Identiv Inc (INVE) 2014 Q3 法說會逐字稿

Hello and welcome to the Q3 2014 Identiv earnings conference call. My name is Myesia. I will be your operator for today's call. With me on today's -- on the call today are Jason Hart, CEO of Identiv; and Brian Nelson, CFO.

In a moment, we would hear remarks from both of them. And then we will take questions from sell-side analysts and registered investors.

Before we begin, please note that during this call, we will also be making reference to non-GAAP results or projections, including non-GAAP gross margins, operating expenses, and adjusted EBITDA. A complete reconciliation between each of these non-GAAP measures and the most directly comparable GAAP financial measures is included in today's press release, which is available on the website, www.identiv.com.

In addition, during our call today, we will be making forward-looking statements. Any statement that refers to expectations, projections, or other characteristics of future events, including financial projections and future market conditions, 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 the documents filed from time to time with the SEC, including the annual report on Form 10-K for fiscal year 2013 and our subsequent quarterly report on Form 10-Q. Identiv assumes no obligation to update these forward-looking statements which speak as of today.

(Operator Instructions) Please know, this conference is being recorded.

Now it is my pleasure to turn the call over to Jason Hart. Mr. Hart, you may begin.

Simplified, now focused, now growing. Thanks, Myesia, I appreciate the comments. I am joined today by telephone in California by Brian Nelson, our CFO, and members of our senior team. Welcome to all.

Q3 has been the turning point for the operations of the business, with the completion of much of the simplification that was started approximately three quarters ago. We have completed the capitalization of the business, bringing stability to the Company, providing confidence with our strategic partners, strengthening our relationships with our financial partners, and deepening our relationship with most of our major customers.

Identiv not just now has the team and the technology, but now also has the fiscal resources to support all of our constituents on their missions well into the future.

I wanted to give a quick recap on some of the restructuring milestones, ones that particularly relate to Q3, but just to give a little bit of a flavor of the change in the business over the last 12 months.

But the majority of this call, you will find the tone is changing with the Company. Rather than spending a lot of time now on what's being done, we feel it's now time to focus on our future and we think we have a platform now to be able to do that.

So the remainder of this call, I will focus on the growth and how we have used many of the simplification tasks to position the Company for both shareholder value creation, but just as importantly, operational efficiency and growing our internal numbers, particularly our revenue and improving our margins.

So to understand the journey, you really have to cast yourselves back to one year ago. One year ago, the business was in a pretty bad shape. It was subject to a NASDAQ delisting notice.

We did not have the cash reserves to meet our obligations to our suppliers. We had a going concern statement. We were fragmented in our approach to the markets.

Today, the business is well capitalized. We've done a extremely good job, I feel, in getting solid capitalization under the business. We have really improved the balance sheet by removing a lot of the poor debt that we had.

We are in good standing with NASDAQ and we are beginning to deliver on some of the early growth that we discussed last quarter, particularly as we have implemented a new sales force, we are focused on some of the new large strategic partners, like Verizon, and we have developed and begun to bring to market new products that address many of the problems that the market is seeing in regular organizations, governments, consumers, and anyone who has been suffering from what's been termed the post-password era.

In particular in Q3, the -- there are a number -- there were many activities that we implemented to deliver on the mission. The first thing we did was we strengthened the sales force. We have changed approximately 30% of the sales organization in a very short period of time. That's a monumental achievement to bring in a new sales force.

We've increased our pipeline substantially. Improved our visibility to our forward numbers. We now have much better metrics on running the business. So when we speak to a lot of our numbers going into 2015, we are doing that now with a lot more confidence over where those deals are coming from. We have seen new products being released, particularly the high-security government products.

Our premises business has lagged over the last number of years. It's a high margin part of our business. We have a large foothold in -- not just the US government, but in many governments around the world, where we are delivering identity products to them as they replace much of their legacy technology that is subject to security issues and they merge that technology with their cloud and information strategies.

Identiv is well positioned there now. So in this quarter, we released a whole range of our new product, and that product is now in certification process for the US government. So we expect to see that have a positive influence, not just on Q4, but going into -- especially going into 2015.

We are formed a group we call Identiv Labs. Now this is significant and I call it out because it's a strong message to our customers and partners that we're focused on investment in our IP and taking many of our inventions to market, hand-in-hand with our customers and partners.

We've seen a large increase in the design and in-design projects for the Internet of Things. Identiv technology is at the foundation of identity for the future of the Internet of Things.

