Good afternoon. Welcome to Identiv's Presentation of Fourth Quarter and Fiscal Year 2019 Earnings Call. My name is Anastasia, 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 managements 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 and free cash flow. 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 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. As you'll have seen today, we published our fourth quarter and full year 2019 results, as well as reaffirmed our outlook for 2020. Now I'll go into those details in a minute, but given the environment we're in globally, I'd like to put some context around our business comments. The main perspective I'll take us through today is that the fundamentals of our business are looking strong. We actually weathered pretty well the supply chain challenges from the early onset of the virus in China. And even in some respects, our products benefit from lots of people working from home. So we're driving our business forward, our Board's independent directors are indeed continuing their process to engage outside advisors to assess strategic alternatives, and were on all the paths that we discussed a little over a month ago. In parallel, we're being proactive about enabling our people to work from home, we're tracking the location by location responses that are best, as well as what's being required as governments respond. As an organization, we're already a dispersed company with a range of our activities across the US, Canada, Europe, India and Southeast Asia; this means we're used to working remotely, we've got the infrastructure in place and our processes and people are very familiar with it. So this is a tough period we're all in, but we think we're relatively well positioned to weather the impact, and we're doing everything to first and foremost take care of our people, our customers and our partners, and therefore deserve our investors. If we make the right moves, proactively, we'll get through this and should be able to strengthen our competitive and market position as we come out of the churn. There are some…

Thanks, Steve. And thanks to many of you joining us again for our full earnings call. Before we dive into our full financial, I'd like to share an update in the context of our release of preliminary unaudited results dated January 30, 2020. For every metric that we reported on January 30, today we are reporting slightly better results than the top end of our range. From revenue over range of $0.2 million through GAAP EPS beating by $0.01. In addition, we are still reporting non-GAAP adjusted free cash flow of positive $0.1 million, with 2019 representing the first full year in over a decade, where we were able to generate non-GAAP free cash flow. Now diving into the key metrics. The first one is growth, which even factoring in the lower fourth quarter revenue delivered our total year 2019 revenue growth rate at 7% year-over-year. Additionally, without the 23% reduction in our access card business, as we have continued on our strategy disclosed earlier to exit lower margin third-party products, our consolidated growth was at 14% year-over-year. Our standalone software and services business is steady at 13% of our revenues for the full year and the fourth quarter. Our full year results were up 207 basis points over the prior year. Recurring revenue accounted for 10% of total revenue in the fourth quarter, and 9% of our full year 2019 results reflecting 117 basis point improvement over the full year 2018. Our fourth quarter 2019 GAAP and non-GAAP adjusted gross profit margins of 40% and 42% respectively, versus the comparable period of Q4 2018 were negatively impacted in total and by segment, by mix within our segments. Our Premises segment was negatively impacted by lower video analytics software sales, which have a significantly higher gross margin rate and our…

Thanks, Sandra. The numbers show the challenges that caught us in the fourth quarter, but also the underlying strength of the business. Our multi-year trends have stayed strong, and the product launches and sales team building at the end of last year, and the first couple of months of this year have us again in a strong position to grow revenues and expand EBITDA. We usually see a seasonal trend in the fourth quarter of revenues 8% to 10% below the preceding fourth quarter. But as a result of our actions, we expect to beat that trend in our current first quarter. Now, how would you describe the actions taken to strengthen federal sales. The overall sales team, Thursby federal sales, RFID sales; that's product and mobility products. We've continued progress in this quarter, putting us in a strong position for our key initiatives; expanding recurring revenues, driving positive cash flow and profitability, and especially taking more share in our key markets of Premises security and RFID by launching leading products and projects across our business. I would like to focus on RFID for a moment. The three forces that are very positive for us right now; first, NFC is becoming a core solution for RFID devices. We're well known as the go-to-company for NFC solutions, including a close partnership with the leading provider of NFC chips and XP; so we're positioned as the leader in the right technology category. Second, customers are adopting RFID solutions across a wide range of products. Over the last couple of years, early adopter companies like Disney, Mattel, Nike, and even blockchain providers, adopted NFC-based RFID. We're now clearly moving into the early majority, and receiving more requests for design quotes and RFPs than ever before from a wide range of companies and industries.…

Certainly. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Mike Latimore with Northland Capital Management. Please go ahead.

I guess on the -- kind of the potential for government agencies to do more work at home; I guess, can you give a little more color on what you're hearing or seeing, any particular agencies that have gotten kind of full steam ahead in that regard? And obviously, that would probably benefit your Thursby opportunist?

