Good afternoon and welcome to Identiv's Presentation of its Fourth Quarter and Fiscal Year 2020 Earnings Call. My name is Catherine and I will be your operator this afternoon. Joining us for today's presentation are the company's CEO, Jeff [ph] 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 and free cash flow. In addition, during this call, management will be making forward-looking statements. Any statements that refer to expectations, projections or other characteristics of future events including financial projections or future market conditions is a forward-looking statement. Actual results may differ materially from those expressed on in this 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 your CEO, Steven Humphreys for his comments. Sir, please go ahead.

Thanks, Operator, and thank you, all, for joining us today. In our preliminary results, we said we expected to exceed the aggressive growth projections we set in November. Today, we confirmed we beat those expectations. For the fourth quarter, we grew over 30% year-over-year, our RFID revenue grew more than 100% year-over-year for the second consecutive quarter, and we finished the year with backlog for the first quarter of 2021 that was more than double the same period last year. Now the market force behind this growth is that the RFID market has taken off. Huge leaps in chip capabilities at extremely low cost combined with the full embrace of NFC by Apple in its iPhone 12 and iOS 14 open the floodgates of product engineers integrating RFID into their products to create totally new and more engaging customer experiences, project reliability and performance. As the market hit this pivot point, we expanded both our capacity and technical leadership. We drove growth in RFID and with our new product launches and expanded customer base we positioned to grow even faster in 2021. The momentum we generated in the second half of the year, which grew 30% over the first half, showed that 2020 was an inflection point for our business. So, let me share some growth metrics that are carrying us so strongly into 2021. In our RFID business, we shipped more than 130 million units in 2020 and doubled our RFID volumes in the second half of the year over the second half of 2019. We also increased our average unit prices by 20% showing that the strongest growth is in more sophisticated products. That's also where we are the strongest, with over 150 active RFID customers, we're engaged with some of the most advanced early adapters and in…

Thanks. As Steve mentioned, our financial results reflect our business strength exiting 2020 and have us on track for double-digit growth in 2021 and beyond. These results are all in range of the preliminary results announced February 9 with revenue, non-GAAP adjusted EBITDA, and GAAP cash flow from operations at the high end of the ranges and GAAP net loss within $0.1 million of the range provided. We closed out the fourth quarter of 2020 with $24.8 million in revenue, up 31% compared with the fourth quarter of 2019 and flat with the third quarter of 2020 which reflects strength versus our normal seasonality exiting 2020. Our full-year 2020 revenue was $86.9 million, well within the original guidance issued in January of 2020 before COVID-19 altered the world economies. Exceptional growth in RFID more than offset temporary revenue declines in premises as compared to our original pre-COVID guidance. For the fourth quarter of 2020, our GAAP and non-GAAP adjusted gross profit margins were 35% and 36% respectively compared to 40% and 42% in the fourth quarter of 2019. For the full year 2020, our GAAP and non-GAAP adjusted gross profit margins were 39% and 40% respectively, compared to 44% and 45% in 2019. Gross profit margin changes resulted primarily from investments in technology and manufacturing processes and systems to meet the short and long-term growth profiles of our customers and also by the mix of products. As Steve has previously said, we expect margins to revert to historical levels. Specifically, we ramped high growth RFID customers in the second half of 2020 and we made investments in technology to drive new processes, more automation and even higher manufacturing speeds, consistent with our already industry-leading quality and performance. These investments have already contributed and will continue to contribute to growth in…

Thanks, Sandra. As our revenue growth, cash flow and backlog clearly show, we've got strong momentum setting us up for 20% to 25% revenue growth in the first half of 2021 and a strong year overall. We expect our growth this year to be driven by the same three strategic priorities that drove our growth in late 2020. Our strength is the premier provider of sophisticated NFC-enabled RFID products, federal government expansion, and improving predictability by increasing recurring revenues and expanding customer retention. Now, RFID is the main growth engine for 2021 and it's the core technology underneath most of our products. So, I'll focus mostly on it on this call. The key thing to understand is exactly why did our RFID business double year-over-year in both Q3 and Q4 2020 versus 2019. Is this sustainable from a market perspective? And can we keep our leadership and market share growth? The main reason for the huge growth is that the market itself is growing explosively and it's just at the beginning. We shared the vision with NXP, Impinge, Nvidia and others that every physical thing on the planet will have a digital existence. RFID is the way this happens. Tiny low-cost chips with highly tuned and optimized antennas, system software and security that are embedded in everything we interact with. This is software reaching every physical thing on the planet and RFID enables it. So, syringes can track if the exact right amount of medication is built into them and dispensed into the patient. Your refrigerator can tell you when the filter needs to be replaced and make sure it's an authentic replacement that's put in and working. You're running shoes can sense how many steps you've taken. Your phone accessories can work together intelligently with your phone to create…

Thank you. We will now take questions. [Operator Instructions] Your first question is coming from Jaeson Schmidt Lake Street. Your line is live.