So in creating this group, we have focused our best minds into creating new technology, new inventions, where we have solved some new problems in Q3, particularly in cold chain identity and security -- this is the storage and transport of cold items -- in identity, in power and consumer battery applications, where we've got experimental work going on in that area.

We have seen experimental work going on in the implementation of identity into consumer objects and we now have many different projects working with customers in the field. Some very large names.

We've also begun to invest in Q3 very heavily into mobility. For those of you who haven't been watching the space, mobility, I believe, is the future of where most of our information access is going.

And the Company in the past has been rather shy of its investment in mobility. We have employed new staff, we've brought on some new senior people, we've released some early internal product, and we will continue to focus on delivering identity in mobility. This is tablets, mobile phones, and alike.

The good news is all of the technology that I have just discussed is actually the same technology, just applied in different form factors. So Q3 saw us really step up our R&D and get focused on how do we position the Company with new products for late Q4 and into 2015 and 2016.

The new project management team is really paying off in this area, as we've become more disciplined as a technology company. So we're very pleased with the work that Phil Montgomery and the team have done there.

We have also created a new group in Q3, a new business development group, that is focused on maturing and deepening the relationships with our top four strategic partners, including Verizon. We continue to work to fill out the go-to-market partnerships in the healthcare and premises sectors.

And I will talk more about those two sectors after we come back from Brian and we talk about where we see the market going forward 2015 and how we've taken preemptive steps this year to address that.

We've delivered three new patents and inventions that were granted to our portfolio in Q3, particularly in the -- excuse me, in the IoT and identity spaces. And we continue to invest very heavily in the patents and technology.

Innovation is at the core of the new influx of our business and you'll see more and more from us over the next few quarters. We're not ready to make announcements yet, but we have a lot of good things going on internally.

We launched our new customer outreach programs under our uTrust webinar brand and this is a set of seminars designed to drive more leads and opportunities. While the Company has been going through a very heavy simplification focus, clearly, there was a disconnect between our sales execution and the market at large. Much of our technology is very relevant to the Targets and eBays and other organizations.

We've found that during the last couple of quarters, we really ne to step up the investment in our sales and marketing activities, particularly our marketing activities, and with our training group and with our new marketing group, we were able to deliver a set of webinars and direct outreach.

We created a new global services as a global inside sales organization to better focus on our sales activities. We divided many of our activities up into direct touch partner and, of course, inside sales. And we found that much of our run rate business could be handled more efficiently through an inside sales organization.

We have created a new group and we've done some extensive hiring this area and we've become a lot more efficient. We've seen our pipeline grow. So we're expecting some good things from this new organization -- the new inside sales organization. It will grow to leverage some of our international assets as well.

We implemented a new website, so for those of you who have visited our website lately, you will begin to see many changes. Our marketing team has begun to deliver more simplified short videos on our products, what products meet what needs.

You'll see is continue to further simplify the message as we now focus on the solutions for a number of key market segments and I will come to those market segments a little bit later on.

But I acknowledge, we could do more work. I'm still not satisfied with our web and electronic presence. Although I do hear from many people that they are -- they feel that we are very good with our Twitter and our Facebook activities. We do intend to focus more and more on our end-user customers with our websites.

We began a customer outreach activity and that wasn't just our inside sales team. We conducted a lot more sales training in Q3 and we will continue to do that. And the result of that -- we saw a number of new customer wins.

We're not ready to announce those yet, but for those of you who have contacted me asking me to talk more about our customers, you will be pleased to know that with the strengthened balance sheet, with the stronger market position, we've been able to negotiate with many of our customers -- new customers -- the ability to do some comarketing and do joint press releases.

So you should expect to see more from us in that area as customers sign off on their deployments and sign off on their product deliveries.

So that does take time. But we have been working diligently to be able to provide more news -- not just to the market, but, frankly, to other potential leads and customers as well. So we are working to become more public with our customers when they are ready to be more public.

So all in all, operationally, it was a really good Q3. You will see from the press release that our revenue was up year over year. We had a really good adjusted EBITDA result, showing that the business is capable of delivering EBITDA.

We will invest more in sales and marketing, so we don't expect that this level of EBITDA will continue over the next number of quarters, because we feel that the world has changed on us in the last 12 months and the focus for us now has to be to deliver growth.

So now I'm going to invite Brian to take us through the detailed numbers for the quarter and then I will wrap up with a discussion on investor relations going forward. I know this is an extremely hot topic for everyone, and I want to spend a little bit of time on it. I also want to talk about our growth objectives for the remainder of the year and going into 2015.

So with that, Brian, would you take us through the numbers?

