Identiv, Inc. (INVE) Earnings Call Transcript & Summary

Good morning. Welcome to Identiv's Virtual Investor Presentation and RFID Product Demonstration. My name is Sophie Pearson from Gateway Investor Relations, and I will be the MC for today's event. Joining us today are Identiv's CEO, Steve Humphreys; CFO, Justin Scarpulla; COO and General Manager of Identity, Dr. Manfred Mueller; and General Manager and Vice President, Transponder Business, Amir Khoshniyati. Following management's remarks, we will open the call for your questions. You may submit your questions in writing in the webcast portal at any time. Before we begin, we'd like to note the disclaimer slide. During this presentation, management may be making references to non-GAAP measures, including adjusted EBITDA. In addition, during the call, management will be making forward-looking statements. Any statement that refers to expectations, targets or other characteristics of future events, including future financial results, its long-term model, future business and market conditions and future plans and prospects is a forward-looking statement. Actual results may differ materially from those expressed in these forward-looking statements. For more information, please refer to the risk factors discussed in documents filed from time to time with the SEC including the company's latest annual report on Form 10-K. Identiv assumes no obligation to update these forward-looking statements, which speak as of today. The long-term model presented today is not intended to serve as guidance or projected future results and should not be construed or relied upon as such, nor should investors make investment decisions based on such information. I will now turn the event over to CEO Steve Humphreys. Steve, over to you.

