Good afternoon. Welcome to Identiv's presentation of its First Quarter 2022 Earnings Call. My name is John and I will be your Operator this afternoon. Joining us for today's presentation are the company's CEO, Steven Humphreys, and CFO, Justin Scarpulla. 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 guidance, 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 future financial results, future business and market conditions, and future plans and prospects 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 Steven Humphreys for his comments. Sir, please proceed.

Thanks, Operator. And thank you all for joining us. Our first quarter was a strong start to a pivotal year for our business. We're on track on all of our key metrics and business activities behind the numbers continue to be ahead of our plans. Our gross margins, in particular, strengthened faster than we projected, up almost 300 basis points over last quarter with non - GAAP gross margins of 37.1%. This was a key goal that we expected to reach mid-year and we got there in Q1. The progress on gross margins is important for three reasons. First, it reflects broad customer demand, so we can balance our mix. Second, it reflects the strength of the market itself, because higher margin specialty RFID devices are the fastest growing segment, driving growth as well as margin expansion. Third, it reflects the strength of our financial systems. We track gross margins on each customer order. This lets us optimize our business model while also supporting customer account development. We'll go into more details later, but I wanted to focus on gross margin because it reflects key factors, including demand strength, customer diversity, specialty RFID growth, and internal information visibility to manage our business model as we scale. Our other metrics for Q1 were also on or ahead of plan. Revenues in our premises business were up strongly 23% year-over-year. We again fulfilled every key customer demand despite the supply chain pressures we're all dealing with. Our Identity segment grew 7%, led by 13% year-over-year growth in RFID, on track over a high growth comparable quarter in Q1 2021 that grew almost 60% year-over-year. Now, more importantly, our backlog at the end of Q1 for shipments in Q2 is up 32% versus the year prior, giving us confidence that we're on target…

Thanks, Steve. As Steve mentioned, our financial results reflect our continued strength exiting the first quarter of 2022, with the delivery of year-over-year growth in revenues, sequential and year-over-year increases in gross margins and future backlog, and a sequential return to positive non-GAAP adjusted EBITDA. We believe these results, paired with our continued investments in the RFID organization and its capabilities, position the company to achieve its growth and profitability potential in the remainder of 2022 and beyond. We closed the first quarter of 2022 at $25.1 million in revenue, which was above consensus estimates and up 13% compared to the first quarter of 2021. The trailing 12 months’ revenue was $106.7 million, up 17% versus the comparable prior year period. The sequential change in revenue was due to normal seasonality. Recurring revenues came in at 6% of total revenue and an increase of 1% sequentially. First quarter 2022 GAAP gross profit margin was 36%, an increase compared to 33% in the fourth quarter of 2021, and 35% in the first quarter of 2021. For the first quarter of 2022, non-GAAP adjusted gross profit was 37%, which was above consensus estimates, and an increase compared to the 34% in the fourth quarter of 2021 and 36% in the first quarter of 2021. non-GAAP adjusted gross profit margin changes resulted primarily from our product mix, as well as a focus on tracking and prioritization of higher margin products. We remain committed to a long-term non-GAAP adjusted gross margin target of 40% to 45%. In the first quarter of 2022, our GAAP and non-GAAP adjusted operating expenses, including research and development, sales, and marketing, and general administrative costs were $10 million and $9 million respectively compared to $11.3 million and $10.5 million in the fourth quarter of 2021. And $8.9 million and…

Thanks, Justin. As our Q1 financials show, our growth continues to expand and margins have strengthened fast, trending towards our long-term operating model margins. We continue to have strong visibility into 2022, so we are reaffirming our 2022 and 2023 guidance today. This year continues to be all about execution. With our expanded world-class sales team, the industry's best engineers to support NRE projects and other design wins, deep relationships and technical expertise engaged with a half dozen transformational programs and ongoing production capacity expansion. All of the pieces are in place to drive the vision and targets we've set. Premises showed our target growth rates already in Q1 and the seasonal nature of RFID programs, like mobile devices and consumer products also show our projections are aligned with our results. Now, another metric that we track is our backlog and committed customer buying forecast in RFID. Now, committed forecasts come in industries like mobile devices. They don't issue purchase orders until they're ready to load their supply chain, but they give very firm forecasts several months out. Combining our backlog with these firm forecasts, the balance of our RFID revenues for this year are over 85% covered. That means we only have to close new business of about 15% of our year's budget in order to reach our targets, and that's a pretty good position to be in with 2/3 of the year still to go. In fact, about 95% of our next six months RFID plan is covered by this metric. We of course plan to do a lot better and drive much more into 2022 and 2023. But in terms of near-term goals, it reinforces that 2022 is all about executing our plan. The key parts of our strategy and our resources are solidly in place. Backlog…

Thank you. We will now take questions. Thank you, ladies and gentlemen. The floor is open for questions. If you have any question or comments, [Operator Instructions] And the first question is coming from Jaeson Schmidt with Lake Street Capital Markets. Jaeson, your line is live.

