management may be making references to non-GAAP measures or projection, 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 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 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. 2018 was a pivotal year for Identiv. This shows in the financial results, but the most important milestones were the progress we made delivering our products and technology platform. Combining our internal development and our three acquisitions over a 11-month period, we now have all the components in place. This positions us for 2019 to be entirely focused on core growth and taking advantage of the breakout growth potential on our markets. Let’s get into the highlights for the quarter and the year and the growth that positioned us for in 2019 and beyond. In the fourth quarter, revenue again grew nearly 30% year-over-year. From a competitive perspective, we’re taking share in our market, which is growing in the 10% range, compared to our 30% growth. Looking at the segments, our Premises business was up 25% and our Identity business, which as a reminder now includes the Identity and credential segment we consolidate during the quarter. The Identity segment was up 31% year-over-year. For the second consecutive year, our fourth quarter exceeded our third quarter revenue breaking out of the third quarter federal government seasonality. This shows more consistency and stability in our results, reflecting the strategic steps we took in 2018. Just as important is our overall growth, we more than doubled our higher margin software and services revenue in the quarter growing at 155% year-over-year. So, it made up 15% of our total revenue in the fourth quarter. Growing this part of our business was one of the goals we set in the beginning of 2018 because it drives margins and predictability and even more importantly it drives customer attention. So, this directly leads to our next highlights, our bottom-line progress. The fourth quarter of 2018 was the first…

Thank you, Steve for providing the context for our financial results for the fourth quarter and full financial year 2018. Before we dive into our full financials, here are our few key metrics that we think are important in analyzing the progress and performance of our business. The first one is growth as represented by our total year 2018 revenue, which is up 30% year-over-year and slightly above the high-end of our total year guidance. It’s also important to note that our standalone software and services business has increasingly become a bigger component of our revenues enabling us not only to expand on our growth, but to become more consistent in our results and drive higher margins as well. For example, we build analytical value on the data streams we are capturing from our technology. We make money on our core business that we sell initially and then we start gaining margin expansion out of that expanding relationship. That was the case with the press release we issued on December 27, 2018 where we shared that one of our key banking vertical customers is now not only using our video, technology, and analytics, but has also signed a multi-year maintenance and services contract with us, which provides us with the recurring stream of higher margin revenue. In addition, our GAAP and non-GAPP gross margins have steadily picked up over the last few quarters as we drive stronger sales of our higher margin offerings. In addition, our non-GAAP adjusted EBITDA margin has increased by more than 271 basis points to 7% for 2018, as we continue to combine our strong growth with maintaining our expenses and ensuring that we have the appropriate cost structure to scale. With the fourth quarter results we are presenting, this will be the tenth straight positive…

Thanks Sandra. In my earlier comments, I laid out some of the foundations that we built for 2019. A key component of that is the product range we acquired from Viscount Systems right at the beginning of this year. As with 3VR and Thursby, Freedom, Liberty, and Enterphone strategically drive forward our overall platform. In the federal space, Freedom and our Hirsch Velocity platform are two of the just four systems that our federal government approved [13.02] solutions. In addition to product and technology benefits, the product range we now have expands our available markets significantly. We’ve always been strong in the federal market, but now we have a solid SMB solution and several products that are perfect for distribution, including Liberty, our TS Readers, and access cards. Our IoT bridge, Java based Freedom, and ICPAM platforms, and our POE Hirsh Mx-1 and TS Readers also are our great fits for the emerging IT channel. One other major benefit of this transaction is the leadership of the Viscount team. The most notable is Scott Sieracki, the former CEO of Viscount, who is now leading our Premises Sales team overall. Previously Scott had leadership roles at Tyco, Open Options, Quantum Secure, and others. And anyone who knows our industry and knows these companies understand the balance Scott brings as a business builder, as well as the forward-thinking entrepreneur in driving our industry forward. So, both from a people and a technology perspective as we enter 2019, we’re positioned as one of the industries most advanced and complete range of solutions for digital access. So, with our products and technology in our place and our business model established, 2019 is all about growth. So, I’d like to focus on that here. Fundamentally, our long-term growth comes from the transformation that’s happening across…

Thank you. We will now begin the question-and-answer session. [Operator instructions] Our first question comes from Nehal Chokshi with Maxim Group. Please go ahead.