Thank you, Jason. Now turning to our financial results for the third quarter. Revenues in the third quarter were $22.7 million as compared with $20.9 million in the third quarter of 2013, an increase of 9%. This performance also reflects a sequential increase of 2% from the $22.3 million we reported in Q2.

Approximately 56% of our third-quarter revenue, or $12.8 million, was derived from sales in our credentials segment as compared to revenue of $8.6 million in the third quarter of 2013, a 49% year-over-year increase. Our Q3 credential revenues had a sequential decrease of approximately 3% from the $13.2 million revenue achieved in the second quarter of 2014.

Again, as in Q1 and Q2 of this year, the growth year over year is primarily a result of the increased demand for our tags and our inlays to support electronic gaming to transit ticketing and other Internet of Things applications.

Our premises segment provided $4.9 million of revenue in the third quarter, up 7% sequentially from $4.6 million in the second quarter and a decrease of 21%, or $1.3 million, from the $6.2 million in the comparable quarter of 2013. The growth sequentially is primarily a result of our continued investment in sales and marketing efforts in the US federal government sector.

The year-over-year decrease, we believe, is in part due to the federal government's continuing resolution, which was adopted in September 2014, which provides to [agency's] budgetary certainty to the latter portion of 2014. This is in contrast to the government shutdown in 2013, which accelerated government spending in the third quarter.

Revenue from our identity products, which includes smart card readers, reader modules and tokens, and our cloud-based credential provisioning and management services, was $3.8 million in the third quarter of 2014, a decrease of 24% over the third-quarter revenues in 2013 of $5.0 million.

Sequentially, our identity product revenue was the same in the second quarter of 2014. The year-over-year decline reflects the [delay] in a number of government related projects.

Revenue in all -- revenue in our all other segment, which represents sales of our digital media and our CHIPDRIVE products, was $1.2 million in the quarter, an increase of $500,000 sequentially from the last quarter revenues of $0.7 million and an increase of approximately $100,000 from the $1.1 million in the comparable quarter of 2013.

Our non-GAAP gross profit margin was 45% in the third quarter, compared to 49% in the year-ago quarter, and 42% in the second quarter of 2014. The increase sequentially is attributable to our beginning to realize the cost savings and the consolidation of our manufacturing facilities.

The decrease in sales of our higher-margin identity products and the higher concentration of sales of our credential products contribute to the margin decline as compared to the prior year. I will now turn to our operating expenses.

Non-GAAP operating expenses in the third quarter were $9.3 million, or 41% of revenues, as compared with $9.7 million in the prior quarter, or 44% of revenues, and $9.4 million in the comparable quarter of 2013, or 45% of revenues.

R&D expenses, $1.7 million in the quarter ended September 30 or approximately 7.5% of revenue and this compares to $1.6 million in the prior quarter, a nominal sequential increase in total dollars. This also compares to an increase of approximately $150,000 as compared to the $1.6 million in the comparable quarter of 2013.

Continued fluctuations in R&D are the result of our timing, primarily of development projects. We continue to expect that the R&D spending will remain relatively unchanged as a percentage of revenue as we continue to invest in these development projects.

Our sales and marketing expenses were $4.7 million or 21% of revenues in the third quarter, a decrease of approximately $780,000 sequentially and an increase of $500,000 over the comparable quarter in 2013. The sequential change reflects the timing of certain programs, experienced in Q3 versus Q2, and the year-over-year increase reflects our continued investment in sales and marketing, personnel, and programs.

G&A expenses were $2.9 million in the third quarter or 12.8% of revenues, as compared to $3.6 million, or 17% of revenues, in the comparable quarter in 2013. This is an approximate 20% decrease year over year.

G&A increased sequentially by $300,000 in the third quarter, based on additional payroll-related costs as well as increased professional fees for services rendered in the period. We continue to expect to see G&A decrease as a percentage of revenue as a result of the actions we have previously completed and our continued focus on our cost reduction measures.

Non-GAAP operating expenses in the quarter exclude charges for restructuring activities in addition to other items we normally exclude from our non-GAAP results, such a stock-based compensation. I'll touch on the restructuring in a few moments.

Based on our strong revenue performance, our gross margin improvement, and our cost reduction measures, we recorded adjusted EBITDA of approximately $1 million in the third quarter 2014 as compared to an adjusted EBITDA loss of $400,000 in the second quarter of this year and as compared with an approximately $950,000 in the third quarter of 2013. Now I will touch on the restructuring and another item on the income statement.

The restructuring charges of $2.1 million are primarily related to severance for a former executive in the US as well as other employees terminated worldwide in the third quarter, as we substantially completed the consolidation of procurement and corporate accounting into the US. We also completed the process of closing our production facility in Germany early in the third quarter.

