Good afternoon. Welcome to Identiv’s presentation of its First Quarter Fiscal 2023 Earnings Call. My name is Holly, and I’ll be your operator this afternoon. Joining us for today’s presentation are the company’s CEO, Steve Humphreys; and CFO, Justin Scarpulla. Following management’s remarks, we will open up the call for questions. Before we begin, please note that during this call, management may be making references to non-GAAP financial measures or guidance, including adjusted EBITDA, non-GAAP gross margin and non-GAAP operating expenses. 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 and quarterly report on Form 10-Q. 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. Our first quarter set a solid start to the year with record revenues for the first quarter and strategic progress in both our RFID-enabled IoT business and our physical security business. Our focus for 2023 is delivering disciplined growth, while strengthening our strategic position in both of these businesses and protecting our balance sheet, so we can continue to support our growth. With an improving supply chain and our established reputation as the go-to company for advanced RFID-based IoT applications, especially in medical and specialty packaging, Q1 put us on track for 2023. In our physical security business, our Premises segment, our focus is expanding our share of wallet with our comprehensive security platform across video, access control, analytics credentials and readers. We had wins in Q1 in key verticals across schools, state and local governments, enterprises and airports, as well as in the federal government. In our IoT segment, we shipped nearly 43 million units, and non-recurring engineering projects continued strong at 54% with more than half of these projects in our key medical, health care and pharma vertical. In Q1, we delivered 10 million units of Wiliot IoT Pixels, up from the 1 million we delivered in Q4. We expect to deliver the balance of 14 million units in Q2, and we’ve now received the first follow-on order from Wiliot of a similar magnitude for delivery starting right after the first 25 million unit order is completed. Now, we’ll talk about the implications for 2023. But as you can tell from the sequential progression of one, then 10, then more than 14 million units across Q4, one and two, it’s on track to be an industry-transforming application. We also delivered 4.8 million units to healthcare-related customers, and our five…

Thanks, Steve. As Steve mentioned, in Q1 2023, we delivered record revenue for our fiscal first quarter, while maintaining year-over-year gross margins. We believe these results, paired with our focus on expanding our share of wallet across both the Premises and Identity businesses, position the company to continue to grow in 2023. First quarter 2023 revenue was $26 million, slightly above consensus estimates and was up 4% versus the comparable prior year period. First quarter 2023 GAAP and non-GAAP adjusted gross profit margin was 35.4% and 37.1% compared to 35.8% and 37.1% in the first quarter 2022. GAAP and non-GAAP adjusted gross profit margin reflects our continued focus on our margin profile in 2023, while continuing to increase our investments in technology and manufacturing processes and equipment, maintaining a non-GAAP adjusted gross profit margin above 37% in the first quarter, which is typically our seasonally lowest quarter is in line with our expectations. We remain committed to a long-term non-GAAP adjusted gross margin target of 40% to 45%. In the first quarter of 2023, our GAAP operating expenses, including research and development, sales and marketing and general and administrative costs were $11.9 million compared to $10 million in the first quarter of 2022. In the first quarter of 2023, non-GAAP adjusted operating expenses were $10.6 million compared to $9 million in the first quarter of 2022. The increase in operating expenses year-over-year is primarily related to our strategic headcount additions and investments made in 2022. We believe our current quarterly operating expense level of $10.6 million reflects these investments, which will allow us to meet our 2023 goals, and we do not expect the remaining three quarters to vary significantly from this amount. Non-GAAP adjusted EBITDA was a loss of $0.9 million in Q1 2023 as compared to EBITDA of…

Thanks, Justin. In 2023, we’re getting the benefits from the work we put in internally during 2022. Despite customer delays, supply shortages, tight capacity and economic worries in 2022, we kept building the foundation of our businesses to win strategically. In IoT, we built out our technical sales, project engineering and production infrastructure. In Q1, that groundwork continued to pay off. Our IoT business delivered on our operational plan so we could focus on building the pipeline for the next four quarters. We kept serving our core mobility, medical and specialty retail customers and expanded our strategic relationship with Wiliot. We deployed our Bitse.io SaaS platform and built out our full range of standardized NFC and ruggedized UHF products. We now have the foundation built, and we’ve established our reputation as the go-to company for specialty applications. In physical security, our complete platform is showing its competitive advantage. Through 2022, we kept building out product engineering, sales and sales engineering, tech support, training, systems and more. It’s everything that we needed to be the best-in-class enterprise scale physical security company that we believe we are now. For 2023, our focus continues to be expanding our competitive advantage in our businesses. Both IoT and physical security are universal and widespread markets, critical solutions for our customers and with the potential to grow substantially. We have to do this within our resources, protecting our balance sheet and working capital while driving growth to take advantage of our market opportunities. We’re working down the strategic inventory position we built last year to manage supply shortages. We’re streamlining product lines and tightening expenses, which will build our cash and working capital strength over the next few quarters. We’re being careful to support every aspect of our competitive strength, while managing our working capital health.…

Certainly. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Your first question for today is coming from Craig Ellis at B. Riley Securities.