Yes, thank you and congratulations on great set of results and very strong guidance, great to see that. I wanted to zero in on the software and services growth of the 155% year-over-year, and it’s 15% revenue? And I think if I did the math correctly, that’s up about 2 million here for the December quarter, so could you dive into the drivers of that and answer? And I have a follow-up on that as well.

So, I’ll take a business discussion on it and then Sandra can jump in on some of the financial analysis. [There was across] the board with our IGSR Identiv Global Services activity. We also have been driving software support agreement adoption across our product lines, in particular with some of the new releases with Velocity 3.7 and ICPAM 3.3. We’re getting much more adoption of the software service agreements. And also, on the 3VR side, it was also contributed to by the multi-year agreement that Sandra referenced in her comments from one of our financial services customers, and so that starts to appear on a recurring recognition basis and then also she mentioned on the Thursby side with the mobile apps for the DoD that has a strong software [indiscernible], it really was across the board. You want to anymore color to that Sandra?

No, I think the components that we really pull out are standalone software and services. So, it really is based on the fact that we’re licensing our software separately that we are providing the global services, which is a great compliment when we have customers who are dealing with complex integrations or installations, and the 3VR has a significant component of ongoing support and services. So, those are the pieces that we carve out to create that metric for how we measure the business.

Okay, and with respect to the 3VR contribution to that, Steve you mentioned that you’re getting a lot of data analytic contracts, but then there is also the maintenance of the hardware as well, I presume that both of those are contributing to the 3VR portion there, is that correct? And if so, can you parse a little bit further.

I’ll correct, but I want to turn to Sandra, you mentioned the maintenance on the hardware, does that appear in software and services?

Support agreement for the prior install base ends up in the services component.

Some portion of that would be, yes. The reason I am clarifying that is because the larger agreement that we had was software specific, and so that would be on the software side of 3VR, but there’s some hardware component in there.

Okay. It looks like you guys are no longer going to be providing gross margin by segment, is that correct?

So, we actually did provide gross margin by segment. We’re down to two segments. We’ve stopped reporting on others, which is great, and we’ve added, we’ve combined the prior identity and credentials into one identity segment, because that’s more how we’ve run the business and how we’re organized. So, let me just find it. So, Premises was 57% GAAP gross profit margin for the quarter and 56% year to date; and Identity was 42% GAAP gross profit margins for Q4 and 32% on a year to date basis.

And the [big GAAP from Identity] is due to the Thursby contribution?

On the Identity side, the large order that we had in Q4 was a bulk order for somewhere around 25,000 to 27,000 readers in software that the U.S. Air Force took in a one-time transaction as they are starting their deployment, and so since we’ve talked about the fact that Thursby margins are higher than our average that’s also what drove up Identity, but this is a perfect example of why the Thursby business has it rolled out can also be somewhat lumpy on a quarter-to-quarter basis.

Okay, I’ll get back in the queue. Thank you.

[Operator Instruction] Our next question comes from William Gibson with Roth Capital Partners. Please go ahead.

Hi Sandra, I’ve got a financial question, and just regarding the preferred dividend, was that paid in cash or was that paid in kind?

The dividend was accreted in common stock equivalents.

And is that the plan for this year or…?

Yes. So, it continues to be accredited in common stock equivalents until year ten and then it’s the company’s option to flip it to cash at that point, but we plan to book those types of charges on a pro rata basis quarterly going forward.

And so that annual number for last year is a good number for this year as well?

Yes, roughly 830,000 I believe is a good way to model 2019, but by quarter.