Q1 results. I know you mentioned prioritizing some products in Q1, but was there any demand you actually couldn't fulfill?

No, there wasn't unfulfilled demand. We -- frankly, there were some orders we held back because crisis are going up in Q2. So there was some that -- but nothing that was the supply chain-related, if that's what you're asking.

Okay. That's helpful. And just looking at the clothing opportunity, there seems to be sort of an application you guys haven't really played in, in a big way in the past. Just curious so if this was a customer using a competing technology or competitors’ product or if this is a new initiative. And I guess relatedly, how should we think about the potential size?

Yeah, I'll turn that went over to Amir because he's been working at that from the transit.

Thanks, Steve. And this particular retailer they are not new to RFID, but they are new to custom RFID for specialized application. So specifically this is for asset management within their stores. And they needed to specialize tag for adherence to basically on metal. And that was why they turned to us. And they are right now looking at a -- at a pretty rapid ramp to 10 million units, and we're just basically looking at when that strike time is going to come, 10 million in start and it could be even much more upside.

Okay. And then, just the last one for me and I'll jump back into queue. Gross margin had a nice snapback here in Q1. I know you said you achieved that mid-year target earlier than expected, but should we expect gross margin to at least remains stable here in Q2?

Yes. We feel strong -- we feel that gross margins should remain stable throughout the rest of the year.

Okay. Perfect. Thanks a lot, guys.

Thanks, Jason.

Okay, next we have Anthony Stoss with Craig - Hallum. Your line is live.

Hi, guys. I'll echo my congrats on the impressive snapback in gross margins. Really nice to see.

Thanks, Tony.

Steve, it sure sounds like you continue to have a ton of design momentum. I'm curious if you have the figures in front of you, i.e. number of new customers, perhaps, that you entered into design wins in the current quarter. Also, I'm just curious if you could share any thoughts on just the complexity of some of these new designs, especially in -- slated for 2023. Your thoughts on ASPs maybe in 2023 or '22. Any additional detail will be definitely helpful. Thank you.

Yeah. I'll take a crack at that and then I'll pass it over to Amir and Manfred to comment. On the first thing of specific designs we get between one and two dozen new design coming into the pipeline, and as we see more we'll start to expand the engineering team. But we don't report the specific number because it is going fluctuate quarter-to-quarter and one design might be for a million unit opportunity another design might be for a 50 million unit opportunity, so it's -- we want to be careful with anchoring too much on that specific number. But the expansion of the designs -- the number of designs going through the team is definitely the relevant part. So let me -- actually also on ASPS, we do expect that those will be expanding over the course of the year. But on a quarter-by-quarter basis, again, I think they'll generally expand. But it can be -- can fluctuate quite a bit as one big customer or another has demand moving along. So I think as it turns out this year, it'll probably be generally expanding. But that won't always be the case as you go quarter-to-quarter. Amir and Manfred, do you want to talk a little bit more about the design wins and AVs if you want to comment at all.

Sure, Steve, maybe I'll take it first. I'll start on the ASG side. Having a standard ASG going up is probably not a fair assessment because the ratio it is, it's really all depend depends on the complexity of antenna design, how we're designing in and definitely the chip capabilities that we're using. So as you move up to chip capability matric, the ASG is going to go up and then it's going to be a higher-priced finished pack. Looking at the NRE projects overall, we've been prioritizing the Q of REs based upon what's going to move first and then also dependent on when availability for certain chips are going to be. So sometimes the NRE designs that we're working on, are focused more on a complex chip that may not be rolled out and really didn't matured enough in the market. For example, we have one that we took on this last quarter and it's not going to be ready until Q1 2023. So what we're doing we're working really closely with the supplier to make sure that when they do launch, that we have the first access to the prototype and then we can be the first to really translate the best technology. So NRE and the quantities just echoing what Steve is saying, they're vast and wide from the volume standpoint, but also there in the priority queue based on when the demand is going to pick up. And then also when we're going to really be able to deliver for optimal results for the customers.

