Good afternoon. Welcome to Identiv's presentation of its Third Quarter 2024 Earnings Call. My name is Tom, and I will be your operator this afternoon. Joining us for today's presentation are the company's CEO, Kirsten Newquist; CFO, Justin Scarpulla, and Board Chairman, James Ousley. 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 financial measures or guidance, including non-GAAP 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 opportunities 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 as well as our third quarter 10-Q once filed. Identiv assumes no obligation to update these forward-looking statements. I will now turn the call over to CEO, Kirsten Newquist, for her comments. Ms. Newquist, please proceed.

Thanks, operator, and thank you all for joining our earnings call, my first as CEO of Identiv. On September 6, we completed the sale of our Physical Security business to Vitaprotech. Identiv has now transitioned to focus solely on building our IoT business and developing and supplying specialty RFID and Bluetooth low energy solutions to our customers. The transaction net proceeds are anticipated to be approximately $135 million after taxes, transaction costs and other onetime costs. The proceeds significantly strengthened the company's financial position and also allow us to fund future organic and M&A-driven growth of our specialty IoT business. With the closing of the transaction, we made significant progress on the development of our strategic growth plan in the third quarter. We have finalized our strategy and go-to-market plan while we continue to focus on strengthening our relationships with our channel customers and partners in the core business. After I discuss our third quarter results, I will be introducing our strategic framework and the key focus areas for driving long-term growth. Turning to our third quarter results. Our quarter three net revenue was $6.5 million, slightly above our previously announced guidance. Pressure on gross margins remained due to the dual manufacturing overhead costs that we are carrying during the transition from Singapore to Thailand. As previously discussed, the transition of RFID and BLE production from Singapore to our state-of-the-art facility in Thailand remains a key near-term priority. Our highly experienced operations team is making great progress towards this objective as we continue to move machines and add headcount in Thailand. We expect nearly 3/4 of our current volume will be transitioned to Thailand by year-end. For three of our customers, we expect production will continue in Singapore into the first half of 2025 as additional time is needed for…

Thanks, Kirsten. As Kirsten mentioned, the third quarter of 2024 was pivotal for Identiv. We were able to complete the sale of our Physical Security business, providing significant working capital. This is key as it allows management to focus solely on building our IoT business. Concurrently, in Q3, we were able to make significant progress towards our strategic growth plan and the transition of production from Singapore to Thailand. Third quarter 2024 revenue was $6.5 million, $0.4 million above the upper range of our guidance and a decrease of $5.2 million compared to the prior year period. The decrease in GAAP revenue year-over-year was primarily the result of lower sales of BLE transponder and mobile products. Third quarter GAAP and non-GAAP gross margin in Q3 2024 was 3.6% and 9.3%, respectively, compared to GAAP and non-GAAP gross margin of 11.2% and 14%, respectively, in Q3 2023. The decrease in gross profit margins was primarily attributable to lower sales, as previously discussed, which resulted in the underutilization of our production facilities in Southeast Asia. As Kirsten also mentioned, by focusing our growth efforts on higher-margin opportunities in health care and other high-value segments, we believe we can achieve a long-term 35% non-GAAP gross margin. GAAP and non-GAAP operating expenses for the third quarter of 2024, including research and development, sales and marketing and general and administrative costs totaled $9.8 million and $5.1 million, respectively, as compared to $4.6 million and $4.1 million, respectively, in Q3 2023. Third quarter GAAP operating expenses included $3.6 million in strategic transaction-related costs and $1.1 million in stock-based compensation. Third quarter GAAP net loss from continuing operations was $9.3 million or $0.40 per basic and diluted share compared to GAAP net loss from continuing operations of $3.7 million or $0.17 per basic and diluted share in…

Thanks, Justin. So with that financial context, I'd like to dive into our new growth strategy and why we believe Identiv is uniquely positioned to execute this strategy. Underpinning our strategy are several strong macro trends that are driving demand for RFID and next-generation technologies like BLE. These include digitization and IoT expansion enhanced security and anticounterfeiting, regulatory compliance and safety and sustainability in the circular economy. The digital identification of products for RFID and BLE helps link physical assets with digital systems, which provides users with compelling benefits such as real-time tracking and visibility, enhanced product security and authentication and engaging customer experiences. Furthermore, the data generated by RFID is being integrated into advanced analytics and artificial intelligence models, which enabled improved decision-making across industries, increasing RFID's value proposition. As the number of RFID enabled applications multiples, these emerging use cases often demand new and more complex solutions to ensure their success and ultimately strong market adoption. We believe Identiv is uniquely positioned to support these types of complex requirements with our industry-leading innovation in highly engineered inmate design, rapid prototyping capabilities, and strong multicomponent engineering and manufacturing capabilities. To allow us to fully capitalize on the opportunities across multiple verticals, we will deploy our new, Perform, Accelerate and Transform growth strategy to drive revenue and EBITDA expansion. Perform, Accelerate and Transform is a framework that we will implement beginning in quarter 1, 2025, to strengthen and optimize the performance of our core channel business, accelerate our growth and ultimately transform the business. First, Perform is focused on strengthening, optimizing and growing our core channel business. The objective of Perform is to grow our market share and increase our profitability in the channel. We will focus on higher-margin opportunities with our existing customers and channel partners, expand gross margins…

