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

Thank you, operator, and I appreciate everyone being here for our Quarter 2 2025 Earnings Call. Before we get started, I have some very good news to share: the Identiv Board of Directors has officially named Ed Kirnbauer as Chief Financial Officer. Since last month, Ed had been filling the acting CFO role, and with today's announcement, he makes the permanent move into that position. Ed joined Identiv back in 2015 and has most recently acted as our Global Corporate Controller. He also took on the Interim CFO duties in late 2021. Before he came to Identiv, Ed worked in senior finance roles across the technology and manufacturing industries, and he launched his career with KPMG. We're thrilled to have him step into this leadership role, where he'll keep providing deep expertise and dependable direction to our finance team. Now, onto our business update for the second quarter. We're still seeing macro trends that fuel robust demand for RFID along with next-generation technologies such as BLE, even as global markets remain volatile. Companies want richer intelligence about their operations and customer engagement so they can strengthen their competitive standing and set their offerings apart more effectively. Identiv makes that richer intelligence possible by assisting customers in adding digital identities to physical goods via RFID. Several key forces are speeding up this rising demand. These include the swift growth of IoT-connected devices, shifting regulatory environments, mounting pressure to fight counterfeiting, and the world's growing focus on sustainability. RFID and similar technologies create the real-world data that drives digital transformation and, increasingly, AI. As companies bring in AI to sharpen forecasting, logistics, and operations, they require precise, real-time data from the physical world. Our products act as an essential link, converting physical objects into assets that generate data. Identiv is helping to spearhead this transformation. Our purpose-built IoT inlays, tags, and labels deliver digital IDs that address practical challenges in fields ranging from cold chain logistics to smart packaging to health care and consumer electronics. Our devices make possible real-time tracking, condition monitoring, compliance, security, and richer consumer experiences. On the financial side, revenue for quarter 2 came in at $5 million, which falls inside the guidance we previously provided. Our core channel business is still performing as expected, although competition has picked up, especially in our standard product lines, where a number of rivals have lately added manufacturing capacity. We're also keeping a close watch on macroeconomic risks, especially when it comes to U.S. trade with Thailand. On July 31, the White House announced a 19% tariff on imports from Thailand. Most viewed this as favorable for electronics manufacturers located in Thailand, since it's a substantial drop from the 36% rate that had been announced earlier, and it establishes Thailand as a dependable manufacturing substitute for China. That said, the rules governing how much Thailand-made content is required to secure a Thailand certificate of origin remain uncertain, especially given new U.S. steps designed to stop transshipment. As we mentioned on our May call, roughly 1/4 of our business is exposed to U.S. Because of import tariffs tied to where we manufacture in Thailand, we put together a responsible pass-through plan aimed at safeguarding margins, and so far every customer impacted has consented to take on those extra costs. What's harder to gauge is the possible knock-on impact on customer demand, particularly within segments that lean more discretionary. One thing stood out this quarter. At the start of this week, we revealed a strategic partnership with IFCO, a leader in grocery logistics, aimed at boosting traceability, efficiency and sustainability throughout the fresh grocery supply chain. IFCO ranks as the top global supplier of reusable packaging solutions for grocery products, and alongside the IFCO team we've been working closely for several months to create and bring to market a BLE smart label capable of real-time tracking and temperature monitoring across IFCO's vast worldwide pool of reusable packaging containers, known as RPCs. Given that more than 400 million RPCs are in circulation, the value our smart label should deliver by cutting fresh produce waste is substantial. The aim is to tag that whole pool of 400 million-plus RPCs within the coming 4 to 5 years, which amounts to a major volume opportunity. This effort ranks as a top strategic priority, since right now we're turning out prototypes for pilot-scale runs and anticipate kicking off mass production in 2026. On the operational side, quarter 2 brought a major milestone as we finished moving production from Singapore to our lower-cost Thailand facility. Every customer has been successfully requalified, and the Thailand team is making solid progress toward full productivity by early next year. A small transition team stays on in Singapore, handling the site closure and backing continued training in Thailand. Strategically, we're now 6 months into carrying out our Perform-Accelerate-Transform, P-A-T strategy. The main goals of P-A-T are: One, to strengthen and optimize how our core channel business performs; two, to speed up our growth via high-value applications; and three, to ultimately transform Identiv into a market leader of specialty IoT solutions. Across all three pillars we've achieved measurable progress this quarter, and I'll share more detail once Ed walks through the financials. To wrap up, even with a challenging macro backdrop, we believe our customers plainly recognize the value Identiv delivers. Our specialized IoT tags, inlays and labels don't just enable digital transformation — they're solving real-world industry challenges; these long-term trends not only stay intact, and, in many respects, are speeding up. As a focused pure-play IoT solutions company, we're carrying out our P-A-T strategy with discipline, and we believe this puts us in a good position for sustainable long-term growth. Ed, over to you.