Yes. Just one sentence with regard to the questions related to the complexity of the design-in wins. I would say they are decently complex, but that's what we're living and breathing, so from that point of view, there's not that many out there that can do it. And most of these guys know where to go to. Most of these kind of opportunities also are directed to us by some of the chip vendors because we can deliver accordingly. And there is one there particularly element that is adding complexity more and more going forward, which is the programming and coding requirements for some will be higher end ICs that are very popular in the meantime.

Then if I could sneak in one more for Steve, or maybe Amir, on your 30% to 35% revenue growth goals for next year. Working closely with NXP, as you have, are you confident that you're going to have ample supply to kind of hit those targets for what you see right now?

Yeah. We are also because there is the diversity, certainly NXP, is core to it. And we ordered well ahead. But this year and we're doing the same thing, in fact were already ordering through most of 2023. But also you get a diversity of chips and some of these designs that sometimes it's in the thing sometimes zesty, sometimes it's other specialized. So we've got both that give us some confidence that we can fulfill the demand with the growth on it because of the diversity of supply as well as ordering ahead as well as pretty supportive partners. Because it's an allocation games right now. Question of how much they're going to route to you. And we're getting a pretty favorable allocation treatment and we sure think that's going to keep going into '23.

Really want to add anything to that? Just the line that we have our Tier-2 and Tier-3 behind NXP as well. And what we've done as for are really our macro customers, we've honed in and made sure that they're starting to cross-qualify other IT as a backup. So if there is an unforeseen situation where we don't get the right level of allocation, we have a back of in place and then they're ready to go with that antenna design that's already been stepping.

Thanks for all the color, guys.

Thanks. Thanks, Tony.

Okay. Up next, we have Mike Latimore with Northland Capital. Your line is live.

Yes. Thanks. Steve, I think you gave a number of -- you have 95% of the RFID revenue covered and backlogged and committed. Is that the number -- is that the right number, and is that a new number? I don't recall that in the past.

Yes. No, that's a new number. And that's over the next couple of quarters. I said six months specifically. And yes, it's a new number to give some visibility because backlogged represents some of it, but a lot of it is both good and challenging sometimes. With the forecast, is we'll get the forecast and then, like some of these mobile device companies, if they up their forecast, they still expect to you to deliver to it. So that's the part that could go from there. But yes, the point is that it really is doing the production, doing the designs, doing the engineering. The team that Amir's built is really filling the pipeline quite nicely.

Has that number improved year-over-year? Did you track that number last year?

We haven't. We've just started tracking it partly with the supply situations to make sure that we're looking actually at six to eight quarters out to make sure we got coverage, it's not just for backlog and -- because we need to cover backlog, firm forecasts and the new deals that they're hunting and bringing in. So we've been focusing on that much more in the last couple of quarters.

Yeah. And then the backlog growth of 24%, that's a little slower than last few quarters. I guess any just sort of general color on that change?

I think just as I said, a number of our customers do firm forecast versus backlog. You can do the math of backing into it that with the growth that we've got, if there's that much in forecast and backlog, then the forecast must have gone up a fair bit. So that's another reason for giving to combined number because we get the visibility, but some of the customers that are more forecast driven than backlog driven are giving it to us that way. But our experience has been that the forecast numbers tend to be the baseline that we get, and then they ramp it up from there.

And then I think you mentioned sort of normal seasonality which would imply I think a second half growing well over 30%, I guess. One, am I interpreting that correctly? And then two, what would be like is that broad-based acceleration or is there a couple of key projects are really has in the second-half?

It's actually broad-based. There's seasonality that comes in to. We got the consumer products and we talked about closing earlier and mobile devices, of course, there's well, [indiscernible] launches that happened in the second half of the year. So there's a lot of things that drive that seasonality. Plus, we doubled that sales team over the course of the last few months of last year. And so that sales team is building a pipeline and that pipeline takes two to three quarters to convert. So you've got that driving it as well. And then lastly, you've got seasonality in federal government, the government buying cycle. And that's driving it too. So there's a number of backorders that you always drive our seasonality. But if anything there, it's increased purely by the increase in the sales team and a sales cycle. Amir, you want to add anything to that as well because I'm talking a lot about your sales team.

Sure Steve just to add color from Q4, we had our highest level of NRE projects. And those NRE projects typically in our cycles, they usually take nine to 12 months to really see some level of from designs of prototype to some level of delivery to the customer. What we're seeing from a lot of the design feedbacks through this last quarter is that we're approaching the right level of the second half of the year. Some of these actually hit some true volume. And are multiple work streams. So it's not one or two eggs in the basket that was going to be banking on. It's really a broad scope hitting our main segment focuses, but there's going through the standard cycles from really true design all the way through to volume.