Now, are we going to see traditional seasonality. I know over the last two years you’ve been swamping [indiscernible] with the growth where we haven't seen normal slowdown in the first quarter, is it more kind of back to classic this year or how is that going?

So, I’ll take a shot at that Bill, it’s Steve. The main seasonality that will squeeze more out of is the third quarter to fourth quarter we had had downturns there because the federal government, and that we've largely gotten beyond, but the fourth quarter to first quarter seasonality we’ve continued to experience. We experienced that in 2018 and because of the nature of some of our commercial markets we expected to still see a little bit of that in our current business mix.

Thanks Steve.

Our next question comes from Jeff Kessler with Imperial Capital.

Hi, congratulations on the quarter and the year. Couple of questions. First, is there anything on the standards or regulatory side that you see like in FICAM that may be have helped you this year if indeed you’ve put together the pieces that are needed to qualify for a larger range of projects?

Yes. There’s sort of two questions in which you ask there, is one more around that mandates and the other is broader range that we can serve with our broader range of products. So, I’ll take the first and the answer to it is absolutely. The liberty and freedom products we have lower cost per doer and some more flexible infrastructure, and we certainly see that that’s appropriate for some agencies, especially in the non-security agencies. And then back on the first part with FICAM, there’s not new initiatives or mandates there, but we’re definitely having more of our customers talk to us about going ahead because they have to change their infrastructure at some point for some of the new PIV cards and in order to give support for those PIV cards, they are realizing it is just the same price and the same process to get to full FICAM ready. So, not really going to deploying all of FICAM, but they are going to FICAM ready at a faster rate than we have seen in the past.

Okay. The next question is on, if you want to call the catalyst effect of two or three important acquisitions this past year, was there a point at which, we kind of saw this – we kind of seen this in [indiscernible] when they certainly put together – when they failed to put together that hit about 3 or 4 or 5 verticals instead of 1 or 2 verticals. Did the – for instance did the 3VR acquisition begin adding what it did on the financial side, begin to get you to a, what I would call a critical mass in vertical markets, has that had an effect on who is coming to look at your product versus competition that essentially has been larger than you, but has been more scattered and not focused on this area?

Yes. I think that’s a good observation in two aspects to it. Yes. Three VR has been very strong in the banking sector, you’ve got over 170 banks and a number of them top tier banks. And that really has brought us credibility in that vertical, similarly in retail. And then, I think where you were also going is when you bring together a couple of acquisitions and combined, they give you more of that capability and certainly 3VR started us there as did our own investment. Then really brought on Freedom and Liberty with the Viscount acquisition. That’s really a complete product platform now and that’s where we’re starting to see more acceleration. I mean it’s early right now, but in the next 6 months to 8 months we expect to see that really coming together and also it is allowing us to go into different distribution channels. Going into distribution itself because we have, if we have just one product, you really can't stay on the line sheet with distributors, but if you’ve got four or five then you’ve got enough critical mass to put through them, and now we have that. And then similarly with the IT channel, we started into the IT channel with our Cisco partnership and that’s great and ICPAM has been a good fit for that, but Freedom is very similar in fact to the Cisco product is Java-based, it’s edge-based controllers, as well as IoT bridges. So, it really starts to become a complementary offering and so you’ve got a couple of things that people can pick from when they are in IT integrator versus a physical security integrator. So, I think you're going to see some acceleration across because of those couple of different leveraged points and you’re right is because we’ve got a few of these, but together add up to that strategic solution that I talked about.

Got it. Finally, the question that I was getting to on this is, I guess you want to call it one throat to choke. And this is the first time I have seen the company get to a point at which there is essentially, I think you’ve reached a stage at which you are from one throat to choke and you effectively can take on multiple – basically you gain the confidence of multiple project for one customer. And the conversation I would assume no moves up from just the security guy to somewhere higher up, may be even up to the sea level at this point when you start talking to companies.