Hey guys, thanks for taking my questions. I just wanted to start with the RFID business. Can you share what percentage of your revenue RFID is in 2020 and then where do you think that can go for 2021?

Sandra, do you want to take that? I'll take that as a no. So RFID is within our identity business, Jason, as you know. And we haven't traditionally broken that out, but it's over half the Identity business. Then of course, it's the most rapidly growing. So it will certainly be in the range of two-thirds to three quarters of Identity business by the time you go out of this year.

Okay. That's really helpful. And then along those lines, obviously with that momentum, it's going to compress gross margin here in the near term. How should we think about gross margin trending for this year with sort of the different dynamics within each segment?

Yes. We mentioned in the -- I think we might have put it both in the press release and in Sandra's comments -- there were two factors there. The primary one being when we were ramping up some of the growth in the second half of 2020, we brought in some new equipment, new technologies. Some of the customers had specific requirements and those sorts of investments largely go into cost of goods sold. So that is a near-term impact on gross margins. That should recover back to that 40% range over the next quarter or two. And then beyond that, both parts of the business are growing solidly. So, we expect that over time, the gross margins will continue upward and then longer term. We do expect to add more software value and value added as you know. And so when you look at the out years, gross margins will continue up even above that 40% range. But I think that's roughly how it will go. Does that make sense?

Yes, that's really helpful. And then just a last one from me and I'll jump back into queue. You indicated updating guidance once you have more visibility. Just curious if that's based more on just general macro visibility improving or specific customer orders? Just trying to get a sense of what are the dynamics that could potentially drive upside to the current range?

Yes. Very good question. It's because the major customers that drive RFID volumes are huge and I mentioned some of the design wins in the designs that are complete, but a customer can decide to launch it this quarter, next quarter or the quarter after based on their own strategy, in there on timing. So as we get better visibility into the specific launches, it's really about timing of when that hit and at our size, some of these big companies, their timing changes by a quarter -- it changes our profile by a quarter. So, we want to get more visibility, so we have certainty at both the scale on the timing but frankly it's more of a timing than anything.

Okay that makes sense. Thanks a lot guys.

Thanks, Jason.

[Operator Instructions] Your next question is coming from Jeff Kessler from Imperial Capital. Your line is live.

Thank you. Can you hear me?

Yes, we can hear you, Jeff. You're a little vague.

Okay. Let me see if I can just set this. Is this better?

Much better.

Okay. My first question is on the Premises side. Given that it appears that some of the larger providers of physical security equipment and actually more importantly the access control providers and the visitor management providers are looking at the second half of 2021 as a possible turning point for the industry that's been down since last March, what are your conversations right how with folks who haven't been able to get on premises, who haven't been able to really get much in the way of revenue growth going? Granted, you were up -- you were up 5%. But it would appear that now would probably be the time to start discussing the types of software and analytics programs that the access control people will be interested in using, if -- if and when that market recovers. And if you could comment on just you know, what are the kind of the stakes there and what are some of the gating points that you look at to show that the business actually is going to start recovering on the topline?

Yes, great question. And there is two aspects to the physical security business for us. Federal government, as you pointed out, has stayed strong and grew 30% and there is no sign that that's going to slowdown, in fact, it should accelerate with some of the priorities of the new administration; so that will keep us growing regardless. And then on the commercial resurgence, as you say, it's a question of timing there; we're doing a lot of training on our recurring revenue products. As I mentioned, we launched basically recurring revenue versions of all of our premises product line through 2020; so we're hitting the ground with those as well as we'll have another pretty substantial video-related launch in the second quarter of this year. So, we'll be very lined up from a year customer training perspective, a dealer training perspective; we're already seeing some bounce back on the commercial side in places like schools and transportation, other areas like retail and hotels are still going to be wait and see but the thing you were focusing on right now, frankly, is on the federal side because that is growing very nicely, and we think that's going to continue. And then as commercial bounces back, we think we're going to be in a really good position with a range of products to take advantage of it.