Thank you, Kirsten. Given the significant transformation underway at Identiv, the Board of Directors have decided this was the appropriate time to review our corporate governance policy to better align with the company's new strategic direction and the interest of our shareholders. Pending final approval, the Board intends to recommend the following updates to Identiv's corporate governance policies and procedures: First, solicit stockholder approval at the 2025 Annual Meeting to eliminate our classified Board structure. Secondly, in uncontested elections, the Board would consider the resignation of any director who does not receive a majority vote. And third, amend our equity compensation plan to eliminate the ability to reprice options without prior stockholder approval. We are taking two additional important actions. We are actively recruiting Board of Director candidates with deep additive expertise that will be valuable in guiding us through this transition. And lastly, the Board of Directors has approved a share repurchase program, authorizing the company to purchase up to $10 million of its common stock. This strategic move reflects the Board's confidence in the new growth strategy, the strong conviction that Identiv's current share price is undervalued relative to its long-term opportunity. We think these corporate governance changes are in the best interest of Identiv and our stockholders. We look forward to providing you in much more detail in the future. I will now turn it back to Kirsten. Thank you.

Thanks, Jim. In conclusion, we have been and continue to see strong macro trends that are driving robust demand for RFID and next-generation technologies. This demand provides Identiv the tailwinds to grow and reach profitability. Identiv's long track record of innovation is widely recognized. We have the right capabilities in RFID-related technology required for emerging applications across several high-value verticals, and we now have ample financial resources that we believe will allow us to execute our Perform, Accelerate and Transform strategy and drive meaningful returns and shareholder value. The leadership team has taken significant steps towards transforming Identiv, and we believe the company is well positioned to capitalize on the exciting opportunities ahead. With that, I'd like to open the call for your questions. Operator, please open the question queue.

[Operator Instructions]

Thanks, operator, and thank you all again for joining us today. We appreciate the continued support of our employees, partners and shareholders. In the coming months, we'll be prioritizing investor outreach, meeting with existing and prospective investors present our new growth strategy and capital allocation plan and objectives. For today's Q&A, in addition to Justin and me, we have our Chairman of the Board, Jim Ousley, Amir Khoshniyati and Manfred Mueller. So operator, let's please proceed with questions.

The first question comes from Craig Ellis with B. Riley Securities.

This is Stacy Che on for Craig. Kirsten, congratulations on the great first quarter without the Premises business. And I just had a quick question about how do you think about when we think about the near-term confidence in attaining the 27% plus or 25% plus non-GAAP gross margin in mid-2025 if that timeline has changed since the last time.

Yes. No. So as I mentioned, we're making great progress with the transition of our production from Singapore to Thailand. The team is working really hard. Our customers are partnering with us to make sure that we can qualify the new site and get their production moved. So it's going very smoothly. So as I said, we anticipate about 75% to be transitioned by the end of this year. We have a couple of remaining customers that will go into the first half of next year. So we're feeling very confident that we'll be all the way through the transition for sure, by the end of 2025. Now of course, we need to give our team there a little bit of time to get up to speed to learn all the ins and outs of the production. But as soon as they've reached their full productivity, we feel confident in the 26% to 28% non-GAAP gross margin range.

Got it. And if I can have a follow-up question on maybe the cash burn intensity that we discussed before. When we think about the trajectory of the fiscal 1 year of $15 million or the following year, $25 million, is that still within our plan and how do we think about that when we trying to discuss the pass-through profitability for the company?

This is Justin. Happy to answer the question. Can you rephrase what you meant when you said $25 million. I wasn't following that. We did put out -- just to answer your quick question, I think that we did put out $14 million to $16 million over the next 12 months. We feel pretty strongly that, that is a good number and similar to what we had said last quarter as well. So we're confident in the $14 million, $16 million for the next 12 months, but I wasn't sure what you meant by the $25 million that you referenced.

Yes. It's just the following year if that's within the range that you're thinking about the $25 million.

Well, we don't give guidance post -- we wouldn't give cash burn guidance path for the next four quarters. But no, it would not be $25 million than the following year. So I think that is too high.

Got it. Yes. Okay. And if I can just squeeze in one more. And so we -- thank you for breaking down the capital allocation, it's very helpful. When we think about during the M&A, is there a potential acquisition timing that you think could help you get to the $65 million in revenue?

Yes. I mean we are actively looking at potential acquisition targets now. And obviously, that is 1 of our 3 strategic pillars. And definitely, we're doing that assessment now. So it is a priority. We don't have any specific timing or timeline in place at this point, but it is something that we are actively looking at.

[Operator Instructions] We have a follow-up coming from Craig Ellis with B. Riley.

Sorry, I guess I just have one more. So can you talk about the -- any potential large pharmaceutical companies penetration within the medical and given the strong relationship that Identiv has had previously and given Kirsten's strong background coming from the area.

Yes. So certainly, Pharmaceutical is definitely an interesting area for us. We have active NPD projects underway. They're still in the NPD process, so new product development process, and we're working collaboratively to come up with solutions. We also -- this is an area that is an area of focus for us as we are building our new business development and marketing development team. So it's definitely an area that we're going to also look for additional opportunities. So definitely a strong area of interest, and we have a decent amount of activity underway working on projects to support that area.

Okay. I'd now like to turn the floor back to management for any closing remarks.

Well, thank you again for joining us. We really do appreciate it. As I mentioned before, we will be prioritizing investor outreach, and we have coming up the Craig-Hallum Alpha Select Conference in New York in November, we'll be at the Imperial Capital Security Investor Conference in December. And we're definitely looking forward to speaking and meeting many of our investors in the coming months. Thank you all very much.

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