Thanks, Sophie, and thank you all for joining us. I now see many of you on the call are familiar with Identiv. But also, I see a number of you are very new to the business. So we've got some content here that hopefully is relevant for everyone and isn't too much repetition of information for those who are familiar with the business. But the context we wanted to set here is there's a lot of near-term noise all around this right now. There's a lot of volatility in the market, interest rates going up, inflation, supply chain challenges, China potentially shutting down again, even war. And we think we're executing relatively well in that environment with all that complexity, but we really wanted to focus on the long-term opportunity for our business. We believe we've established a leadership position in what is going to be one of the major market expansions over the next 10 years. And that really is reflected on the title you see right here, where our vision is to have RFID devices embedded in virtually every physical object around us, ultimately, hundreds of billions of units with RFID devices embedded in them. Now when you're taking on a major market move like that, you can't boil the ocean. So we're focused in a couple of key verticals, and Amir will go into more details about this. But the 2 to highlight really are medical devices, where you have very high value add efficiencies and capabilities that really expand the market for the devices themselves and of course in medical devices, you have high margins and very high switching costs; and specialty consumer and retail packaging where you can get very fast adoption by having fast adoption market segment and high-value -- high-margin adoption segments, decent margins in both, but certainly a higher and highest of all in the medical device areas that we think drives our balanced growth, and we think it will be a multiyear and decade-plus growth path that we're on for that reason because it is such a large market opportunity. But what we wanted to do today, if we can flip to the agenda, is go through a couple of things quickly, an introduction to Identiv, which will be very briefly. The 3 important things are, first is Internet of Things ecosystem to put us in the context of the problems we're solving and the Internet of Things, everyone talks about that, but where exactly we fit and how is that such an important leverage point. And then some of the growth drivers, obviously, those again are a bit of repetition of what we talked about before. The next one, though, is really our at-scale business model. Now it's great. We become a major company with a lot of scale in a major market. What does that look like from a P&L perspective, from a profitability perspective in particular? And we really wanted to focus on where we see that going. And then lastly and possibly most important to do some credit demonstrations because the market is substantial. It's really helpful to see the products and some that we haven't really shown before that Amir will be showing to get a sense of exactly how big this could be and then judge for yourselves how pervasive and relevant and value-added that could be. And then of course, we'll have a Q&A session. So looking very quickly at Identiv first, the investment thesis around our business. I won't go through all these because we have -- I've gone through them before and anyone else, we can go through in more detail in a follow-up session. But really, it's the market itself that's driving everything that's happening. And a company like ours with our scale is not going to drive a market that is of the scale that we're talking about. It's going to be driven by companies like Apple and Nike and Eli Lilly and Medtronic. Their needs are going to drive it, and that's where you can get multibillion units in the various market segments that we're talking about. We have though established ourselves as a leader, both with use cases and with technology and IP, and that really leads to some indicators that you're already seeing in our business. At the end of last year, 2021, we went into the beginning of this year with a 45% growth in our backlog year-over-year. And those are orders on the books to be shipped, but again, are showing substantial growth already. We have a number of growth drivers and we'll go into specific progress about those a little bit later. But what's most important is we are making progress on each one of these design wins, case expansion, technology expansion and our partnerships. And if anything, we're making progress on a measurably and faster than we expected. So the market is really moving along on the path as strongly or stronger than we expected. And then, of course, great business opportunity. Here we have the resources to do it. And unlike some small companies, we believe we have more than sufficient working capital on our balance sheet in cash. And last year, we cleared off all of our debt, paid it off so that even as you go into an increasing interest environment, we aren't disposed because we have no debt and we can finance the growth we're talking about with the balance sheet we have and the cash on the balance sheet in particular. So that hopefully gives you a quick snapshot of why we think we're positioned in such an advantageous way. Let me go into the specific core competitive advantage, though, on the next slide that really takes our positioning and makes it very hard for any other company to replicate. And that is really, this graphic on the right, where we do designs, obviously, in order to work with our customers. But then because we have our own prototyping and capabilities in our R&D facility in Germany as well as our factory in Singapore, we can go quickly to prototype, go into pilot and then we go into production with the factory that a lot of the pilots and prototypes that have already been done on in Singapore doesn't have to have any handoffs or go out house. And then you scale up and then you can go rapidly into a redesign phase. And so the first benefit of this cycle is there's no competitive entry point anywhere else because we keep control of the process and the device and the experience for our customers throughout this cycle. It never goes out of our factory or supply chain. And the second benefit of it is we can rapidly go into redesigns, expanding features, expanding margins and really creates a competitive moat as, as soon as someone might try to look at doing a similar design, we can redesign, upgrade the features and capabilities being used and then start through this cycle again. And again, it's a cycle where our competitors can't enter. So this is really at the core secret sauce of differentiation. And as you diligence our business and our industry, you'll find virtually nobody has this entire cycle as effectively as we do. So that really gives you a quick snapshot of the long-term opportunity we see, how we're differentiated. And the question really is, okay, why now and why Identiv differentiation is great? But what's the structure of the market? Why will Identiv in particular win so big in this market and retains leadership? And how big is the market? So why now is very clear, NFC, a high-end RFID, it's been around for over a decade. But really, it was Apple about 2 years ago, fully opening up NFC, the NFC data exchange format with the iOS 12 and the iPhone 10 that really flied the industry. As anybody knows in a technology industry, it's really not pervasive until it's across the Apple ecosystem. Android had already had it, but it was Apple moving that really made it happen. And then down on the fourth bullet there, we're really in the third generation of adoption that's now happening. There were some very early adopters that we're involved with. Then there was a stage of early innovators that were saying this is cool. We're not first in the pool, but we're going to drive it forward. And now you're really getting into the mass market of adopters, and that gets back to our medical device category where they love the technology, but they're not going to be the first adopter of a technology. So having the earlier generations proving that you can scale up, having the adoption from companies like Apple, really makes it possible for companies like Medtronic, Eli Lilly, AstraZeneca, others to adopt the technology into medical devices. And then why Identiv? The main thing here, we talked about the differentiation of what we're doing and how we've created advantages but also the market structure is very fortunately, to our advantage as well, partly because of how long it's taken for the market to emerge and really hit this takeoff base. A number of our competitors simply went out of business, and then a number of others were consolidated by much larger companies, and as usually happens, defocused in that case. Smartrac being acquired by Avery Dennison as well as TexTrace, Omni-ID and LUX-IDent being acquired by HID and really being focused on frankly, lower margin but higher volume replicable capabilities, which is not where we believe the specialty pervasive RFID, IoT sector is going. But they then defocused and that's really left us as the leading at-scale focused credible provider of specialty RFID. Now maybe there's a couple out there. There is a couple in China, but there are always issues with that, maybe Paragon ID in Europe. But really, we are almost alone as the leading provider and credible provider just as the market is starting to take off. And then how big is the market, I didn't want to take our time with a bunch of market data here, but we specifically try to characterize the market in terms of very specific use cases such as medical devices, cannabis, mobility. And in those use cases and prior conversations, we really connected it to getting to multi-hundred million and multi-billion unit opportunities that either by AUP times units or purely by the volume of units are hundreds of millions and billions of dollars of opportunity. So that's how you get a micro look at the market how big. And then IDTechEx some others have looked to have done market analysis of our core market segments and our segments that we're working in. Company -- analytics firms like IDTechEx have indicated they expect them to double or triple over the next 5 to 10 years. And so you see market growth rates in the segments we're in and then specific use cases that we think can be really gap up and be transformational and growing even faster than that. So when you put it all together, our vision and we believe really with clear metrics and indicators happening right now is making the entire physical world digital with embedded RFID devices. And I just want to go down to the bottom left here, the last couple of all, before I turn it over to Amir. When you have a scale opportunity like that, we do have to focus, as I said at the opening. And our focus is in these medical use case, whether it's syringes, test assays, pill packs, all kinds of different use cases because they are very high margin, they are very sticky, as you know. And then once someone in a category, whether it's an auto-injector syringe or pill packs adopts it, really all the others have to adopt it when you've got -- and so you've got forced horizontal adoption and you've got high switching costs. And then on the speed of adoption side, because medical use cases do take time, is the consumer products that I mentioned earlier, luxury goods, specialty packaging, things like that, that really creates consumer engagement, but that's where you get a company like a Nike or LVMH or someone else who can make a fast decision to adopt and deploy, test and iterate. And so we have consumer engagement for rapid growth in deployment and value-add, and medical devices for longer-term deployment but high value-add and very high switching cost. And hopefully, that gives you a sense of where the market is, why it's taking off now, why we think we're in an advantage position and how we're attacking it from a focus perspective. So with that context. I'd like to turn it over to Amir to take us into really the IoT ecosystem that we fit in that we're helping grow and that is really helping us grow and building our differentiation and our competitive moat. So Amir, over to you.

