Good afternoon. Welcome to Identiv's presentation of its Fourth Quarter and Fiscal Year 2024 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, Kirsten Newquist; 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 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, strategies, opportunities and goals 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 quarter four and fiscal year 2024 earnings call. Quarter four marked our first full quarter following the sale of our physical security business. allowing us to focus on becoming a leading pure-play provider of specialty RFID and Bluetooth Low Energy, BLE solutions. The proceeds from the sale significantly strengthened our financial position and enable us to fund future organic and M&A-driven growth of our specialty IoT Solutions business. During our last earnings call, we unveiled our perform, accelerate, transform growth strategy and go-to-market plan, and I'm happy to share that we have fully shifted into execution mode. We have made progress building our team, moving several key initiatives forward and ensuring we have plans in place to drive operational excellence. As we've discussed, the objective of the PAT framework is to strengthen and optimize the performance of our core channel business, accelerate our growth through focused key initiatives and ultimately transform the business into a market leader in specialty IoT solutions. To drive the commercial aspects of the plan, we are excited to have accomplished business leader, Kim Macaulay, joined Identiv as the new head of our commercial organization. Kim will be integral to driving sales expansion in our core channel business within the perform pillar and leading our business development initiatives in the accelerate pillar. She has over 30 years of experience developing and implementing successful go-to-market strategies, as well as creating and managing high-performing sales teams. Kim knows how to successfully scale a growth business, having previously managed commercial sales of $650 million at Avery Dennison including supporting the launch of RFID. Her initial focus will be on strengthening the sales organization and implementing the tools needed to streamline communication and proactively manage our sales pipeline positioning us to…

Thanks, Kirsten. As Kirsten mentioned, 2024 was transformative for Identiv. Now a pure-play RFID company focused solely on IoT solutions, we've begun to execute our PAT strategic growth plan and are making good progress transitioning inlay production from Singapore to Thailand. Fourth quarter 2024 revenue was $6.7 million, exceeding the midpoint of our previously announced outlook by approximately $600,000. Q4 outperformance versus this revenue guidance was primarily due to one of our customers accelerating their delivery schedule from Q1 of 2025 to Q4 as a precaution ahead of transferring their production to Thailand. Although we do not anticipate any delays with our Thailand transition, this customer wanted to ensure that they had enough inventory on hand to mitigate any scale-up risk in Thailand. Fourth quarter GAAP and non-GAAP gross margin was negative 14.9% and negative 5.2%, respectively, compared to GAAP and non-GAAP positive gross margin of 16.2% and 19.5%, respectively, in Q4 2023. Factors impacting the decrease in gross margin included decreased utilization, the ramp-up of our Thailand facility ahead of the transition out of Singapore and the customer that phased out their legacy program earlier than expected. The customer program resulted in a noncash inventory adjustment of $0.8 million and an additional $0.2 million attributable to the disposal of specific manufacturing equipment that cannot be repurposed for other customer orders. As we have previously communicated, completing the transition of RFID and BLE production from Singapore to Thailand remains a key priority for 2025. We have transitioned the vast majority of the customers and are making good progress on qualifying the last three customers to be transferred to Thailand. After multiple discussions with a low-margin legacy customer, we determined that continuing to support their business in Thailand is not aligned with our PAT growth strategy. By focusing our commercial and…