Interest expense of approximately $565,000 reflects an increase both sequentially and comparably and relates to our outstanding debt under the Opus facility and our related party liability.

Now turning to the balance sheet. I will be comparing our position at September 30 to that as of June 30, 2014. Our reported cash was $41.1 million at the end of the quarter as compared to $12.5 million at June 30, an increase of approximately $28.6 million. The notable source of cash came from the Company's completed stock offering in September with net proceeds of approximately $31.5 million.

Our major uses of cash in the quarter included the paydown of approximately $3.3 million in accounts payable, $100,000 in accrued compensation and other accrued expenses, the servicing of our related party liabilities, the paydown of approximately $1.7 million on our revolver facility, and the interest payments associated with our financial liabilities.

A word on working capital. We define this as our accounts receivable, plus our inventory, less accounts payable. Working capital was $13.9 million at September 30 as compared to $13.1 million at June 30, an increase of approximately $0.8 million. This is due to a $3.3 million decrease in accounts payable, as mentioned before, a $1.5 million decrease in inventory, and a $1 million decrease in our accounts receivable.

Now a couple notes on our balance sheet asset metrics. With respect to our accounts receivable, our days sales outstanding improved, as it decreased to 47 days in the third quarter from 49 days in the second quarter, as we experienced significantly higher turnover activity and improved collection efforts in the quarter.

Inventories, as I noticed previously, decreased by $1.5 million to $8.7 million at September 30 compared to $10.2 million at June 30. Our turnover was approximately 6.0 for the quarter ended September 30 and this compares to 3.75 for the quarter ended June 30, a significant improvement, which again, based on our sales turnover, our global focus on managing our supply chain, and timing of our periodic inventory purchases.

Here's some of the other noteworthy line items on the balance sheet. Accounts payable, as I noted in my discussion of working capital, decreased by $3.3 million, $6.8 million at September 30 as compared to $10.1 million at June 30, partially based on the timing of periodic payments as well as our inventory procurement.

Our accrued compensation decreased by $100,000 from $2.8 million to $2.7 million, which primarily reflects the payment of prior period variable compensation accruals.

Our other accrued expenses and liabilities increased to $5.1 million at September 30 as compared to $4.3 million at June 30. This net change reflects the restructuring provision in the quarter, which is partially offset by the periodic payments.

Certain severance payments to terminated employees extend into the latter part of 2015. Our liability to the related party decreased to $6.3 million from $6.5 million, which reflects the periodic payment made during the quarter, partially offset by the accretion of interest.

And finally, our financial liabilities decreased by approximately $1.7 million, as I mentioned before, from approximately $15.6 million at June 30 to $13.9 million at September 30, which again, reflects a paydown under our revolving credit facility with Opus Bank. The Company is providing continued guidance for fiscal 2014 of revenue between $80 million and $90 million.

That concludes my financial discussion and I will now pass the call back to Jason. Jason?

Thanks, Brian. You know, I always love it when you give me good news. So the Company has a strong cash position; the best it's ever had. We've been getting the costs under control, as everyone can see, and we have a great understanding now, I think, of the metrics.

But as I said at the beginning of the call, our focus, as management time has freed up, has begun to become very focused on the forward strategy of the business, specifically in terms of how do we get accelerated growth in the Company.

As I mentioned, the world has changed in the last 12 months and with all of the hard work of the past 12 months, this business is now well positioned. We do have the fuel and we have the lead customers to be a definitive market leader in this new identity category.

But a word of caution -- it does take time to build. And I understand that everyone is anxious for immediate and overnight results, but the -- it does take time and we have come from a very low starting point. So I'm actually thrilled with the state of the business as it is today.

By the end of this year, we will have completed the bulk of the transformation of the sales organization, and the new approach to the organization is clearly solutions selling instead of widgets selling. This is and has begun to yield some positive results. And without talking too much into the future, our sales pipeline has doubled in the past couple of quarters.

So we have begun to see a very solid improvement in leads. This does not necessarily equate to revenue and we are not predicting a growth rate of any more than 20% in 2015. But we are getting now a great deal of confidence that our current and new technology is well suited to solving many of the problems that we are now seeing in this post-password era.

With a target of more than 70 sales and marketing staff by the end of the year, and this demand for our products, we will see our revenue grow. Internally, Brian and I are budgeting and factoring on at least 20% growth. This will outpace the industry and at the moment, based on the data that I am seeing and the interest that we're getting from our partners, very confident about it.