Okay. You've talked before about a $25 million per quarter inflection point for your margins for the whole company. And I'm wondering, given -- given what's going on in your -- on your identity side, is there a -- is there an inflection point just on the identity side where the margins begin to -- since you're not -- you're not talking about increasing OpEx very much at all for next year. Is there a point just on the identity side where that inflection point might occur? And is there a business mix change; I mean, whether it's -- whether it's toward -- are there different vertical markets that would change the margin picture on identity?

So, let me go after both of those. First is on leverage in the model; you're right. In the fourth quarter our OpEx was down, I think it was 4% and revenues were up like 30%. So we clearly hit that point at which we've -- where you've got some fixed costs in G&A in channel, in R&D; and as we grow on top of that, we were able to get a lot of leverage out of it and we've communicated previously that we think we can put 20%, 25% more on the top line while still holding the OpEx line. And then, even if OpEx has to go up somewhat in sales and other areas that go with scale, it will be a lot less than revenue and gross margin dollars are going up. So that's in the aggregate view; we do think we've hit that leverage points on our OpEx level and top line going above it, so a lot of it throws the bottom line as we generate gross margin dollars. Then on the Identity sector specifically; it's a good point to ask because we do about that -- because I think we've gotten through the very same inflection point. I'll let build out that we did in our facility in Singapore, and some of the engineering ads that we did at some of the technologies I was talking about; those are now in place, and so we get leverage as we get top line growth, both out of our production facility, and out of our engineering and channel. So, we think we're at leverage points right about where we are now and as we grow through 2021; and certainly as we start to get into that high 20s per quarter, you start to see good leverage in terms of operating margin at that point.

All right. Great, thank you very much.

Thanks, Jeff.

[Operator Instructions] Your next question is coming from Mike Latimore from Northland Capital. Your line is live.

Hi, this is Aditya [ph] on behalf of Mike Latimore. Could you comment on the video analytics growth; do you expect the video analytics to grow at a faster rate than the overall premise business?

Yes, good question. Last year, because so much of our video business is in retail, hotels and other areas; it was -- it actually had some pressure. But we've got -- in particular, we've got some product launches and we launched our video surveillance as a service platform at the end of last year. So, we do think that's going to be a pretty -- a very positive contributor to growth, especially on the commercial side because making sure that there is no loss or shrinkage in facilities is getting more important -- more and more important for retail warehouses. Used case across everything from schools and federal government are more and more important that they be integrated with the rest of the security system, and we're also seeing more customers that want an integrated video analytics and access control system rather than two different platforms. So, I think that is going to be a growth driver for us. It will be wait and see in terms of some of the verticals like retail and hotels when they come back. But some of the other sectors were already -- are already coming back and investing, certainly schools, certainly federal government, some of the state and local governments.

All right, great. Great. And is there any plans of acquisition on goods [ph]?

I'm sorry acquisition in general or somewhere specifically [ph]?

In general, in general. Do you have any interest in making acquisitions in the near future?

We are -- we aren't targeting anything, specifically; we've got our hands full, frankly, managing our own growth and focusing on that. We'll always stay open to opportunities there, especially if there is an opportunity to strengthen our leadership in RFID, that's always something we should be looking at. But we've got a full portfolio of technologies and products, we've got our channel in place, and we're just hitting our scale; so we have a predisposition to execute with what we've got because we think that's a high ROI activity and it does keep us pretty, pretty busy. I don't want to say never because -- and if something happens and it comes out of the blue, you know -- you want to know where that came from but our focus is on execution and delivering the business opportunity in front of us.

All right. All right, fine. That's it from my side. Thank you.

Thank you.

[Operator Instructions] Your next question is coming from Jeff Kessler from Imperial Capital. Your line is live.

Hi, thank you. One of the areas where you just -- you just talked -- you just talked about access control and video integrated, and one of the things that's going on in the industry right now is, is a dramatic consolidation of companies that are trying to get video and access as a service out there and one to swoop. I mean, guys like Bravo and Ricarda [ph], and people like that, combined with either video -- their basic -- the basic cloud access with their video -- with their video cohorts or vice versa. And I'm wondering is there co-op petition -- is the cooperation or is this pure competition? In other words, where do you stand as a provider of -- of one of those subsystems for these guys? Do you -- are you able to participate with others in this area or is this -- is this basically you going up against -- going up against these companies?

So, we have a range of products as you know, Jeff, and I think there is more co-opetition in the SMB range where we do have some discussions about OEM-ing technologies and integration and all that. In the enterprise and certainly in our core federal government space, we think we've got such a strong position that it's pure competition, we're not going to give up any of that and we think there is some real advantages to not just -- you know, everyone does connectors between access control and video, but actually having a fully integrated system gives you a lot of additional capability. So that, for example, the personnel database that the access control system has deeply integrated with it, and it's 100% accurate all the time; making that available to your video events instead of video just being a bunch of pictures, but you know who your employees are at what they're supposed to be doing and where they're supposed to be doing it in an integrated system, there is some real advantages to that and we're not going to concede that to anybody, quite frankly.