Thanks, Steve. That was a great overview, and we're going to start now basically walking everybody through what a transponder is from Identiv's perspective and the markets perspective. And then we'll go into some of the use cases and then really the industry segments that we serve overall. So just at a one-on-one level, we want to break down really what a RFID transponder is. And that's really a makeup of 2 components. It's the integrated circuit, the IC, what we know as the chip, and the antenna behind it. And then the antenna and the IC get merged together and they become a digital trigger for engagement. Now looking at the RFID landscape overall, the IC and the antenna coming together is basically what we see as a competitive landscape. Any RFID manufacturer out there is basically working with these 2 components and designing them and putting them together in their own way. What Identiv does as a differentiator is we work on specialized custom antenna design. So we have a lot of proprietary patents that go within our antenna designs. Steve touched on some great use cases within health care, medical devices. Each one of these design-ins, they take time and they really bind us to the customers. So that is really our secret sauce, is that we do a lot of work behind the antenna designs to make it proprietary and how it comes together for unique IC capabilities as we go up the ladder. And we go a level further. So once the tag is designed with the IC and the antenna together, they normally in a normal environment go to a third party for the converting side of it, and the converting means you actually print on to the tag. So this might be an overlay for an adverse environment. This might mean printing a logo on it in 2 colors or 4 colors. And then it goes one more node in the supply chain, and that's typically to a service bureau that actually writes to the tag, and it creates a digital identity in that makeup in time. Now Identiv has realized that with a lot of the volatility in the market, with all the logistics issues, it would be much more beneficial for us to build these competencies in-house. And that's exactly what we've done. So we not only do this custom manufacturing for the transponder itself. But within the same production line, we're able to do the converting and also the digitizing of the tag in one go. And this gives a much better value add to all our customers because they get it from 1 store delivered in an efficient manner, but also a cost effective manner. And it keeps us in control of the quality and the production behind everything we are doing. So -- and I'm not sure that's really the ecosystem for a transponder. You have the chip, the antenna, you have the converting aspect and then how you write to the tag. And again, Identiv as a whole can package this together. And if we can advance to the next slide, we can start to walk through some of the main capabilities that drive our transponders to the market. So again, these are really high-level value-add that our customers are seeing that we really face on a day-to-day basis. The IoT devices as a whole and specifically RFID transponders, they can do much more on the capability ladder. But looking at really the highly demanded drivers is really around authenticity and validation. We see a lot of products that Steve mentioned early on in the intros that might be perceived as commodity. They require a level of compliance behind it, especially if they're a consumable in the pharmaceutical industry, they really have the first checkpoint really around authentication and validation. So that is basically our first goal, and we're able to cross pollinate a lot of these capabilities actually into one. And when I go into my demos, I will be able to showcase what that looks like. And we have tamper capabilities as well. So not only will you be able to authenticate, but it can tell you if a seal has been broken. And if this is a consumable, you may not want to touch it. It might be authentic, but you see it's open and then you can basically push it to the side because it's been tampered. We're starting to see more and more requirements around capacitive sensing and that's mainly within the medical device industry, being able to understand better if this device is full of a liquid, if it's been injected and being able to relay that information. And a lot of the RFID and also IoT devices are now putting requirements, especially in the cold chain, what we classify as transporting cold -- hot or cold products through the supply chain within food industries or pharmaceutical industries. They have a requirement around temperature, moisture detection, sometimes even pH level detections and the chips are able to do that. And then the last is really motion detection as well. So being able to tell you if an item has been lifted, if it's been engaged with. And we have some demos today that are planned around being able to show this motion detection visually, but also passively, so in a battery-less format, which is very innovative and very exciting as well. So we went again to summarize here, what a transponder is, what the capabilities are? Now we really want to highlight how this matrix overlaps them to the industries that we serve overall. So we've seen over the last couple of years, especially with COVID, it's given rise to the adoption of NFC technology. Discussions we were having 2 years ago around what NFC is, how they use it or now more discussions around how can we go deeper with the technology? Or if we've already adopted it as a brand, what can we do with the data? How can we push more digital triggers in front of our customers to some and more information. So Android has always been on the forefront of this. As Apple unlocks this capability in iPhone 11 and every modern version forward as a native read capability and write capability, we've seen much more of an uptick on how consumers are really engaging with the products. So NFC and us being a frontrunner on providing the right solutions behind it and for a prominent mobility device manufacturer in the -- on a global landscape has really put us in the driver seat to really drive all levels of activity for every physical product out there. And really, it's important for us to note, again, health care, pharmacy and medical devices is really our prominent industry focus. We found a niche with a couple of use cases that we've been able to have successfully rolled out. We've figured out really good form factors that have started to provide really, really good feedback from the market in essence that the consumers are finding success with the digital triggers behind it, and we're starting to go much deeper within it. So we have much more of a range of portfolio geared towards this industry, but also we're finding much more depth within it as well. And I'll be able to show what these form factors that we designed around the antennas, what level of depth that really needs? And the really remarkable form factors when you look at the overall size of the designs as well. It's something the market hasn't seen to date, and the quality and performance behind it is unmatched. And we've also highlighted some other statements here that we've had some success. And again, the depth is really relating to them as well. We're continuing our traction around access and transport, events and leisure. Again, authentication is -- in a matrix format overlays with a lot of these segments, but we wanted to highlight it as an independent capability there. And Steve touched on smart packaging. And it's important to note that smart packaging actually, again, is a hybrid within these. So smart packaging may relate to pharmaceuticals. So when you look at the CVS use case, that's a digitized package that engages with the consumer in the specialized way. But again, it's a consumable. You go back and you order more, essentially, once you need that replenishment. And this also relates to the cannabis industry as well. So it goes within the packaging, so you can get the authentication behind it, but also you get the tampered solutions and many other value adds. We're continuing our traction around the library side, so being able to really digitize every physical asset when it comes to library books, assets such as electronics within the libraries and going even further into the CDs, DVDs and much, much more. Gaming continues to pick up. And now that we're seeing within COVID, it's creating more of an access to virtual gaming profile and being able to use that physical object to be able to interact with it in the arcade format with your mobile devices. This has also been an emerging segment for us, and we're going much, much deeper within it. So hopefully, this gives a really good snapshot of the industries we're focusing on. And again, to highlight health care, pharmaceuticals, medical devices is really prominent. Smart packaging really takes the second seat really to our industry focuses. And then we have a lot of specialty use cases that have been highlighted here as well. And with that, I'll pass it over to Steve again.