Appreciate that, Kirsten. I've spent close to a decade at Identiv, and I'm thrilled to step into the CFO position during such a pivotal moment for the company, and I'm eager to engage with the investment community over the coming months. During Q2 of 2025, revenue came in at $5.0 million, landing inside the guidance range we'd shared earlier, versus $6.7 million in the same quarter of 2024. That decline compared with a year ago stemmed from weaker RFID transponder product sales, reflecting our ongoing withdrawal from lower-margin business plus reduced purchases from our biggest customer, who is clearing out inventory accumulated during 2024 ahead of shifting production to Thailand. GAAP gross margin for the second quarter was negative 9.4%, while non-GAAP gross margin was negative 0.8%, against GAAP and non-GAAP gross margin of 9.1% and 14.6%, respectively, during Q2 2024. Things that drove the gross margin down included extra costs tied to moving production to Thailand, the parallel manufacturing locations needed throughout that shift, and weaker utilization stemming from the lower revenues versus last year. On top of that, we booked adjustments, among them roughly $0.6 million tied to obsolete inventory at our Singapore site. As Kirsten noted, we've finished manufacturing RFID devices in Singapore and completed requalification of our customers at the Thailand production facility. Shutdown work at the Singapore location is moving forward per plan and should be largely wrapped up by the end of the year. Operating expenses on a GAAP and non-GAAP basis for Q2 2025, encompassing research and development, sales and marketing, and general and administrative costs, came to $5.9 million and $4.5 million, respectively, versus $7.3 million and $4.7 million, respectively, in Q2 2024. The drop in GAAP operating expenses compared with last year came mainly from fewer onetime costs related to the strategic review. The reduction in non-GAAP operating expenses mirrors management's focused allocation of resources toward the company's organic growth initiatives as laid out under the P-A-T strategic framework. For the second quarter, GAAP loss from continuing operations reached $6.0 million, or $0.26 per basic and diluted share, versus a GAAP net loss from continuing operations of $6.9 million, or $0.31 per basic and diluted share, in Q2 of 2024. That smaller net loss resulted mostly from strategic review-related costs of $1.6 million taken in the second quarter of 2024 that didn't repeat in the second quarter of 2025, along with unrealized foreign currency losses of $0.9 million, partly offset by interest income of $1.3 million. Non-GAAP adjusted EBITDA loss for Q2 2025 totaled $4.6 million, compared with $3.7 million during the second quarter of 2024. That decline came mainly from Thailand transition costs and adjustments for obsolete inventory at our Singapore production facility. Within the appendix of today's presentation, we've included a complete reconciliation of GAAP to non-GAAP financial information, which also appears in our earnings release. Turning to the balance sheet now. We closed Q2 2025 holding $129.6 million in cash, cash equivalents and restricted cash. During 2025's second quarter, our cash consumption came to $3 million. That takes cumulative net operating cash usage across the 9 months that began September 30, 2024, up to $10.3 million. Earlier, our projection for net operating cash used across the 12-month stretch starting September 30, 2024, sat between $14 million and $16 million. Based on how much cash we've consumed through Q2 2025, plus what we now anticipate for Q3, that figure is being adjusted to somewhere between $13 million and $15 million for the period that wraps up September 30, 2025. Working capital stood at $137.5 million as we closed out Q2. A robust balance sheet continues to be our position, which lets us chase organic as well as inorganic growth efforts under the P-A-T strategic framework. A complete reconciliation covering year-to-date cash flows will appear in our 10-Q filing. So nothing is missed, the entire balance sheet has been placed in the appendix to today's earnings release. Now, to wrap up, our financial outlook. Macroeconomic risks stay on our radar, especially anything tied to U.S. trade with Thailand, as Kirsten pointed out. We're likewise examining indirect effects such risks might create for customer demand and project time lines. Beyond those risks, we remain aware of continuing competitive pressures affecting our standard product lines, which have felt the impact of added manufacturing capacity from certain key competitors; over the shorter term, this is generating some headwinds for standard product opportunities. As the macroeconomic picture shifts and visibility improves, we stand ready for a range of potential outcomes. With our ongoing departure from lower-margin business, we expect our largest customer will keep trimming their inventory position. Taking all of this into account, as of today's call, for Q3 2025 we presently anticipate net revenue falling between $4.8 million and $5.2 million. That brings the financial discussion to a close. Kirsten, I'm handing the call back to you.

