UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from ______ to ______
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
|
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of exchange on which registered |
|
|
|
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
|
☑ |
|
Non-accelerated filer |
☐ |
|
Smaller reporting company |
|
Emerging growth company |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 2, 2023, the registrant had
TABLE OF CONTENTS
|
|
|
Page |
|
|||
Item 1. |
|
3 |
|
|
|
3 |
|
|
|
4 |
|
|
|
5 |
|
|
|
6 |
|
|
|
Notes to Unaudited Condensed Consolidated Financial Statements |
7 |
Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
Item 3. |
|
31 |
|
Item 4. |
|
31 |
|
|
|
||
|
|||
Item 1. |
|
33 |
|
Item 1A. |
|
33 |
|
Item 2. |
|
33 |
|
Item 6. |
|
34 |
|
|
|
|
|
35 |
|||
2
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
IDENTIV, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except par value)
|
|
March 31, |
|
|
December 31, |
|
||
ASSETS |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
|
||
Accounts receivable, net of allowances of $ |
|
|
|
|
|
|
||
Inventories |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Property and equipment, net |
|
|
|
|
|
|
||
Operating lease right-of-use assets |
|
|
|
|
|
|
||
Intangible assets, net |
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Financial liabilities, net of debt issuance costs of $ |
|
|
|
|
|
— |
|
|
Operating lease liabilities |
|
|
|
|
|
|
||
Deferred revenue |
|
|
|
|
|
|
||
Accrued compensation and related benefits |
|
|
|
|
|
|
||
Other accrued expenses and liabilities |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
Long-term operating lease liabilities |
|
|
|
|
|
|
||
Long-term deferred revenue |
|
|
|
|
|
|
||
Other long-term liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Stockholders' equity: |
|
|
|
|
|
|
||
Preferred stock, $ |
|
|
|
|
|
|
||
Common stock, $ |
|
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
|
||
Treasury stock, |
|
|
( |
) |
|
|
( |
) |
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Accumulated other comprehensive income |
|
|
|
|
|
|
||
Total stockholders' equity |
|
|
|
|
|
|
||
Total liabilities and stockholders' equity |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
IDENTIV, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited, in thousands, except per share data)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Net revenue |
|
$ |
|
|
$ |
|
||
Cost of revenue |
|
|
|
|
|
|
||
Gross profit |
|
|
|
|
|
|
||
Operating expenses: |
|
|
|
|
|
|
||
Research and development |
|
|
|
|
|
|
||
Selling and marketing |
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
||
Restructuring and severance |
|
|
|
|
|
( |
) |
|
Total operating expenses |
|
|
|
|
|
|
||
Loss from operations |
|
|
( |
) |
|
|
( |
) |
Non-operating income (expense): |
|
|
|
|
|
|
||
Interest expense, net |
|
|
( |
) |
|
|
( |
) |
Gain on investment |
|
|
— |
|
|
|
|
|
Foreign currency gains, net |
|
|
|
|
|
|
||
Loss before income tax benefit (provision) |
|
|
( |
) |
|
|
( |
) |
Income tax benefit (provision) |
|
|
( |
) |
|
|
|
|
Net loss |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Other comprehensive loss: |
|
|
|
|
|
|
||
Foreign currency translation adjustment |
|
|
|
|
|
( |
) |
|
Comprehensive loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
||
Net loss per common share: |
|
|
|
|
|
|
||
Basic |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted average shares used in computing net |
|
|
|
|
|
|
||
Basic |
|
|
|
|
|
|
||
Diluted |
|
|
|
|
|
|
||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
IDENTIV, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, in thousands)
|
|
Three Months Ended March 31, 2023 |
|
|||||||||||||||||||||||||||||||||
|
|
Series B |
|
|
Common Stock |
|
|
Additional |
|
|
Treasury |
|
|
Accumulated |
|
|
Accumulated |
|
|
Total |
|
|||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Stock |
|
|
Deficit |
|
|
Income |
|
|
Equity |
|
|||||||||
Balances, January 1, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
|||||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Unrealized income from foreign |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Issuance of common stock in connection |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Shares withheld in payment of taxes in |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balances, March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Three Months Ended March 31, 2022 |
|
|||||||||||||||||||||||||||||||||
|
|
Series B |
|
|
Common Stock |
|
|
Additional |
|
|
Treasury |
|
|
Accumulated |
|
|
Accumulated |
|
|
Total |
|
|||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Stock |
|
|
Deficit |
|
|
Income |
|
|
Equity |
|
|||||||||
Balances, January 1, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
|||||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Unrealized loss from foreign |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Issuance of common stock in connection |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Shares withheld in payment of taxes in |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balances, March 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