All right. Thanks, Amir. I won't reiterate a lot of this because I think it's really been brought out on what I've said and how Amir really got into the ecosystem and how it's built, so you can see how it's reaffirmed. But a couple of things I did want to focus on is that focus because when you do have a massive market like this, you have to focus and you have to anchor somewhere, in medical devices and pharmaceuticals. They really are major benefits for specific products and for the industry itself and for the medical device companies. And we're really seeing their understanding that again, as Amir said, we were evangelizing a few years ago and you don't need to evangelize anymore. It's really, okay, we know we can do, how can we turn this into making our syringes better, making our prescription bottles better, making our pills more authentic and tracking how the regimens are being followed, all of these things. And then it's a great market because when you're in, the switching costs then become very high and frankly, the medical device companies don't care so much about the per unit cost. They need great quality, high reliability, high supply -- data integrity, HIPAA compliance, all that. So it's a great focus market to be in. And then specialty packaging, and again, Amir gave you a broader view of what that could mean for consumer engagement. And everyone is different. When you see some of the demos here, you'll see different aspects of specialty packaging and different aspects of how the consumers engage with it. But again, what's important for us is that it can be very fast adoption. Consumer markets are very competitive. So if someone adopts a Nike or an Adidas, then all of the others are going to be adopting in that category very quickly just for competitive purposes. So just wanted to focus a bit on that. The design wins and consumables, I think, are fairly clear about the use case here. So I just wanted to go down on the bottom as well is I talked about our cycle and competitive advantage in that cycle. It gets a little complicated with an additional dimension, but the fact is as we take all of this, encoding sensor integration and really expand to becoming systems on devices, a lot of data is coming off of these devices, both as the data trigger and as a data source. And ultimately, longer term, helping provide, make available and manage that data and ultimately analyze that data becomes an expansion path for the business and our value as well. So those 2 things are the focus areas to get us from here to there and to establish our leadership in the space and then the fact that data triggering, managing, analysis will become part of it that grows our business model. We think that will then create an expanding strength in our business model, which really means we can entrench ourselves in this platform that really is going to be the next generation of the Internet of Things. So that gives you a sense from a business and technology and positioning perspective where we are. I'd like to turn it over to Justin now to look at how does that translate into our business model and what it looks like from a P&L and profitability perspective, of course. So Justin, over to you.

Thanks, Steve. We're often asked in investor calls, what does it mean when we are at scale? What does your operating model look like? And what is it going to be going forward? We thought we'd take this opportunity to really present our long-term model. What this is, is a tool that the company uses to manage its business internally. It's really based on the goals related to growth and it's in our reporting segments, and should not be considered guidance. However, it is important to note this is how we are managing our business operationally. As you can see, we're only including operational type metrics and we are presenting our long-term goal on a non-GAAP basis as that is really how we measure ourselves internally. So it's really important to note that, that's the factors that we're talking about here or we're working through what we call our long-term at-scale operating model. Some of the key assumptions included in here, on the Premises side, from a revenue perspective, we're looking to track to roughly 20% increase year-over-year in Premises. That's our internal model of what we are trying to target going forward. A lot of this is centered on our focus on both government and education. We believe we're the leader in the federal market, and we will continue to be the leader in the federal market based on our internal assumptions. We feel we have the best solution out there, and we feel this will be a key part of our business going forward. We are offering a complete end-to-end solution, including software -- hardware, software and video solutions. And this is key as we have a Software-as-a-Service as a recurring part of our business within Premises and will be at a higher margin as we grow, and we have incorporated a new video solution, along with the software that ties it all together in 2022 and going forward. From a margin perspective, really, we are -- if you're taking a look at what we're doing today in 2021 from a Premises perspective into our long-term model, we are maintaining margins. We plan to maintain margins through a focus on manufacturing efficiencies, along with our recent price increases, which we have been absorbed into the market without significant pushback from any of our customers. So we do feel we are in a position of strength from a margin perspective within the premises industry. If you're looking at Identity, we are targeting a 40% growth in Identity year-over-year, what does that mean? We have doubled the number of sales reps in the last 9 months, and our new incentive plan requires 35% margin on new projects and customers. But really, from a margin perspective, how are we going to get there? We've talked about it at length in this presentation. We are increasing complexity. We are deepening our partner relationships. And we have new NRE engagements, which are all factors that will be key in determining our at-scale margin, and these are all pointing to a margin increase going forward in the range of 35% to 40% as noted on the slide. We have added services and offerings including in-house coding that will also add to margin as well, as Steve and Amir have both noted. This is key for us going forward from both the revenue and a margin perspective. Moving down to OpEx. We're already demonstrating tight control over operating expenses. We do not have a plan that requires large outpours or large expenses in R&D or sales and marketing or G&A. We are demonstrating that leverage today, and we plan to continue to demonstrate that leverage going forward as we grow our revenues exponentially at a higher level than our operating expenses. What does it mean for us internally on an EBITDA perspective? We are looking at 15% to 20% as our long-term operating model and what we are tracking and measuring our success rate with internally as an Identiv Corporation. There is a reconciliation to non-GAAP to GAAP. Reconciliation is included in the appendix at the end of this presentation. And with that, I will turn it over to Amir for our product demo.