Thanks, Ed. Now, keeping those financial details in mind, I want to give you an update on how things are going with our Perform-Accelerate-Transform strategic framework. The first of those pillars, Perform, centers on making our core channel business stronger and helping it grow. To get there, we're putting priority on opportunities that carry better margins among the customers and channel partners we already have, lifting gross margins by finishing up the move to Thailand, and staying disciplined about carrying out our new product development, or NPD, pipeline. What we're aiming for is to always surpass what customers expect, thanks to outstanding support and dependable delivery that arrives on time. While we carry out this strategy, we're establishing a sturdy operational base to guarantee a cost structure that stays competitive, bringing in important customer-facing positions and implementing the processes required to push NPD forward. Results from this effort are already appearing. Our commercial team is now completely staffed, and sales momentum keeps growing, with a 33% rise in new opportunities within our sales pipeline for this quarter versus the prior quarter. Our commercial work gets strong backing from the new marketing team we've brought on. Thanks to their committed efforts, during the quarter just past, we finished 22 marketing initiatives alongside 10 strategic partners, covering things like webinars, white papers, press releases and joint trade shows, which produced an impressive 300% jump in requests for information coming through our website relative to the second quarter of last year. In our view, this spike in customer interest is feeding directly into a more robust pipeline of new opportunities and will translate into building momentum for our business. As I noted before, all production in Singapore has now wrapped up, and the site shutdown is moving ahead according to plan. This shift to Thailand matters greatly for growing our gross margins. To back ongoing improvement at our Thailand operations, we've introduced CRM and MRP initiatives meant to automate our critical processes, reinforce our operational base and make sure the business can scale. Turning to the second pillar in our P-A-T framework, Accelerate, we're pushing forward on three particular growth initiatives to strengthen our pipeline and fuel revenue and margin expansion over the long term. First, growing our BLE technology platform along with our multi-component, MCL, manufacturing capabilities; second, aiming for growth in three health care high-value applications; and third, driving additional growth across three consumer and logistics high-value applications. Starting with the BLE expansion, we're seeing meaningful progress. As we've talked about, BLE is a next-generation technology for IoT, delivering considerable advantages for applications needing real-time traceability or condition monitoring, which are hard to handle using traditional RFID technologies. Across the last several months, interest has been rising in specialized BLE labels that cover logistics, pharmaceuticals and asset tracking applications; these BLE-enabled solutions don't just offer real-time visibility, they also produce high-frequency data streams that can fuel AI models, opening up predictive insights, operational optimization and automated decision-making; within our NPD pipeline we have a number of significant BLE projects, among them the food logistics project I brought up earlier, plus one in an industrial track-and-trace application, each with the potential to boost business efficiency and cut waste via the analytics they produce. BLE smart label engineering and production requirements align well with what our teams do best technically, giving us a distinct advantage over competitors. During the last 6 months, we put money into additional MCL manufacturing equipment at the R&D facility we operate in Munich, Germany; brought RF and software engineers onto our