Sure. Some of the military bases in Germany, for example, I have -- one of them, Rhineland Falls, has actually gone on a full lockdown. And so we're talking with them about giving mobility access for some of their personnel. And then in terms of the domestic federal government, the SEC of course, has been the first one to go through that gate. And so basically, as each of them, announced different policies. We're just reaching out to them to see if we can enable their remote access, and especially through mobility.

And the growth in the transponder business, it sounds like you're expecting continued strong growth this year in that category? That's one question. And two, like what verticals or used cases do you think are healthiest this year?

Yes, we're definitely seeing a lot of activity there. And that's also why we were pretty happy that we worked our way through the supply chain issues with some of the antenna supply and all because the volumes are going up pretty fast. So libraries are certainly one vertical that's coming through strongly, some consumer devices are launching some activities, reusable -- reusables that have to have authenticity with something like, in some cases a major appliance or in some cases a printer or other business device is a used case. And then healthcare, some of the consumables in some of the testing equipment that we use for assay validity and things like that.

Got it. And then, just on the OpEx side on G&A costs; did you say there was a couple of onetime benefits in the fourth quarter or what would be a good kind of baseline for G&A?

Yes, so what embedded in the GAAP results for Q4 and Q3 was the additional recording of the fair value of the earn out liability related to the Viscount acquisition. So in Q3, there was $200,000 on a gap basis, that's not recurring. And in Q4, there is $400,000, that's not recurring on a GAAP basis. On a non-GAAP basis, G&A is running to answer that question. G&A is running about $1,000,007 a quarter coming out of Q4.

Okay, great. And just last one; how are you thinking about kind of gross margins for the year?

So I think we're confident that we're going to be hitting our target range for the year. I think our challenge is going to be in Q4, our gross margins were driven down, sort of in a short period of time because the transit transponder and some of the business issues that we have on the Premises side. I think we're going to see some continued pressure in Q1 but as things come back, and the additional salespeople ramp up on the Premises side to really drive the expansion; that business, I think we'll see it even out over the year, but I think we're going to see some early downward pressure per mix.

Okay, great. Thanks a lot. Good luck this year.

Thanks, Mike.

Our next question comes from Jeff Kessler with Imperial Capital. Please go ahead.

Thank you. First question is the 50% increase in the backlog at year-end, which was upfront sequentially from the third quarter. Can you give some idea of what is in the mix? And give some idea of -- let's call it what the margin in that mix is? And give us an idea of perhaps timing, which I'm sure is going to be a tough one. But what is -- again, what is going to be driving -- what drives that backlog and is it the type of thing that is going to help margins, particularly as we get toward the second half of the year and you begin to start looking at guidance for the latter part of the year?

Yes, sure Jeff. The backlog, as always, the case is largely driven by our transponder business, that's where we have typically long lead times and most of the backlog whereas in our Premises business, we have pretty short turnaround time. So when we get an order and we tend to tend to get the order and ship and go; so that's -- so the backlog then mix and gross margin would reflect heavily the transponder business which is gross margins in the mid-30s. Now that said, the backlog also includes some of our software and services of our multi-year contracts, some of our agreements on 3VR, and so that offsets some of the transponder margin mix. So it's higher than you would see for transponders overall, but it is predominantly transponders.

Okay. The second thing is, can you discuss effectively, operationally, what are you doing to build up the recurring revenue part of the business? Not just that you've gotten people in there; now are you hiring people who are -- when you say you're doing a lot of hiring, are you hiring people who have experience in that -- in the ability to make that type of sale? And to basically, stay on top of the customer for a longer period of time?

Yes, good question. So yes, we specifically have identified what we're characterizing as strategic sales. People are ringing on, I mentioned when we just hired in fact, and she's got a lot of recurring revenue experience. And similarly, we're skewing our new hires in that direction, we're recruiting in Europe right now with a similar profile. So, I think you're alluding to the fact that people who can sell recurring revenues are often different from those who've gotten very comfortable with selling a big box and an on-Prem. That said, we're also sending our core RSMs and dealers to go sell recurring revenue as well; the dealer channel is pretty enthusiastic about recurring revenues. So we think the dealer channel will work pretty well but we're also overlaying with salespeople who are focused on it.

Have you -- seen any -- NFC has begun to be used increasingly in hotels, and let's just say places that you stay, of the gathering places. Have you seen pressure from there? And if you could just go over once again, where you're seeing some of the uptake -- I mean on the on the NFC side, that would offset what was clearly going to be a downturn in the hotel business?