Thanks, Justin. Now shifting over, we had a really good overview of what the RFID and IoT landscape looks like, how Identiv is positioned. We went over what a RFID transponder is. We went through the capability ladder. And then we went through some of the industry segments that we're focused on. Now I'd like to walk you through some of the showcases that we have with some of our high-runner products and again, how we're differentiated in the market overall. So starting out, I'd like to walk you through some of our transponders in the various levels of range and depth we have. And again, these are very focused on various industry segments but keeping really the focus and the lens on health care, pharma and medical devices. So what I have here is a standard inlay that has a chip and an antenna. Again, it's finished in an adhesive format. So that is our specialty focus there. It's converted in a format that has that adhesive and it could be applied to an object. Again, we produce this on the same manufacturing line, where we have the chip with a little black dot, the antenna and then the form factor there for the adhesive. But now I want to walk you through what's some other form factors might look like. So again, very small for the lens. You'll see here my index finger and a small tag associated to it. This use case would be really, really beneficial for pharmaceutical vials, anything that has small dosage. And it gives you ultimately the same level of performance you'd get and a tag of this size. So we have a lot of efficiency that's built into it. And with -- the makeup and the material is especially formulated for that use case. Again, here, another antenna and a chip converted with a tampered solution. What you would see here is if you had a pharmaceutical vial, this could sit on top, the ends would run over. So again, 2 capabilities all in one, the authentication itself and the tamper control. When you open this, it breaks the seal and will let you know. Now I'd like to walk you through a before and after use case of a standard tag that we converted with our specialties with 3 layers of [ glove top ] for wash cycles, so specialty retails. So what we have here, again, antenna and a chip, as you would see in the standard RFID tag, converted with the overlay that can withstand a few adverse environments. So wash cycles and hot and cold temperatures, extreme cycles within tumbling, within a dryer. And then when you take this tag, which is designed for a garment, what we call our life of garment tag, you're actually able to embed it into a physical product. This is an active use case we have with Nike. So I have a legacy Kevin Durant jersey here. And within the jersey itself, we have a notation that has the NFC trigger, and the NFC trigger then can be summoning the NikeConnect app, and we have the trigger right there. So the life of garment tag actually sits embedded. It's heat pressed behind this label. And then what it does is it summons the experience behind everything that's Kevin Durant. So you get videos, you get a Spotify playlist for the day. And the nice thing is it ties the brand and the consumer together on a day-to-day basis, and each day you get a unique experience. And there's a lot of value there because Nike as a brand can learn about the consumers and how they interact. And if you physically are the person that is interacting with this tag, you get a unique experience for that day. And if you share that link, you get a generic experience to buy the jersey. So it ties the brand of that consumer in a way that they normally would not be tied and a standard e-mail advertisement wouldn't be able to connect with them. So I wanted to spend some time just to showcase that, that is one application, again, that we embed in. It has specialty aspects to it and it withstands the -- all the adverse environments. And what I have here a couple of more examples that we have standard tags. Again, that has been converted in specialty form factors. These are UHF Tag On Metal, TOM tags. They're really designed for adverse environments. RFID as a whole has interference issues with water and metal. What this does is it acts as a buffer with that adverse environment on metal and allows you to read in the same form factor and format that you would as if the metal wasn't there. And what we do on the UHF side? We do our own converting in-house which adds the standard layer of an adhesive and foam that buffers against the metal. And then on the NFC side, we use a similar form factor, but we add ferrite to be able to withstand that adverse environment. And we have some innovations. I went through again some of the use cases that we see on the capability ladder. These are really interesting because they're being converted into a durable plastic. But what we have here is a passive LED light. The way that it works is you're able to summon a light and create an indicator without a battery. So this is really valuable if you've embedded on to a product, and you need that indicator to essentially tell you the status of that product. And again, native iPhone and all you have to do is just scan your phone against it and it flashes the light. We have this in the cycle of 8 different LED colors that we can summon with our own encoding capabilities in-house. Again, here's another form factor and we can summon it with the LED light flash. So hopefully, you can see it through the screen share. And what I'd like to do now -- I've shown you some standard tags, I've shown you some variations of the antenna and specialty designs we've done. Now I want to show you some of the converting capabilities that we have in-house. And again, if you remember that first slide that I showed, that showed the converting and the service bureau nodes. We can write to the tags. We can convert to the tags. And this is what a standard converting in-house to Identiv really means. We're able to print on the tag on the same line that we manufacture. So none of this is outsourced. It's 1 node in the supply chain. We are the single source that can do the printing, the graphics. We can do double adhesives here. So you have the standard tag there and then you have the printing overlay there. And we can get as complex as actually embedding it into a product here with logic behind it. So this one is one we designed with printed electronics. It's inlaid between 2 pieces of cardboard, so which you could see in a standard hang tag in the market. But we're able to build the logics so when you engage with your products, you can actually sum in a figure behind it. And again, this is all passive. But again, it acts as an indicator and creates an experience not only visually but also behind the experience on your phone as well. So hopefully, that gives a good snapshot of our standard tag, some of our encoding capabilities and some of the converting capabilities we have overall. So what I'd like to do now is walk you through some of our prominent use cases in the market that are really taking up a lot of traction, and we're seeing a lot of reference customers, really coming forward with a lot of demand around. And one active one that is picking up a lot of traction is CVS use case where it is right now included in over 10,000 locations. This is a really interesting use case for Identiv because we've been able to culminate 2 different business units together in the focus areas into an application that we really are controlling end-to-end. So we have our smart card readers that are placed on. They’re tuned specifically for CVS, so we could do the encoding on-site. And the pharmacists can go in, they can take their standard bottles that they're outfitted with, with the labeling process. They can take our 22-millimeter NFC tag, which we convert into a blank tag there. So there's no overlay of the antenna itself. They encode it on-site with the labeling information. They place it on the bottom of the bottle. And what we've done is we've worked hand-in-hand with CVS to create this into their applications. So I'll walk you through what that looks like. So within the application, it has a pharmacy module. If you tap on the pharmacy module and you scroll down to the bottom, there is a widget for Spoken RX. And if you click that widget, it prompts the NFC reader. So whether it's native in your phone or you have the widget, the app itself drives that. And then what it does is if you tap it, it starts to read out the prescription itself. So here let me just unmute my phone to make sure, that it's ready to scan. [Presentation]