We have also seen a great deal more visibility as we put the systems in place into the 2015 sales pipeline. We are working a lot more closely now with customers that in the past had seen us as a widget provider, but now see us as a long-term solution provider.

In some cases, it has slowed down some of the transactions. There are transactions that we would hope would close in Q4, which is why you do see some of the still large variance in our forecast for the year that may fall into Q1. But the good news is that we either have those contracts or we are pretty close to knowing where those contracts are at.

So overall, the business itself is in a pretty good state. In fact, I take that back -- it's in a great state. We are in the right place at the right time. We have taken the time to put the right team in place.

So some of the trends that are driving our business at the moment that you will all be interested in -- clearly, strong authentication for employees, consumers, and citizens. EBay, iTunes, Snapchat, Target.

The new regulations for coding and healthcare have been terrible for the industry in terms of the security issues and the impact on people have been good for our business and good for raising awareness for the need for strong authentication.

And strong authentication based on standards. Work that we have been doing for governments and large corporations for a number of years now. So we have a strong level of expertise and a lot of inventions and patents in this area.

So this is a growth driver for 20 -- the rest of this year and 2015. We do expect you will see some announcements in this area, both in terms of product and customers.

We see specific short-term demand from healthcare. Healthcare in this area being driven by some of the Class II medication activities and some government initiatives around electronic prescribing is also a -- is driving some of our mid-tier business as we push further down out of -- just be providing mostly to governments and large corporations, but into midsize hospitals.

Federal government, as I mentioned earlier, we made a large investment this year in revamping all of our products to be compliant with the latest US government standards, but also taking the current customers on a journey into 2015 through 2020, as they will begin to upgrade their legacy systems.

So we've got some good visibility now into budgets and the like for next year. And most of our customers are focused on delivering platforms that will drive compliance with the new high-security standards. So we're well positioned now in this space. And again, you'll see more announcements as we come out of the government certification.

Law enforcement, procedures particularly, has been in initiative. Same technology that applied to our law enforcement agencies needing to access confidential data. As more and more attacks on usernames and passwords occur, the police force clearly have very sensitive data and they need to protect it.

And so we've begun to see some new customer wins in this area. And we expect that to grow, and that's a worldwide epidemic. So we see global applicability.

Clearly, some of the larger commercial activities that we've mentioned in the past are also being driven by this need for strong authentication. So our technology uses the industry standards, it's a turnkey approach, which is unique, and we don't see this market declining. In fact, it is growing and growing very strongly on us.

The second area of focus for us now and into 2015 is electronic-enabled objects. We call them everyday items if you go to our web page. We've seen this as a strong growth driver in 2014. It will continue to be a strong growth driver in 2015.

Very similar technology to the first one. We have applied it and are now beginning to leverage our SaaS services. We are becoming more and more strategic to many of the customers.

I mentioned the Identiv Labs group, a team of skilled experts that help customers design and embed the security technology into the objects that they are creating. This was an important differentiator as we move away from being a widget provider in this space.

So again, we have a lot of expertise here and this is a -- this business, while it's been lower margin for us in the past, we're finding becoming a trusted partner in an in-design way is allowing us to solve more of the identity problem with various services.

Premises, clearly this has been a part of our business that has stalled over the last number of years, and, frankly, declined in 2012, mostly due to lack of investment in the technology and there wasn't a view that the premises piece was going to grow, I believe, differently. We have seen it grow; we see the business is in fact a major growth driver at good margins for the Company.

So we have invested, again, heavily in there. Those of you who track our website, you would have seen new product releases. There will be new certifications and not just for the US. We've gone global with this product.

We've had some great success in the Middle East, as people want to Internet-enable their access control in much the same way they did with Voice over IP phones. Remembering that our business model is all about the razor blade and the credential. So this technology drives the overall razor blade model for our Company.

So we have opened up the technology in this space to other partner companies. We've had one announcement and there are others to come in this space. We see that it is an enabler for strong authentication, both for information and the cloud as well as tying in premises, and they will become interlinked. So our revenue will grow over 2015.

The -- I think that you will find that the new business prospects are becoming very focused on our vision. And while we don't necessarily have every product for every market -- and we're not trying to do that -- our vision is inspiring many of our traditional customers to understand that mobility, cloud, information premises are coming together as one.

So to that end, we will continue to invest in sales and marketing, most likely in front of the revenue, with the goal of achieving a growth rate better than this year, better than the industry in 2015, and a growth rate, to be very specific, in the 20% or better range. And that's how we been budgeting and tasking all of our managers and department heads.

So as I said at the very beginning of this call, we're all about growth. We have completed the things that we needed to.