So -- yes, we don't do very much in the hotel business but NFC for using a cyber-credential for physical access is definitely a used case that that we've got a number of prospects in the pipeline for. And then, not NFC but Bluetooth; yes, we just launched the Bluetooth reader and that includes mobile credentials on a subscription basis which would do the same thing, get access but through Bluetooth. So I think you're going to see more NFC and Bluetooth for physical access. Yes, it's had false starts in the past, especially Bluetooth has, but the use case that we've got -- where you don't have to take your phone out and where you can just get your hand close to the readers, you're not actually touching anything; we think actually finally starts to deliver a benefit. And then, also the costs on the mobile credentials are finally getting in a range that people can compare positively with cards, so they can see growth in both areas, NFC and Bluetooth.

Okay, one final question. And that is, on two of your acquisitions which had very strong starts after you acquired them, and then have settled that a little bit, particularly, certainty here of both 3VR and Thursby. I'm wondering if you could make any comments on, is the Thursby business going to sell out at a -- is it going to be -- is it going to remain lumpy? Is there a way to -- is there a way to essentially ease that out in terms of more recurring revenue or it's just a stable revenue stream? And the same, I guess the same question for 3VR?

Sure. So just on the Thursby side first, the first answer is sales themselves and we just brought on a really good federal sales guy, Jason Evans. I was out with him at the FCO West Show in San Diego, which is the big Navy show last week; and he -- that's the first thing, is really building a pipeline with a dedicated sales guy, he is based in the DC area and has a very good contact list across -- certainly, the Pentagon but also the civilian agencies. And then, the other part is we launched the PDF signing, add-on as a subscription price. That said, the federal government is not always happy doing subscription pricing; and so we can get individuals on a subscription side, I think the federal government sales are going to continue to be to build a good pipeline of prospects, and sell them in chunks but have enough going through that it builds steadily. But then the good thing is, you've got a bunch of apps in people's hands, and then you can start doing the upsells on a subscription basis; so that's the Thursby approach. And we do see the pipeline broadening out quite a bit there. 3VR; similarly, I think with the investigator app that we just launched, so we have our video investigator capability on mobility devices. You can start to price that, we haven't launched it yet on a subscription price basis, but we will. And then you can start to add different features again for different upsells; so I think you're going to see both growing. And then also on 3VR, we also realized we need some dedicated sales focused on that, so similarly the strategic sales people who will have a recurring revenue focus will also have a 3VR, as well as a Freedom access system focus.

Great. Thank you very much.

Thanks, Jeff.

[Operator Instructions] Our next question comes from Jason Schmidt with LakeStreet. Please go ahead.

Thanks for taking my questions. Steve, just want to follow-up on one of your comments in the prepared remarks; you mentioned that you traditionally see in 8% to 10%, sequential decline in Q1. Did I hear correct that you expect to be better than that though this year?

Absolutely, yes.

Just -- and I think, what we're saying is that instead of the numbers dropping by 10%, we'll see some rebound. I don't think we're going to necessarily be able to commit that we're going to beat Q4.

Okay, no understood. That's helpful. And just following up on that, are you thinking about seasonality this year, just given the current macro backdrop any differently? Or should we think -- how should we think about the cadence of the ramp to your 2020 guidance?

No, I don't think we're thinking about seasonality any differently. I mean, obviously, if there is some overwhelming effect that changes the economic trajectory, that can change things. But in terms of seasonality, we've always -- the fourth quarter is strong because of a number of dimensions in our business, and so there is typically even that drop-off in first. And then they grow sequentially and third quarter is often the strongest because the federal government buying cycle, and that's still the federal government year-end. So we expect seasonality to be comparable barring any crazy macroeconomic things that change trends for all of us, but we do expect a consistent seasonality.

Okay. And the last one for me and I'll jump back in the queue. Curious if you can provide an update on the traction you're seeing in the education and school market?

Sure. It continues to be strong, in fact, we're doing a pretty big integration of a couple of different sensor platforms for a major school district that includes gunshot detection, emergency calls, fire and others that is a really interesting use case that makes it basically a full disaster response platform for school. And then of course, the wireless locks continue to be a really attractive component for schools because they tend to have such distributed facilities and disconnected facilities. So schools are definitely a good and growing vertical for us.

Okay, thanks a lot guys.

Thanks, Jason.

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@gatewayir.com. I'd now like to turn the conference back over to Mr.Humphreys for his closing remarks.

Okay, thanks, operator. And thank you all for joining us. We're going to keep you all updated as our business progresses, as always, though it might be a bit different in some cases. For example, next week, the Ralf [ph] conferences, some of you might be aware, is going to be held virtually. So we'll be doing our one-on-one's through video conferencing since the physical conference has actually been canceled. But we'll keep information coming and building our business, and hopefully even finding ways to help our customers through some of the changes in business practices, and drive some additional business growth out of that. So, thank you all again for joining us, and have a good evening.

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