engineering staff; and bolstered product management resources focused specifically on BLE innovation. May saw us launch our newest BLE smart labels at RFID Journal LIVE!, which represents a significant move toward commercialization. Together with InPlay, we are developing a fresh lineup of battery-powered BLE smart labels aimed at high-value logistics use cases. This forthcoming smart label range will run on InPlay's IN100 NanoBeacon, an ultra-low-power BLE system on a chip, and should hit the market in late this year. A complete rollout of this secure, scalable BLE portfolio is planned for early 2026; we remain in close cooperation with Wiliot regarding manufacturing of their next-generation IoT Pixels. Our teams have been working hand in hand to make sure we can handle volume production for Wiliot's customers and partners over the coming months. Wiliot IoT Pixels are compact, battery-free Bluetooth sensors that draw power by harvesting ambient radio frequency energy, which allows them to continuously transmit data such as temperature, motion and location for smart supply chain and IoT applications. The momentum we see building around BLE and growing market interest have us very optimistic. Accelerate initiatives number two and three are centered on generating growth in six high-value, high-volume applications: three within health care, two within consumer and one within logistics. To back these efforts, we have grown our business development and product management teams so they can drive market engagement via strategic partnerships and direct OEM relationships, and so our product road maps stay aligned with what each target application specifically requires. Strategic partnerships matter greatly for creating and deploying solutions in these key markets. Identiv supplies a critical component of any IoT solution — our inlays, tags and labels — but customers also need strong application-specific data analytics to produce meaningful insights. During the last 6 months, building relationships that complement our technology has been a priority, and we will keep seeking partnerships wherever there is strong strategic alignment. Beyond IFCO, we also revealed a strategic partnership with Narravero, a global SaaS platform for digital product passports, or DPPs, and supply chain transparency. This collaboration is in anticipation of new EU regulations that will require DPPs, set to take effect beginning in 2027. A DPP is a digital record holding detailed information about a product's materials, origin, environmental impact and life cycle, which enables greater transparency and sustainability throughout the supply chain. By pairing Identiv's NFC inlays for dynamic product data with Narravero's robust data management platform, this collaboration is meant to deliver a comprehensive integrated solution that simplifies DPP deployment for companies. According to current projections and regulatory scope, we estimate the EU's DPP framework could apply to more than 3 billion products annually across categories such as apparel, electronics and industrial goods. We see this as putting our work with Narravero in a spot where volume could be substantial, and it might let Identiv turn out millions of NFC inlays annually as DPP rules phase in gradually across a range of product categories. Beyond that, we're pushing forward on tie-ups that got underway earlier in the year, among them our strategic alliances with Novanta for medical device uses and with Tag-N-Trac for pharmaceutical cold chain oversight. Last week, over in Chicago, we appeared alongside our partner Novanta at the ADLM diagnostics industry trade show. There, at their booth, we put our joint solution for advanced diagnostics on display, showing how RFID tags from Identiv alongside Novanta's ThingMagic reader technology can be brought together within diagnostic test equipment; this novel approach permits uninterrupted tracking of test samples and medical consumables, something that assists in securing precise test outcomes and boosts patient safety. Our strategic alliance with Tag-N-Trac brings together our sophisticated BLE smart labels and Tag-N-Trac's RELATIVITY SaaS platform, and the aim is giving pharma clients a unified IoT offering that provides item-level visibility plus actionable insights for cold chain tracking throughout the pharmaceutical industry supply chain; back in June, we jointly hosted a keynote session alongside Tag-N-Trac at the AIPIA & AWA Smart Packaging World Congress 2025 in Amsterdam, and we feel excited about the possible opportunities sitting in the pipeline.