So that was our CEO, Steve Humphreys prescription there. And what it does is it gives you a great overlay of being able to not have to carry the booklet around and it gives you a summary of what your dosage is and keeps you really compliant with what you need to do for each prescription. Now this solution was designed for visually impaired individuals. So the feedback we're receiving and the reason it's scaling is that it's creating much more efficiency to actually just carry your bottle, be able to scan it and get the information. Now there is a lot of depth behind this that over time we can build on. And both Steve and Justin alluded to NRE projects and how we have many of them, and they're taking time as we're designing in with customers. This is a really good example of us being able to design and provide a total solution, but the road doesn't stop here. Now we have all the data. We're working really close with the pharmacy, and we have an opportunity to go, go much farther. And that depth really can mean that we can understand what prescriptions each individual is taking and if they're taking 2 prescriptions that were prescribed from 2 different doctors, app can essentially have the logic to give you a flag that maybe these 2 prescriptions might create an issue or a health parameter that you need to be aware of. So this has been a really, really prominent one. It shows you, again, the hardware, the software components and how we're able to marry the data altogether. And I'd also like to show basically a physical object here that we've been designing around. This is an auto-injector. It has a unique antenna that we've designed around the product. So again, it sits outside of the product. So we're not hindering the medical device itself, but we're creating many different value adds behind it. And if you remember again that circular diagram that had the capability, we touched on basically 2 of them at a minimum that this tag can provide. So it creates authentication that tells you this is a valid auto-injector. What it also does, it gives you the capacitive sensing. So it tells you if this injection was actually administered, if there's any fluid left, and then it overlays really the value add, which is the data. So you can within that point in time, you interact with the product after you injected it, it gives you the longitude, latitude of where you are physically at that point in time. And it can relay that information from a compliance standpoint. So your insurance company, whether you're in time -- and it can relay that information from a compliance standpoint. So your insurance company, whether you're in a clinic or you're self-administering at your home, all that information could be relayed. So again, a lot of value props here. This use case is now picking up, especially with COVID and vaccines. There's much more demand around this. But again, we're taking a hybrid of the different capabilities and we're blending it in one. And what I'd like to also finish on here is, again, the level of complexity that goes into a lot of these designs, I touched on the converting and encoding, but there's also a layer that we've really overseen from an RFID standpoint, holistically at the market but Identiv has been focused on is that we've invested so much in our engineering resources, which are best-in-class and our Singapore facility that can really ramp all these use cases into the multimillions and really where the ambition is for billions. And that said, we can -- we have all of this compliance built in, quality and performance. Now we want to extend much more outside of RFID into actual IoT device. And we've really spent the last 6 months getting a lot of these IoT devices up and running. And a really good use case around this is what we've been able to do with Wiliot. And with Wiliot, we've been able to design 2 tags that are best-in-class here as BLE IoT pixels that we can use in the market. So it works in the same format capability-wise as RFID. It doesn't work in exact real time. Sometimes BLE has a lag behind it, so that's the downside. But what it does is it blends a lot of the capabilities together. So you get authentication, you get motion detection, you get temperature, moisture, some levels of pH even. And we've been able to do this in a passive formats where you would see in the standard RFID inlay but with a capacitor and the chip built in. And we've also been the first to actually do it in a battery format, in an active format. And this is really remarkable because the market itself and cold chain has always been a little bit restrained when it comes to the right selling price for an RFID tag that's active for perishable, but we've been able to achieve that now with our active Wiliot tag. So I wanted to highlight really what these IoT pixels mean and showcase that level of depth on RFID is now expanding much further. So we're able to do much more in other levels of devices outside of standard RFID. And this is really where we see long-term potential for IASB business, high-margin business and overall many other use cases that the market can benefit from. And what we're showing here on the slide, again is some of the use cases that we've highlighted. We have CVS pharmacy. We have some smart packaging use cases, what we have on all little Taaka, tequila bottles. We showcased NikeConnect. And that, second to left there, Atlético Mineiro, is one sports team that we rolled out that's actually part of a series of sports team that we're rolling out within the first of the year. And that's in partnership with a customer and partner in collectID, and I also touched on Wiliot just now with the passive and active tags. So with that, that concludes the product demonstration and I'll pass it over to Sophie.