Okay. Sounds good. Thank you.

Thanks, Mike.

Okay. The next question is coming from Brian Ruttenbur with Imperial. Your line is live.

Thank you very much. Two quick questions. First of all, back to the gross margin real quick. We should see a seasonal drop in the fourth quarter. Is that correct on the gross margin side?

No. Well, versus Q3 or are you talking about?

Yes, versus Q3. So if we're holding things, let's say a ballpark is 36% for first, second and third quarter, will there be a drop, a little bit in Q4?

I don't think so. Not at this time.

Okay.

It will hold as relative. We don't usually give quarterly guidance, but flat I think would best.

Okay. No. No. That's a great deal color. Thank you. Next question is on the access control side, maybe Steve, when we spoke, I think of IFC West, you're launching some new card readers that were comparable with some of the larger competitors out there. Can you talk a little bit about traction that you've gotten in that area and what you see happening?

Yeah. In the reader area, in particular, there has been a lot of traction and it's coming, of course, out of the gorillas hide for the most part, which I did for three different reasons. One is supply. They've had a real challenge supplying and we've been filling that in the very aggressively. Number two is their proprietary technology, which customers are just getting more and more sensitive to being locked in to proprietary technology. And ours, obviously, inter-operate with theirs is both everything else. And then number three is the fact that the interoperability with the back-ends with all of the panels is a lot stronger with us. And then the other thing is we're actually starting to OEM our readers. And two out of the top three non-harsh access control companies will be OEM in our readers. One already is. Another, it will be bringing them on and a couple of months. And so we'll be selling readers through three out of the top four access control companies. And obviously, the most competitive reader to the biggest provider out there right now.

Will you talk a little bit more about that in the future and future calls on what kind of traction you're getting specifically in that access control area, because I don't believe you've historically talked about that?

Yes, we've talked about it, but less so. But yes, we certainly will keep updating. And as you heard in this update, we focused on it a little more. We want to keep our focus on RFID and the growth driver there. But there's really interesting stuff going on in the physical security side, on our product side, and on the -- the market is really very receptive to exactly the way we're positioned. So we'll keep updating.

And this access control offering here with the card readers, that's growing what kind of percent, 20%, 30%, 40%? It sounds like it's going from a small base to significant or at least a dramatic increase.

Yes, we've actually always had a good position in readers, and the -- but I think you'll see growth across the product line because that's what we're seeing. So we now are the only company that has readers, access, video, and credentials all across, and you can buy the whole thing from one vendor, but they're also interoperable, so you're not tied in. And that, we're finding is a very effective selling value preposition. I mentioned in the comments that we're going to have a couple of lighthouse accounts, some major airports and some others that we'll be reporting on and I'm sure will let us be doing case studies on it. And in those cases, it'll be the whole platform that I'm talking about and the integrated capability and a step-up in level of security, as well as very cost-effective. So we'll have a lot to say about that.

Great. Thank you.

Thanks Brian.

Okay. Next we have Craig Ellis with B. Riley. Craig, your line is live.

Yes, thanks for taking the question and congratulations on that nice execution and appreciate some of the additional information that you provided, especially around those customer confirmed orders. I wanted to start by just inquiring about one of the projects that you mentioned, the mobile customer 10 million unit project. Can you provide some further color on what's different about that project versus some of the others? And is there other activity at that customer that is possible beyond this incremental one that you're working on?

So I'll touch on it and then I'll turn it over to Manfred to comment as well. And so this is design number nine I think for this customer, and Manfred can correct me. And so what I was just highlighting was a new design and the ramp up of that and that the projections look more than we expected, while I think several of the other designs are still running as well. So we expect to continue to do more designs and more growth. And it seems like the devices these are going into our getting pretty good traction. So it's -- it seemed like it was worth highlighting and particularly that second and third quarter, you tend to see seasonal growth cycles with them as well and this are particularly strong ones. So that was the context there. Manfred, do you want to add some commentary on there?

Yes, it's basically two-folds Craig. First is the continuation of the relationship with the fourth program that we are ramping right now. And again, as Steve rightfully a stated, we're hitting 10 designs very soon with them. And then with some of the, let's say previous ones which typically has a lifetime of like two to three years still in production. We are basically adding all the new ones on top. So it's a very, very nice run rate growing at steady-state.