Moving on to the third component of our strategic framework, Transform. This pillar is centered on fueling business growth and capability expansion via M&A. What we aim to do is speed up the path to EBITDA breakeven by achieving greater scale, expanding the range of products we offer, and boosting our technical strengths through strategic acquisitions. Together with our financial adviser, Raymond James, we keep assessing our strategic alternatives. We've also bolstered both our Board and our standing M&A committee by welcoming our newest Board member, Mick Lopez. Having served as a public company CFO, Mick carries extensive knowledge in M&A and corporate finance, plus a shareholder-oriented mindset that is already delivering value to how we make strategic decisions. Beginning last quarter, we started reporting a number of metrics to track how we're progressing against our strategic objectives. Over the course of this year, we will be building our baseline, and we'll be honing what we learn. Drawing on what we discover, we plan to set targets for these metrics in 2026. Here are the new metrics: One, new sales pipeline and conversion rate. This metric monitors how many opportunities exist with new customers, or customers we haven't sold to in more than 2 years. When quarter 2 ended, our pipeline contained 100 new opportunities. That's up from 75 at the close of quarter 1. During the first half of the year, we converted 14% of our new opportunities into sales. NPD, new product development projects. This metric monitors how many active NPD initiatives we have. Such projects entail creating completely new RFID or BLE tags, inlays or labels. By the close of quarter 2, 19 active NPD projects existed, 12 customer-driven and 7 internally driven. Four of the customer-driven projects are aimed at health care applications, and five made use of BLE technology, which accounts for the biggest portion of potential volume and steady state revenue. Three, NPD project completion; this metric records how many NPD projects were finished during the quarter. In quarter 2, we finished one internally-driven project, the specialized new conductive adhesive that creates the critical connection between the chip and the antenna on the inlay. Last, I'd like to give an update regarding our corporate governance. At the 2025 Annual Meeting held on June 10, stockholders passed the proposal to amend the company's charter to declassify the Board. As a result, the Class II director nominees were reelected for 1-year terms, and the Board's classified structure will conclude at the end of 2026 Annual Meeting of Stockholders, at which point all nominees for election as director will stand for 1-year terms. As a reminder, the Board previously announced plans to declassify its structure as part of its ongoing corporate governance review, which seeks to better align the company's governance with best practices and enhance accountability to shareholders. To wrap up, while we expect the global macroeconomic uncertainty to continue, Identiv's value proposition remains strong and consistent. The long-term secular trends that are driving demand for RFID and BLE-enabled solutions remain solid. Since we're a dedicated provider of IoT solutions with a pure-play focus, we're confident the right personnel are on board to carry out our P-A-T strategic framework. Through strengthening the core advantages of our channel, growing via fresh strategic partnerships and inventive product development, and moving quickly through the transform process alongside our financial adviser, we're confident we can generate value for every one of our stakeholders; having said that, I'd now like to invite your questions to begin the call. Operator, kindly open the question queue.

I'd like to kick things off by focusing on the news you shared this week, and considering what kind of chance this represents in the grocery sector, given that pilot testing is happening during 2025 and a full-scale rollout is planned for 2026. Could you give us some perspective on how large this opportunity might become over the longer term, and at what point it could start to have a meaningful impact on the model?

Absolutely, yes — this partnership has us genuinely thrilled and delighted, and for us it represents a substantial potential volume opportunity. To put it in context, IFCO has more than 400 million plastic containers that they eventually intend to have tagged. Over the coming 4 to 5 years, the aim is to tag every one of those. On top of that, there's a continuing opportunity, since approximately 10% or more of those plastic containers require replenishment annually. So we're enthusiastic about this opportunity. It remains very much an active development program. Consequently, while the objective is to reach mass production launch in 2026, a development program always carries some degree of uncertainty. This is a highly innovative product. It relies on a next-generation chip. There is also some genuinely interesting innovation tied to how it's manufactured. So all of that is still in development, but the aim is to begin mass production in 2026.

Understood. And I'm also just wondering whether you might describe what order trends have looked like during the opening 6 weeks of this quarter.

Certainly. Do you mean for Q3 in particular?