[Operator Instructions] Steve, our first question today is, what do you think about the company's current valuation?

Yes. Very good first question, certainly on everyone's minds. I think if you look at the business we're building and the target model, at a $0.5 billion business and certainly, our aspiration is to build a much bigger business than that. If you look at the transformational opportunities we have, the markets we're in, we can be much bigger, expanding profitability even beyond that model. And in addition to the business model, we're creating strategic value that really is fundamental and what we think is going to be a major market over the next 10 years. And it's going to be fundamental to the medical industry, consumer products, mobility and semiconductors. And so there's a lot of value creation, whether it's net present value, cash flows that's reflected in the model or the strategic value there. So if you -- if our belief is true about the fundamental market opportunity, the competitive position we have, how advantageous the industry structure is for us specifically and our business model, we really think that the business is undervalued and there's a lot of value creation opportunity here. So we obviously have to focus on foundational execution, deliver to our plan and stay on track and entrench our advantage in the marketplace. I also think given the recent market reflection of valuations, I don't think reflects the value of the business. I've got to get out there, we've got to get out there more and evangelize the market opportunity to investors, et cetera. Now we have a big advantage in the team, you've heard here, Justin and Manfred, who's on with us, and Amir and Mike Taylor and Mark Allen, it’s a great team. So I have the ability to go out there and evangelize, which I need to do to communicate the value we're building and the strategic position there. The other comment I'd make is we're getting good and relevant news every day that we need to communicate more. I mean just today, sorry to be marketing here, but we just got the Industrial IoT Product of the Year just out today in a press release. And other news that people might have missed at our RFID Journal, we're a finalist for our capacitive sensing products for the auto-injector. We're a finalist for the CVS application. And if that comes through, we'll probably jointly present with CVS. And a couple of weeks ago, AIM also gave us a [ product ] of the Year award for the CVS app itself. So we've got all these things. We need to communicate it better and -- while also, of course, executing on our plan. The other thing I would say is -- that keeps us focused on is we have a real obligation to our people and reflecting all of their hard efforts. I get paid in stock every 2 weeks and so I'm accumulating more, and I want to see that value go up. As many of you saw, our CFO, Justin’s purchase on Form 4 go out. And there's more buying that goes on, but Justin and I and the Board members are the only one to file Form 4s. But actually, I'll let Amir comment a bit. In the fourth quarter, he was actively buying. That's not disclosed, but he's willing to talk about that. Do you want to make a comment?

Yes. Absolutely. My move into Identiv is long term move and I'm fully invested in. So I hope that, that is known openly to the market, again, the team we're building. We personally -- this is long term, and it's going to grow to something much, much bigger than even what we are imagining is going to be.

So that's the strongest indication we can make that we think the value is undervalued. And I can cite a whole bunch of more people that say we -- people's investments need to be a little bit confidential. But our management team is totally committed to value creation in this business and believing in it, and we have an obligation then to get that realized in the marketplace. So I know this is a slightly long question. We don't have a ton of time. But that's so fundamental to what everybody is thinking about. And I think it's very important that we clarify where we see the value of this business. And especially in the reality of the context of what's happened recently in the stock price, that I'm not supposed to comment specifically on, but we think that there's a lot of room for value creation and value recognition of the value of the company right today.

Great. Thanks, Steve and Amir. Amir and Manfred, this question is probably for you. How are you being affected by supply chain challenges?

Manfred, you want to start off with that?

I can start commenting on that. I believe we sell through this fairly smoothly. I mean that was in Q4, and we did report about us planning well ahead in terms of sourcing chips, in particular and other components. So from that point of view, it's much tougher than it was before because you have to go many extra miles in order to get to the product because logistics challenges on top of that don't necessarily make things easier. But it's something which is requiring a lot of everybody's attention right now, like probably for each other industry as well. So from that point, that's fine. And also we -- for like this year, we purchased well over 200 million ICs already, which not all of them have been delivered yet, but we have placed these orders already back in 2021 so that we are basically putting ourselves into a very, very unique position, and it had washed already a bunch of competitive projects into our camp, and we continue to basically drive this forward. I mean Amir, any comments from your end because you also would be effective on the sales side. But I believe you also can give a few -- a little bit of color to that.

Absolutely. And just building on Manfred's point, we went very aggressive last year to make sure we were in a safe situation, even if there was an uptick in demand, but we had a strategy essentially going into the New Year that we will plan for the purchase for everything going through 2023, even into early 2024. And we were going to do this basically in 2 assessments and 2 risk files. What we decided to do was be extremely aggressive because we're in a strong position and do it all in one go. And it's been roughly about 3 weeks since we put that order in. The allocations are carrying us well into that first half of 2024, and we're in a strong position that with anything else picks up, the suppliers know we have a front seat here, we have the relationship and we can actually demand much more. So we're seeing a lot of reallocation as we've been going through the quarterly waves here, but we put ourselves in a strong driver to building on what Manfred said through this year and into the following year and early 2024.