So now, I would like to turn our attention to another topic that has come up almost every day for me. I receive plenty of emails with many, many -- let's call them creative comments about our investor relations strategy so far.

As many of you know, we are focused on the operations of the business over an investor relations -- a strong and expansive investor relations strategy over the past 12 months. I stand behind that decision 100%. It was the right call. The business is in a much, much healthier state. But I also understand -- let's put that in context.

So the stock on an annual basis is up over 80% from its low point last year. And to be fair, we do expect that the long-term trend will continue to grow as the business has now stabilized and we begin to deliver growth in our revenue.

So we are very focused on the operations. We think the operations and the revenue will deliver the growth. The growth will deliver shareholder value. But I also accept that it's now time to step up our investor relations outreach.

So in looking at the public and private markets, I stand behind the comment I mentioned on the last call and that is that the stock against its comparables is substantially undervalued. The Board agrees with me on this position as well.

So we took an uncommon move. Really soon after a capital raise, when we saw the October madness, to implement a buyback of our stock. We saw the overall market conditions for micro-caps being affected.

And we are very conscious of the fact that we had the means to help stabilize the stock. So the Board and I proactively and aggressively took the step to implement a buyback.

Now there are a few issues related to the buyback. And the first one is, of course, that entering into a buyback -- to enter the market as soon as we could meant that we had to be not in possession of material nonpublic information. And whenever we were, it meant that the Company couldn't trade.

And unfortunately, that's meant that while we have now purchased an amount of the stock that we are not prepared to disclose on this call today, it is a significant amount.

We were not able to trade throughout the course of the period. So as the Company comes out of its insider status and in particular, as Brian and I come out of our material nonpublic information handcuffs, we will be entering into and instructing the brokers to continue on the plan.

But again, as I said at this time, we're not prepared to disclose the details of that, except to say that this is a carefully thought-out strategy to ensure that where we can and where it makes sense, we act as a stabilizing function in a compliant and appropriate way according to the law.

So with that said, know that we do care and that we have gone to great lengths to implement some unusual things, just given the timing of everything else that's been going on and obviously, the sheer amount of work that goes into the actual operations of the business as it's been coming out of this turnaround situation.

So in -- I think as we've begun to change our focus from the simplification activities, you will now see us begin to devote additional time towards investor relations. And in particular, we will step up the communication to the markets.

We have begun to set a schedule for events into the next three quarters, and the next event will be posted on our website shortly. The purpose of this is to help get the message out there about the good work that we are actually doing within the Company.

We are undervalued by comparison to our comparables. There is no operational reason for that disparity in the valuation.

I continue to believe it's -- we are in the penalty box. We have some legacy activities that seem to affect our stock, but for now, what we're going to do is continue to deliver operational performance and start to get the message out there more aggressively.

So now that we are mostly complete with the simplification and working around the clock to drive growth in our sales, fine-tune our products, we will expect and you should expect to see us outpace the industry growth through 2015.

So I think with that said, what I would like to do now is open the call up for questions. And I will ask Leonard, if you wouldn't mind coordinating the questions for me.

Thank you, Jason. So at this point, I would hand it back to the operator to see if there's any live questions. And we've also received some questions via email in advance of the call, so I'm prepared to read some of them out as well.

(Operator Instructions) Bryan Prohm, Cowen and Company.

Hey, good to see the continuing momentum in simplification and focus initiatives this quarter. I got a bunch of questions. So first on the 4Q outlook, you are maintaining your revenue guidance for the year. But as you mentioned, Jason, that implies a pretty wide range, given we are roughly halfway through the quarter now.

Can you speak to this a bit more? It sounded like this was a timing issue that is preventing you from tightening the range, but are there particular segments that are impacted more than others? And I ask because, obviously, there's a mix impact on gross margin quarter by quarter and that's fairly meaningful, based on mix we saw this quarter. Thanks.

Yes, good. So again, just under the caveat of forward-looking statements, we just need to be a bit cautious on some of the answers to this. But the range for the $80 million to $90 million, as you know, was set in Q4 last year.

It's proven to be relatively accurate based on what we knew at the time. What we're still finding in the business is that while we have a number of orders in-house, our ability to deliver on some of them, or the customers' acceptance clauses, may cause that number to vary quite wildly.

To answer the second part of the question, the product mix we're seeing actually come from some of our new higher-margin product sectors. We've won a few new customers that we're not ready to disclose yet, but are substantial to the Company. And at least one of those may come in partly into Q4.

But again, there are a lot of caveats over that as we fine-tune our contracts and get more efficient in the process of forecasting. The predictability over our low-margin products set, as you know, has been there for some time. We tend to know a fair way out.