This is Ethan Widell calling in for Craig Ellis. Thanks for taking my question. And I only have one. Regarding your reiterated fiscal 2023 guidance, I was wondering if there were any meaningful changes to the macro environment that you’re seeing that add colors to that picture and specifically what you’re seeing in supply conditions?

Sure. I think we all know the ups and downs going on in the economy, but we actually are seeing very solid demand, particularly in our physical security side. And because of the long lead times in RFID and the use cases that don’t tend to be swung by economic trends, we’re seeing stability on all sides. So, some of our competitors are exposed to the retail market, for example, which has some headwinds going in, that’s not a strong market segment for us on purpose strategically. So we don’t see exposure to that. So we’re feeling pretty comfortable about the macroeconomic environment. And can you remind me of the second part of your question?

Yes. Second part was regarding supply conditions.

Yes, which we tried to address on the call. It’s actually improved quite a bit and, frankly, faster than we expected, both in terms of supply. And as you often see in the semiconductor patch, it goes from famine to feast. So, prices are dropping as well as supply being freed up. There’s still a couple of sectors, a couple of categories of chips affecting maybe 10% of our revenues that are still having some tightness to it. But even those, we think, over the course of in this quarter should be fully cleared up and flipping already the other way to be advantageous in terms of price and availability.

Got it. Thank you.

Thank you.

[Operator Instructions] Your next question for today is coming from Brian Ruttenbur at Imperial Capital.

Yes. Thank you very much. Looking forward to the next quarter, maybe we can talk a little bit about Premises. You saw 8% growth in the first quarter year-over-year, I believe. Do you expect to see similar kind of quarterly growth on a year-over-year basis? Will it go back into the teens? Can you give us any kind of color for the next quarter?

Right. And I’m sure Justin will remind me, we don’t do quarterly guidance, so I’ll be a little careful about that. But just for the year overall, we did – I just said a few minutes ago that first quarter is always our seasonally lowest one. And so, we do expect sequential strengthening over the course of the year. And second quarter is generally progressed over the first. Third is always strong because of the federal government, I shouldn’t say always, but it historically has been strong because of the federal government, and we think that’s going to continue, plus the penetration we’re having with that full solution ecosystem I talked about. And that’s just building over the course of the quarter since we launched it. So I think that there’s going to be sequential growth both in an absolute sense and on a year-over-year sense as we go through the year.

Okay. And then in terms of your debt, can you – was it just a line of credit that you took out? Can you talk a little bit about that? I believe that happened in the first quarter?

Yes. It’s a revolver. So we only need to use it as that’s something we’ll take up and down as needed for working capital.

Okay. And do you anticipate having to take that up in the second quarter or just keeping where it is?

We’re anticipating – I mean, we don’t give quarterly again, but I would say, we would definitely not be above that $10 million we took out in Q1, would probably be lower than that exit in Q2.

Great. Thank you very much.

Of course.

[Operator Instructions] We have reached the end of the question-and-answer session, and I will now turn the call over to Steve Humphreys for closing remarks.

Okay. Thanks, operator, and thank you all again for joining us today. As you can tell from the comments here, we’re very excited about the markets we’re helping to build and especially the outlook for 2023, we really are focusing on driving our business forward and making sure that all parts of the business have the resources they need. I mentioned the strategic review that we’re doing on the business overall that our Board has initiated to make sure that we are creating all the value we can in the businesses that we’re driving forward. For any of you that are looking for more insights into our IoT business, we’ll be pretty prominent at the RFID Journal LIVE in Orlando next week. And for investor-specific events, we’ll be holding a virtual fireside chat session with Lake Street on May 18. We’ll be at B. Riley conference in LA on May 24, the Craig-Hallum Conference in Minneapolis on May 31. And we’re setting up a couple of other virtual and in-person investor sessions over the next several weeks. So we certainly look forward to keeping you all updated as we build our business and go forward through 2023 and beyond. Thanks, again, and have a very good evening.

This concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.