Thanks, Justin. So with that financial context, I'd like to provide an update on the progress we are making under our Perform, Accelerate and Transform strategic framework. Our PAT framework is anchored in several strong macro trends driving demand for digital identification, including RFID and next-generation technologies like BLE. Key drivers include the expansion of digitization and IoT, heightened security and anticounterfeiting measures, regulatory compliance and safety requirements, and the increasing focus on sustainability in the circular economy. RFID and BLE inlays provide for the digital identification of products enabling physical assets to seamlessly link with the cloud and other digital solutions. This connectivity delivers compelling benefits such as real-time tracking and visibility, enhanced product security and authentication, condition monitoring and compliance and more engaging customer experiences. Additionally, the data generated by RFID and BLE-enabled devices can feed into advanced machine learning and AI models, improving operational efficiency and decision-making in nearly every industry. Further strengthening RFID's value proposition. As the adoption of RFID-based solutions accelerates, new applications often require more advanced and complex solutions to ensure successful implementation and widespread market adoption. Identiv's engineering excellence, rapid prototyping capabilities, and agile manufacturing processes strengthened its position as a preferred partner to support these types of complex requirements. By executing our PAT strategic framework across several key verticals, we aim to drive revenue growth and expand gross margins and EBITDA. I'll now provide a brief overview of the three pillars of the PAT framework, highlight the work underway and then introduce how we plan to measure our progress moving forward. First is perform, which is focused on strengthening and growing our core channel business. To achieve this, we are prioritizing higher margin opportunities with existing customers and channel partners, expanding gross margins by completing the transition to Thailand and focusing on…

[Operator Instructions] The first question comes from Anthony Stoss with Craig-Hallum. Please proceed.

Thanks Kirsten, Justin and Sophie. Great detail on the prepared remarks. I liked it a lot. A question for you related to Novanta. Maybe can you expand a little bit on when you think you'll have your first revenues through that partnership. And maybe a broader question. When you look at these partnerships, is there a gross margin target range that you have in mind? Or is it more focused on revenue for scale? I just love to hear that, then I had a couple of follow-ups.

Yes, yes. So first of all, our partnership with Novanta is really a technology and business development partnership. So they have a piece of the technology that's required to incorporate smart technology into medical devices, and we have another part. So we're combining together to bundle our technology and then go out and sell that to medical device OEMs and diagnostic test equipment OEMs to really streamline the process for incorporating this into their products. So there's not necessarily a revenue associated with Novanta, but it's a really great complementary partnership of our technology that allows us -- and they are pretty much solely focused on the health care medical device market. So really leveraging their channel access as well to go sell this smart technology to their customers and our broad-based customers as well. But as we do look at to answer kind of the second part of your question, we're also putting partnerships in place, commercial partnerships in place as well. And certainly, as we put commercial partnerships in place to go sell our products there definitely are revenue targets in place as well as gross margin targets in place. And for medical, in particular, it's at the higher end of our margin expectation given the more complexity typically, that goes along with health care.

Got it. And then second follow-up would be related to your comments on the grocery store or device opportunity. When do you think that will impact? And then maybe if you wouldn't mind sharing or some kind of color related to the ASP. Is it above your normal corporate range ASP? Or what do you think the impacts will be from that device when it's launched?

Yes. So we're really excited about that potential opportunity. So it is a BLE device. It's definitely a higher price point than our typical average portfolio product. We are working very hard to get the device designed in partnership with our customers. They're eager, as soon as we can get this developed and get it scaled up, they have, as we had mentioned, hundreds of millions of these plastic pallets that they would like to ultimately incorporate a BLE device into. So they're eager to get going. So it's really about the development of the product. It is an iterative product. It's a very harsh environment that these inlays will be incorporated into. So it's taking -- it takes a lot of work to get the right device design that can withstand the environmental conditions that it's in and has the performance that's required. And then of course, there's the scale if that's required. But our hope is towards the end of this year or early next year that we get some early volumes launched there.

Got it. And then also, sorry for all the questions, but following up on that, are they using a different competitor's device now? Or is this greenfield where they've never done anything on the temperature side.

This is relatively greenfield, they've used other types of technology, but not BLE technology. So relatively for this solution, and this is the BLE device that we're designing is a really good fit for this application. So new for this particular type of technology.

Okay. Got it. And then one for Justin, or a 2-parter. Just to confirm, you expect your December quarter 2025 gross margins to be in the range of 26% to 28%. If not the full year would amount to that? And then what do you -- any thoughts on just OpEx going forward? Is it going to be kind of flat from where you're at in the December quarter? Any thoughts would be helpful.

Sure. That is a Q4 margin estimate. We don't formally put it out as a target. It's a target at this point versus guidance. But yes, that's our Q4 target 2025 margin. And then on the OpEx, are you talking GAAP, non-GAAP, both?