And with the new capital raise, we've now had the ability to improve credit terms with a number of our suppliers. And although we've been a bit more efficient with our inventory management, we have been able to predict and prepurchase things that we know we need.

So in the lower margin stuff, there was a little bit of movement that will come from the top three customers, where we have received some additional orders and we may not be able to deliver, mostly because they were unexpected -- we were expecting them in Q1. So again, that's why what you're seeing the variation --

No, fair enough. So basically, it's going to fall either very late in the quarter or early in next quarter.

Yes, that's our current prediction.

Understood. Hey, so on the partnership stand, if you can't name names, maybe talk a little bit about the raw growth numbers here. I think last quarter on the call, you mentioned there were 150 partners.

Has that number grown over the course of the year? What was it at the beginning of the year? What do you expect it to be in 2015? The reason I ask is maybe the market is discounting some growth potential for you guys, given the lack of big names. One, maybe there's some other parts affect here happening.

Yes. And again, thanks for raising the question. I mean, it is probably the -- as you know, the number one thing that I get asked about is why can't you put out a press release on Verizon? Why can't you put out a press release on the large security distributor and alike.

And the -- we don't put press releases out without our customer's permission. I was asked this morning about a Verizon video that's gone out that remarkably looks like one of our technologies. And it is. We worked closely to blend our product and Verizon's product into a unique Verizon offering that they are now taking globally.

So we do talk about that and as the partnership develops and we secure more customers. Through that relationship, we are obviously pushing very heavily on them to help us and help them announce the customer wins that sit behind Verizon.

Verizon continues to be a good customer and a good partner for us that brought us not just a number of new leads, but also a couple of customer wins very early on. So we expect that -- we are all slow right now. The customers that we are winning with them are meaningful customers and have the potential to move our revenue needle in 2015 and 2016.

I should point out that the -- we tend to find the strategic OEMs are much larger deals that they work on, so they have longer sales lead times. But again, meaningful deals and they are -- as I said, they move the needle for an $80 million to $90 million company.

I have also been asked about the presentation that we put out for the AGC Conference on a number of the customers that we talk about in there, such as the FBI, the IRS, the US Marshals Service, technology companies, the public utility companies, like Pacific Gas and Electric.

So again, we work -- when we were a smaller company and we were more focused on getting the deal, we were not negotiating hard on getting PR from them, because to be fair, a lot of what we do is security-related and those customers push back very heavily on those activities.

As we've grown and become a solid partner for these organizations, they've begun to talk more publicly about the fact that they use us. And so you will find in more of the customer-orientated sessions, they will speak on our behalf. So that's a good change.

And thirdly, we've begun to negotiate to include PR clauses now in many of our new contracts. And I am pleased to say at least two large [Nowen] brand customers have agreed to such clauses once the projects are rolled out.

So we are beginning to work pretty hard now to get the message out. Not just to the investment community, but also to drive more interest from other customers where they see us then as the industry leader.

Great. Just to clarify, you believe the industry is growing at less than 20% annualized, but you think you can grow above that rate or in line to better, so a 20% topline growth for 2015 is reasonable, based on the doubling of your pipeline, based on the partnership momentum and growth and conversion of some of that pipeline into revenue. Is that a fair statement?

That is a very fair statement.

Okay. Last question, you zinged me last quarter, I think, for not asking about NFC, so I will now. Some high-profile devices featuring NFC have recently entered the market and more are coming. How does this -- does this play to your strengths in any particular way?

Yes, no, it does. That's almost like a setup question, Bryan. Clearly, you are referring to the Apple iPhone product.

Yes.

The iPad and the iWatch all coming out with tag-based functionality under the NFC umbrella. The first thing is it's a major endorsement of NSC. No matter which way anyone cuts it, the fact that Apple have built an ecosystem that leverages the technology, ties into payments, is a major endorsement of the technology.

It's good for us because, as you know, as one of the larger producers of NSC tags and credentials and NFC compatible tags and credentials in the market, it helps drive more interest in the technology.

Now while we are not specifically working with Apple on any of these particular technology activities or products and we obviously are compatible with a lot of the things they are doing. And we will continue to be and continue to work in that space.

Clearly, the Android platform, the BlackBerry platform, and other platforms that are currently little bit more open, we have good hooks into and we will continue to provide solutions over 2015 that drive physical access in that space. So yes, it does begin to open up some opportunity for us, but heavily dependent upon Apple and what they choose to do in terms of their ecosystem.