IDENTIV, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash flows used in operating activities |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Gain on investment |
|
|
— |
|
|
|
( |
) |
Amortization of debt issuance costs |
|
|
|
|
|
— |
|
|
Stock-based compensation expense |
|
|
|
|
|
|
||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
|
|
|
|
||
Inventories |
|
|
( |
) |
|
|
( |
) |
Prepaid expenses and other assets |
|
|
( |
) |
|
|
|
|
Accounts payable |
|
|
( |
) |
|
|
|
|
Deferred revenue |
|
|
( |
) |
|
|
( |
) |
Accrued expenses and other liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
||
Capital expenditures |
|
|
( |
) |
|
|
( |
) |
Proceeds from investment |
|
|
— |
|
|
|
|
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Borrowings under revolving loan facility, net of issuance costs |
|
|
|
|
|
— |
|
|
Taxes paid related to net share settlement of restricted stock units |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) financing activities |
|
|
|
|
|
( |
) |
|
Effect of exchange rates on cash, cash equivalents, and restricted cash |
|
|
|
|
|
( |
) |
|
Net increase (decrease) in cash, cash equivalents, and restricted cash |
|
|
|
|
|
( |
) |
|
Cash, cash equivalents, and restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents, and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
Supplemental Disclosures of Cash Flow Information: |
|
|
|
|
|
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Taxes paid, net |
|
$ |
|
|
$ |
|
||
Non-cash investing and financing activities: |
|
|
|
|
|
|
||
Operating lease right-of-use assets obtained in exchange for operating lease liabilities |
|
$ |
|
|
$ |
— |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
IDENTIV, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Identiv, Inc. and its wholly owned subsidiaries (the “Company”). All intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to the fiscal year 2022 condensed consolidated financial statements to conform to the fiscal year 2023 presentation. The reclassifications had no impact on net loss, total assets, total liabilities, or stockholders’ equity.
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the Company’s unaudited condensed consolidated financial statements have been included. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or any future period. The unaudited condensed consolidated balance sheet as of December 31, 2022 has been derived from audited consolidated financial statements at that date, but does not include all disclosures required by U.S. GAAP for complete financial statements. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” and the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
2. Significant Accounting Policies and Recent Accounting Pronouncements
Significant Accounting Policies
No material changes have been made to the Company's significant accounting policies disclosed in Note 2, Significant Accounting Policies and Recent Accounting Pronouncements, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that the Company adopts as of the specified effective date. The Company does not believe that the impact of recently issued standards that are not yet effective will have a material impact on its financial position or results of operations upon adoption.
3. Revenue
Revenue Recognition
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company enters into contracts that can include various combinations of its products, software licenses, and services, which are generally capable of being distinct and accounted for as separate performance obligations. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation, generally on a relative basis using its standalone selling price. The stated contract value is generally the transaction price to be allocated to the separate performance obligations. Revenue is recognized net of any taxes collected from customers that are subsequently remitted to governmental authorities.
Nature of Products and Services
The Company derives revenues from sales of hardware products, software licenses, subscriptions, professional services, software maintenance and support, and extended hardware warranties.
7
Hardware Product Revenue — The Company generally has two performance obligations in arrangements involving the sale of hardware products. The first performance obligation is to transfer the hardware product (which includes software integral to the functionality of the hardware product). The second performance obligation is to provide assurance that the product complies with its agreed-upon specifications and is free from defects in material and workmanship for a period of one to three years (i.e., assurance warranty). The entire transaction price is allocated to the hardware product and is generally recognized as revenue at the time of shipment because the customer obtains control of the product at that point in time. The Company has concluded that control generally transfers at that point in time because the customer has title to the hardware, and a present obligation to pay for the hardware. None of the transaction price is allocated to the assurance warranty component, as the Company accounts for these product warranty costs in accordance with Accounting Standards Codification (“ASC”) 460, Guarantees (“ASC 460”).