Okay, great. Thank you very much. I appreciate it.

[Operator Instructions] Your next question is coming from Jay Chung [ph] your line is live.

Hi. Can you hear me okay?

Yes, we hear you.

Perfect. You talked about the [indiscernible] unit opportunities out there. I was just wondering if you give an update on your capacity and what the plans are I guess for future capacity build?

Sure. We added capacity through last year, and in particular, even early this year; so we've got capacity for about 50% over the volumes we did last year. But the nice thing about capacity is it's very scalable, for us adding another 30% to 50% capacity to what we did last year is about a €600,000 to €700,000 machine. We've already got facility build out, so we have that; so it's really -- we can scale up capacity now on a pretty linear basis, well beyond where we are right now. But even right now we've got capacity for about 50% over where we were last year.

Great. That's great to hear. And then, there seems to be shortages in the industry. I just wonder how you are mitigating that and making sure you'll be able to fulfill your client orders?

Yes, good -- very good question. It of course is, it -- first off, it's all under control, that's the bottom line of it. But it's pretty hairy out there right now, so what we're doing because we have pretty good customer, we have very good customer relationships, they understand that if they have a launch that has to happen in the fall and if the chip vendor is giving you a 26-week lead times, that they have to place those orders six months before they're going to have a ship. Then it's not us and we're not forcing anything but we have to do that; that's one thing. The other thing is, we have really good relationships with the chip vendors and I don't want to out anybody but we're -- wherever there is availability and they aren't going to cut short someone who is really critical or has a committed delivery, we're able to get access sometime shorter than the lead times that you're hearing about it. So, that actually allows us to bring some value to our customers additionally; that again cements the trust relationship when we can do a little better than what they're hearing out in the marketplace. Because we've been in this industry, it's taking off right now, but we've been working on it for years, and so the relationship we've built over those years, the people who've been in it through thick and thin turned to each other in times like this. So, we're able to manage it on a -- just plan ahead and order ahead basis. And then also with some of the relationships, I think we're doing better than average on that.

That's great to hear. And then lastly, just on the new hire for Vice President of Marketing; Lee Dao [ph]; can you give us some -- maybe some – what sort of focus -- is it more on RFID, or is it more on the premises side? And then maybe some of the first couple of projects that you plan to tackle?

Good question. It is both, and that's one of the reasons we loved Lee's background. She was at Honeywell, so of course, you know, big systems, building controls, things like that that applied to premises. But her longest stint was at Intel; so she understands semiconductor marketing which is very similar to RFID marketing, where you got a market to engineers, get them to adopt and design in. And then she also started out her career on Capitol Hill at a Senators office, so she knows the government; so we've got someone who was in government infrastructure and chip marketing, and she has the whole spectrum. Using some of the digital tools; she is also very much digital native -- you know, she can get down -- I keep saying she -- the marketing team that she is leading can get down to targeting people and building verticals very specifically, engineers who are active in medical device design, and she can just target them, DRIP [ph] -- send specific messages, engage as she has already re-architected our marketing platform, with the new automation platform, she has re-architected our web store and re-architected our website, and really is changing our -- the leverage we get out of marketing as a go-to-market lead generation tools. So as you can tell, I can hardly saw enough about her but really well aligned with where we want to go. And frankly, with a bit of the sales and marketing mix that we haven't been so strong in. We've been very technically driven and technical sales driven, and having actual -- very well targeted leverage to digital marketing now, it's a tool that's going to contribute to our growth that we haven't had so much before.

Great. Thank you so much.

Thank you.

[Operator Instructions] There are no further questions from the lines at this time. And 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 call back over to Mr. Humphreys for his closing remarks.

All right, thank you. And thank you all for joining us today. I know we've gone a little bit long; so just to wrap up, this is obviously a fast-moving market and so we will keep regular metrics and updates coming out to track for progression as we get some of these design wins as we build our backlog and other progress. And we'll also be setting up an analyst and investor briefing focused on RFID to go into some more depth about some of the used cases, the design wins, some of our unique technologies, and also to look at some of the related companies like the chip companies that are also driving this market. So we'll set that up a little bit more in-depth discussion than would have been appropriate for an earnings call like this. So, thank you all for your time. And looking forward to talking again and have a very good evening.

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