Thanks, Amir and Manfred. Next question, what is 2021 revenue mix across the verticals and ahead, how do you -- how does 3- to 5-year growth rates compare?

So let me take a half of that, and then Justin can comment with Manfred. So to be clear, you'll certainly see predominant growth in the categories we've identified with medical devices and with smart packaging and consumer goods and mobility, of course. But on a quarter-by-quarter basis, it could be faster as cannabis takes off, and that's also a good example of is that in medical or consumer or smart packaging? The answer is just a little bit of everything because it's a regulated product that goes to consumers and it's the packaging that is being used to engage with consumer [indiscernible]. So it's really a little bit tortuous to try to break them out by vertical. So we don't do that. But you'll clearly see growth in those specific verticals that we're focusing on faster. And I mentioned consumer will come sooner, medical takes longer to take off, but it's already a substantial portion because we have so many already going on. And then things like cannabis can just gap up very fast and take over for a period of time. And I think that's the best way to think about the verticals. Justin or Manfred, is there anything else you want to add on the verticals?

Nothing from my end. I think that explains it very well.

Great. Next question is, you highlighted medical and consumer retail as focus areas. Does this mean cannabis is sort of a second tier of focus?

Yes, good question to clarify. And I kind of didn't realize this question was coming, but I kind of addressed it in the earlier one, which is cannabis is very strategic because it can move fast. There's some big programs going right there. And because it does have a medical aspect to it, it has a regulated aspect to it and it's a consumer product. So it's actually -- if anything, it's part of our first-tier focus in both medical and consumer because there's both different use cases. And as they start to take off, we actually have a strategy of working with the evangelist for medical marijuana, which is one whole group and a very powerful group, and a different one from all the consumer applications and recreational use cannabis frankly. So you're going to see both and I think it's a great leverage point for both. So very much in that first tier because it is part of both of those first-tier categories. Amir, do you want to add anything to it because you're certainly even more conversed than I am.

Yes. I would say the way that we positioned ourselves, it is a specialty application and it is very high volume and we put ourselves in a strong position because it's a 1 label, 2 tag solution. So it has complexities behind it and it has a conversion layer. So if you reflect back to my demo and how we went through, what the value adds of the conversion and the specialty aspects to where they are, this is a long-term play, it is a very high-value play, but we also anticipate that the volumes behind it are also going to carry on. So I wouldn't say it's a priority play between that or health care. They're equal priorities. We just know that at a certain point, one of them is going to truly expand into a higher level of volume, and that's how we're positioned.

Great. Thanks. I know we don't have much time left. So just maybe one more last question. Given how robust the RFID pipeline is, should investors expect inventories to rise throughout the year?

Good question. Let me take a whack at that. I think the short answer is not rising throughout the year as you go through because we're pulling so much supply, as Manfred said, while demand is growing quickly. And as we get supply, we're off and moving out into demand. So it will probably be lumpy. I would love it, frankly, if inventory did go up, to be clear. I'd love to add more inventory. That would be a great use of working capital, and it's a competitive advantage to do so. The demand side is strong enough that it might not balance out that way. So that's the way I think about it. Again, Amir or Manfred, do you want to comment on that?

Yes. I would say we do have a cycle mentality here because we do produce based on demand because we are specialty providers. But outside of that, there are certain products that could be adjusted in a certain way and then customized for a certain customer with the level of encoding and converting we do. And in those cases, yes, we can absolutely do [ risk fill ], hold that inventory and then be able to offloaded in a certain way. So we have a good mix of it basically in...

Manfred, do you want to add anything to that?

No, I guess that's more or less. I think really having enough right now is probably not what every CFO might like. But I believe in a situation like that, we can't have enough chip. So from that point of view, this is the last concern that we have right now, operating this business on a daily basis.

Great. With that, we do appreciate everyone's questions. I know we have a lot more that we didn't manage to get to. But at this time, the Q&A session has concluded. So if we did not answer your questions, please reach out to Identiv's Investor Relations team at [email protected]. And I'll turn the call back over to Steve for his closing remarks.

All right. Thanks, Sophie. And thank you all for joining us. And there are quite a few questions that I see in the chat that we want to follow up on because the purpose of this is to engage in the conversation to get the questions answered and to really clarify the position going on out there. So as I said, it will be a focus of ours to be getting out proactively, evangelizing. Also, just over the next 8 weeks, we've got several events that will be outreached for investors and the industry. So of course, we'll have our Q1 earnings on May 4. May 17 to 19 is RFID Journal LIVE! in Las Vegas, which I mentioned, we're up for a couple of awards there and some of which our partners will be presenting. So that could be very interesting to have certainly a big industry event, but it could also be interesting for investors who want to get it from the ground view of the industry and our position in the industry, which you'll see is very central and very graphically visibly so at RFID Journal. May 25 will be at the B. Riley institutional investor conference in L.A., and June 7 will be at the Stifel conference in Boston. We also now have a repeat podcast going out that you can subscribe to and hear more from the business about the business. So some communication going out there, and we'll be lining up even more, and that's really to evangelize our position and evangelize the market and the industry overall because I think that can only benefit from it. So looking forward to communicating further. And thank you all for joining us for this session, and we will keep the communication going forward. And most important, we'll keep driving the business and the industry going forward because ultimately that is what it's all about. So thank you all. Thanks to Sophie, and thanks to the team joining us here.