That's really helpful guys. The next question I have is for Justin, so I wanted to come back to gross margin, maybe push on it a little bit so great to see the strong progress quarter-on-quarter. And I think equally impressive with the result was the details, Steve, that you provided and Justin you provided around the various initiatives that are driving gross merchant improvement. So the question really relates to that with the company having a number of different levers and with it so focused on gross margin expansion. Why would gross margin speak flat sequentially? From here why wouldn't the initiatives that the company's working on, result in rising gross margin through the year?

I think if you're looking at premises in Q1 as a percentage of total revenue, it came in around 42% of total revenues. We expect that will go to its more historic levels of the 39%, 38% and it has this overall higher margin associated with it. So as we start to balance that out, as Identity takes off, as we expect it to being in a lower-margin, we're saying overall total company margins are going to be relatively stable and flat. So hopefully that gives you the color you need.

Got it. And I did notice the premises was entered a very strong 57%. So good for the team on that front. The second question that I had that's more -- the middle of the income statement may still be with you. There may be and mare PC or but the increase in operating expense quarter-on-quarter. Can you just help us with the degree to which -- and this is excluding the charge in the prior quarter, but organically, how much of the increase would've been increased sales for some of the global opportunity pursuit that's underway, versus things like fica or typical annual comp increases, et cetera. And what we've asking out with OPEX as we go through the rest of the year, flattish from here or would there be upward pressure in any area?

So the vast majority of it is in sales, SAEs, sales engineers that categories you would expect. And do we do that hiring in the fourth quarter of last year? So you would expect that tend to be normalized through the year. And so there will still be a little trending up as you go quarter-to-quarter-to-quarter, as we continue to add in some of your customer-facing areas. But at a, percentage-wise, lower rate. I think that's the right way to say it. And talking about numbers, I should be turning it over to Justin to coming on that to please clarify any I got. Yeah.

I think, in Q1, if we're talking about Q4 to Q1, Steve really hit on it. It's a full quarter impact of Q4 hires. We did have a few Q1 hires as well. That will be reflected in it as a full quarter impact in Q2, particularly in R&D and SG&A. Travel is up, so COVID restrictions are coming down. So just looking in line by line and some of our APEX. We're seeing an increase in travel and we're getting back on to the trades upfront and seeing some pressure on APEX as the latter area as well. And we expect that to [indiscernible]

Sure. Got it. And then if I could -- Steve, you did a great job going into detail on the opportunity that you have in Canada, both in talking about all the different ways that you're engaging both in the U.S. and in Canada and really scoping that opportunity. My question is this, as you're engaged with U.S. entities and in Canada, does it look to you like RFID is going to be the only way they implement their tracking and some of their assurance and security and control, or would there be other technologies that they're also looking at from which RFID would have some than remaining percentage of solution?

Yeah, let me turn that over to Amir because he's been working the closest with them, so might as well get it straight from him since he's on the phone.

Sure. The indication and trends are really that they're all-in on RFID. And the reason why is the existing legacy technologies with bar codes, they require line of sight. And what they've seen is its volume ramps, and as they start to burden the supply chain more and more, these readers that they have in place right now, they have to require that each package or each vial as they go through the supply chain, they're basically positioned right so they're reading the bar codes in a proper format. With RFID, they eliminate all of that because it doesn't require line of sight, and even if it's embedded, no matter what positioning the package [indiscernible] they'll be able to have that traceability behind it. And then, they're also getting the second half of the value, which is really the consumer side of it, with the authentication, knowing who the consumer is, and all of the post-purchase benefits of it. So the indication is that really that they're all in our RFID and it really touches on both sides, supply chain and the consumer side.

Got it. Thanks, team.

Thanks, Craig.

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 call back over to Mr. Humphreys for his closing remarks.

Alright. Thanks, Operator. And thank you all for joining us this evening. To keep connected with our progress, we've actually got several events coming up in the next couple of months. Well of course be a major presence at RFID journal live in Las Vegas in a couple of weeks. And anyone who can make it out there really is a good way to get it since the industry and how it's moving it also our position in the industry. Also among an investor events will be at the B. Riley conference on May 25th in LA. The Craig Hallum Institutional Investor Conference is June 1st, which is virtual. And then that's difficult cross the sector insight conference on June 7th, is in Boston. So we are trying to get our business opportunity message out there fairly proactively. And we will also probably do some other investor outreach and events and we'll certainly keep you posted as we implement those. And of course, please reach out to the Investor Relations or Justin if you have any other questions. Thanks everybody for joining us and have a good evening.

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