Yes, non-GAAP or just if you think it's going to be kind of flattish with what you put up in Q4.

Yes, I think it will go up a little bit. We'll have our normal merit increases here in April for the employees that are -- that have been with us for a year. So there'll be some slight uptick in 2025 from 2024. And also, I think as Kirsten's mentioned, we have brought in a number of key hires in December and January and March within R&D, various strategic sales, biz dev and some R&D. Not a big jump, but a little bit of a jump for 2025.

The next question is from Jaeson Schmidt with Lake Street. Jason, please proceed.

Yeah, thanks for taking my questions. Just want to start with that pull-in order. Can you quantify how big that was in Q4?

We don't give that level of granularity, but I did indicate that it's largely responsible for the uptick versus consensus that we had given. Does that make sense, Jaeson? Hopefully that helps. So we beat by about $600,000 and it was largely due to that customer pull in. And then I think publicly, we have guided Q1 to last quarter, we -- not guided. We don't guide ahead, sorry. But the consensus for Q1 was around $5.3 million. And then the guide we gave for Q1 is in the $4.8 million to $5.1 million range. So hopefully you can triangulate between those two.

Okay. No, that's helpful. And then thinking about gross margin, I mean, obviously, you noted sort of that kind of mid- to high 20% in Q4. But thinking about the three customers that still need to transition, how should we think about cadence of gross margin throughout the year?

Yes. I think I've taken a look at the -- we don't typically give too much guidance past one quarter, especially with revenue, that's our formal guide. I have looked at consensus and what the consensus looks like on margin. And I think it's -- we're directionally in the ballpark there.

Got you. And then the last one from me, and I'll jump back into queue. I know this upcoming call, you'll be providing some more metrics on kind of the pipeline, et cetera. But I think just at a high level, just given what you currently have and the traction you're seeing with some of these new engagements, do you expect 2025 to be a growth year?

I don't think we can guide too much on that, but I will say we're excited about the projects that are coming our way. They largely will take some development in 2025, but we expect more of the growth associated with them towards 2026.

[Operator Instructions] The next question comes from Craig Ellis with B. Riley. Please proceed.

Hi guys, this is Stacy Che on for Craig Ellis. Thank you so much, Kirsten and Justin, for such a detailed level of breakdown. It's very great to see so much progress that you've made -- and can I just get some more detail maybe on if we still see like an EBITDA breakeven like in the next two years, and whether there's like a potential tariff risk or if there's any headwind that's coming in future quarters?

Sure. I think we have not given an EBITDA breakeven time line formally. So it's -- we wouldn't put out a 2-year EBITDA breakeven. So we'll have to take that as it comes. And then on the tariff side, being in Thailand, and we've checked with a lot of our vendors and material suppliers, and we think we are in a pretty good spot as far as it goes for tariffs.

Got it. Got it. And as a follow-up, so you mentioned about the three customers that have been transferred from Singapore to Thailand, successfully. Do we expect them to be starting in bringing on revenue starting this quarter? And if they are -- are they on the lower margin side, I believe that's what you said?

I can -- a couple of clarifications there. The revenue for these customers that are transitioning in Thailand is -- it hasn't gone away. So the revenue profile is consistent from 2024 to 2025. It's more just where we are manufacturing that revenue from, whether Singapore, Thailand. So we do anticipate a smooth transition without a disruption into revenue on a quarter-over-quarter basis for any the of the three customers that are transferring over. So really, we're trying to provide color to the team that we are currently in Singapore. We're almost done. Next six months. We expect to get these last 100% manufactured out of Thailand, which will then put us in a beneficial spot for gross margins going forward. But the impact of revenue, there isn't a stop start on revenue from 2024 to 2025.

Yes, yes, I get that. I guess my question is more of -- for the three customers that have been left. Are they on the lower gross margin side comparing to the other customers?

No, they are not.

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

Thanks, operator, and thank you all again for joining us today. We appreciate the continued support of our customers, partners, shareholders and employees. Please reach out to IR if you have any questions. And we will definitely keep you informed of any upcoming IR events. With that, I want to thank you again for joining us, and have a good afternoon and evening.

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