Understood. So maybe we should be watching the other ecosystems for more eventful developments, then, for 2015?

I wouldn't rule out things there, but we have to wait for Apple to make some announcements.

Understood. All right, I will pass it on to the next person on the line. Thanks for taking my call -- my questions. Take care.

[Phil Kiburoski], TCF Financial.

Hi. Thank you, gentlemen, for taking my call and congratulations on the success on your restructuring the past year.

Thanks, Phil.

A question that I have from your press release today said that there was a significant contribution to your revenue from an increased demand for electronic game toys. My question is is that essentially a seasonal factor or can we expect that to continue to grow after the Christmas holiday season?

Yes, I think, again, to be fair, Phil, it is seasonal. We see it -- we saw it last year as well. I think the -- we are seeing an increased demand overall, so while it is a seasonal peak, I think if you were to look at the line from 12 months ago in this category for us, it's beginning to move up.

We do have projects underway in the medical space and in the consumer electronics space as well as some of the standardized consumer ticketing that we expect will also help us in 2015.

The electronic toy space, again, is also an area that's growing for us. And not just with the one particular project that we are quite well known for, but in other projects as well.

So I think as more and more organizations look at Disney and Skylander and Nintendo and others, they are beginning to want to add similar functionality or advanced functionality into their product line and that suits us very, very well. It's one of the main reasons we created this carveout of Identiv Labs with some engineers and they've been day and night creating cool stuff with -- for everyone, from toy vendors through to electronic consumer vendors through to thrill manufacturers.

Okay. Well, I appreciate that and I appreciate all the other comments you gave on the revenue. One question I do have about your guidance for -- revenue, I think, for the year, it was $80 million to $90 million.

And to make sure that I'm comparing apples to apples, if I want to translate that into guidance for the fourth quarter, am I backing out the nine months figure from your earnings report of the $61.867 million?

Yes, that's correct. We are -- on a year-to-date basis, we are at $62 million and our guidance for the complete year is $80 million to $90 million.

Okay. And this is all revenue from continuing operations only?

That is correct.

Okay. All right, well, thank you very much.

(Operator Instructions) We have no further questions at this time.

Thank you, Myesia. Maybe it's time to read just a couple of questions from investors who sent in questions prior to the call. Jason, one question that came in was Cisco and Verizon, how can we find out more details on these arrangements, given there is no detailed PR on these yet?

Yes, thanks, Leonard. We don't disclose contracts and we are not permitted to disclose contracts with many of our major customers for a number of commercial reasons, both for them and for us.

So we do talk to and they do talk to customers about the types of products that they take to market, in Verizon's case. And in Cisco's case, their technical people talk at various conferences about what they're doing with the product.

I will need to leave it to both of those organizations to make any specific disclosures about how they use it and alike, just because the sensitivity of what it is.

In general, large technology in public utility companies and aviation organizations use our technology to solve the username and password problem. They typically pay a per user, per credential fee and that allows them to tap their card to get in at the door in the morning, tap their computer to log onto their computer, tap their mobile device to log on to their mobile device, encrypt email, encrypt messaging, be able to store sensitive data.

And in effect, stop the bad guys from getting into their systems. All done in a standards compliant way. So that is typically what these two customers are and the nature of the arrangements that we have with them.

Okay, thank you. And then one more question is the Internet of Things is frequently mentioned. What are the applications that Identiv is working on?

Yes. IoT is a major driver and I think no one in the industry really knows where it's going and what it means. And so for us, we've taken a cautious but a -- but we've made some investments in this space to take a leadership position in the identity area.

As people are deploying more and more connected devices in their home, the thing that's always left out or forgotten -- or mostly forgotten -- is the security and identity of the object. And we've seen famous hacks of cameras and webcams and fridges and the like. And it will continue to grow, as light globes become more intelligent and addressable.

Identiv is and has developed some technology already in this space where we are embedding secure microchips. We are provisioning these devices from our cloud services and we are able to manage them while they are in the field.

We will continue to develop these solutions against a range of new standards and you will see Identiv take positions in a number of the forming standards committees to help drive this, but this will become a major activity, I think, for the identity and security industry over the next five years.

Okay -- I think at this point, there are no more questions.

Excellent. Well, thank you and I -- appreciate we've gone over time. So with that, I would like to thank everyone for their time. Again, we had a good Q3, we are on track to change from simplifying the business into growth mode, and we'll -- very optimistic. We are bullish about 2015. So with that, operator, I would like to close the call.

Thank you, ladies and gentlemen. This concludes today's Q3 2014 Identiv earnings conference call. Thank you all for participating. You may now disconnect.