Yes, I think that’s right, because almost every company and every agency, you know they all need active-control video, identity cards, mobility and single sign-on, pretty much every organization needs all of this, and instead of going to four or five different companies we can provide it all and as you said, the one throat to choke, and especially in the IT community they’re used to having that kind of concentration integration and they’re really looking for that. They are kind of confused when they try to deal with the physical world and you have intrusion to [indiscernible] and access and video from four or five different vendors. And so, as we come to them with one that can bring that all it gets a lot of traction.

Okay. Great. Thank you and congratulations on the quarter.

Thanks, Jeff.

[Operator Instructions] We have a follow-up question from Nehal Chokshi with Maxim Group. Please go ahead.

Yes, thanks. So, prior to December quarter guidance you guys hit at the high end of that. So, what was actually the driver hitting the high-end as implied to simple quarter guidance and if possible, could you frame it up with organic versus inorganic as well?

So, we exceeded the high end of guidance by 0.1 million. So, our range for the year was 74 to 78 and we were at 78.1, so we had some additional strengths Steve alluded to with our 3VR products, but we also had this large one-time U.S. Air Force transaction with Thursby Software readers that we transacted in December. So, we still have a good balance of organic and inorganic. With our organic growth beating the market rates that we believe that 8% to 10%, but we did have a rather lumpy transaction in the inorganic space with Thursby Software and their multiagency rollout.

Okay. Great. And then is it fair that your organic growth rate throughout the close of fiscal year 2018 has consistently beat the market growth rates?

Yes, absolutely.

Okay. And then does that then imply that the inorganic portion, the 3VR has been somewhat volatile throughout the course of calendar 2018?

So, 3VR in total came in slightly below what we originally disclosed as guidance for adding 10 million to 11 million for the top line over the year. That being said, it was a little bit slower in the start. I think we’ve learned a lot in the process and our fourth quarter run rate exiting the year is in excess of the top end of the 11 million that we guided for 2018. So, I think that’s just a little bit of a lesson learned for us. We again are bringing Thursby and by counting aggressively, but when we give numbers, especially with the first quarter effect and then bringing Viscount on as of January 2, we expect that there will be a little bit softer in Q1 as we get all of the infrastructure and integration done, but we’re still confident on the total year numbers.

And then considering 3VR’s now organic going into calendar 2019, can you give a view on what is going to be the organic growth rate for calendar 2019?

So, the organic growth rate that we have is in the mid-to-high teens across the board. And that includes 3VR.

Okay. And it sounds like given that you are suggesting potentially some lumpiness early in the Viscount and Thursby we should model for greater than normal seasonality for [March Q] then?

I think that would be a fair way to model it. Absolutely.

Okay. And then finally, so you know that you are now giving non-GAAP net income guidance, which is great, I love that. I calculate that for calendar 2018, your non-GAAP net income was 1 million, so now your calendar 2019 non-GAAP net income guidance certainly is that correct, was your calendar year 2018 non-GAAP net income 1 million?

So, we don't have non-GAAP net income just to be clear. We use the term non-GAAP net income in prospective guidance because there could be transactions that we don't contemplate additional items that we would non-GAAP out. So, our GAAP net income for the quarter was 600,000 favorable and for the year, we were still at a loss of 4.7 million attributable to the company.

Okay. Do you expect your depreciation and amortization expense for calendar year 2019 would be up materially relatively to calendar 2018?

I think we will see it step out because we will have the intangibles amortizing from the Viscount and the Thursby transactions. Viscount will be completely new, Thursby will be 10 out of 12 months new. So, I think it’s fair that we will have some step up.

Okay, thank you. That’s all from me.

Great questions, Nehal. Thank you.

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.

Alright, thanks Shenay [ph] and thank you all for joining us today. Please do also join us at Roth Technology Conference on March 18 in Southern California, it’s been just scheduled. Or we will also be at the Oppenheimer Emerging Growth Conference on May 14 in New York. And at the Houlihan Lokey Global Industrials Conference also in New York on the 16. So, look forward to continuing to keep you all updated on our business progress. Thanks again, and have a good evening.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.