Software License Revenue — The Company’s license arrangements grant customers the perpetual right to access and use the licensed software products at the outset of an arrangement. Technical support and software updates are generally made available throughout the term of the support agreement, which is generally to
Subscription Revenue — Subscription revenues consist of fees received in consideration for providing customers access to one or more of the Company’s software-as-a-service (“SaaS”) based solutions. These SaaS arrangements include access to the Company’s licensed software and, in certain arrangements, use of various hardware devices over the contract term. These SaaS arrangements do not provide the customer the right to take possession of the software supporting the subscription service, or if applicable, any hardware devices at any time during the contract period, and as such are not considered separate performance obligations. Revenue is recognized ratably on a straight-line basis over the term of the contract beginning when the service is made available to the customer. Subscription contract terms range from -to-month to
Professional Services Revenue — Professional services revenue consists primarily of programming customization services performed relating to the integration of the Company’s software products with the customers other systems, such as human resources systems. Professional services contracts are generally billed on a time and materials basis and revenue is recognized as the services are performed.
Software Maintenance and Support Revenue — Support and maintenance contract revenue consists of the services provided to support the specialized programming applications performed by the Company’s professional services group. Support and maintenance contracts are typically billed at inception of the contract and recognized as revenue over the contract period, typically over a -or
Extended Hardware Warranties Revenue — Sales of the Company’s hardware products may also include optional extended hardware warranties, which typically provide assurance that the product will continue to function as initially intended. Extended hardware warranty contracts are typically billed at inception of the contract and recognized as revenue over the respective contract period, typically over -to-
Performance |
|
When Performance Obligation is |
|
When Payment is |
|
How Standalone Selling Price is |
|
|
|
||||
|
|
|
||||
|
|
|
||||
|
|
|
||||
|
|
|
|
|||
|
|
|
|
8
Significant Judgments
The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. For such arrangements, the Company allocates the transaction price to each performance obligation based on its relative standalone selling price (“SSP”).
Judgment is required to determine the SSP for each distinct performance obligation in a contract. For the majority of items, the Company estimates SSP using historical transaction data. The Company uses a range of amounts to estimate SSP when it sells each of the products and services separately and needs to determine whether there is a discount to be allocated based on the relative SSP of the various products and services. In instances where SSP is not directly observable, such as when the product or service is not sold separately, the Company determines the SSP using information that may include market conditions and other observable inputs. The determination of SSP is an ongoing process and information is reviewed regularly in order to ensure SSPs reflect current information or trends.
Disaggregation of Revenue
The Company disaggregates revenue from contracts with customers based on the timing of transfer of goods or services to customers (point-in-time or over time) and geographic region based on the shipping location of the customer. The geographic regions that are tracked are the Americas, Europe and the Middle East, and Asia-Pacific regions.
Total net revenue based on the disaggregation criteria described above is as follows (in thousands):
|
Three Months Ended March 31, |
|
|||||||||||||||||||||
|
2023 |
|
|
2022 |
|
||||||||||||||||||
|
Point-in- |
|
|
Over Time |
|
|
Total |
|
|
Point-in- |
|
|
Over Time |
|
|
Total |
|
||||||
Americas |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Europe and the Middle East |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Asia-Pacific |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Contract Balances
Amounts invoiced in advance of services being provided are accounted for as deferred revenue. Nearly all of the Company’s deferred revenue balance is related to software maintenance contracts. Payment terms and conditions vary by contract type, although payment is typically due within
Changes in deferred revenue during the three months ended March 31, 2023 and 2022 were as follows (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Deferred revenue, beginning of period |
|
$ |
|
|
$ |
|
||
Deferral of revenue billed in current period, net of recognition |
|
|
|
|
|
|
||
Recognition of revenue deferred in prior periods |
|
|
( |
) |
|
|
( |
) |
Deferred revenue, end of period |
|
$ |
|
|
$ |
|
||
Amounts recognized as revenue in excess of amounts billed are recorded as unbilled receivables and are included in other current assets on the condensed consolidated balances sheets. As of March 31, 2023 and December 31, 2022, the amount of unbilled receivables was immaterial.
Unsatisfied Performance Obligations
Revenue expected to be recognized in future periods related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less, and contracts where revenue is recognized as invoiced, was approximately $
9
4. Fair Value Measurements
The Company determines the fair values of its financial instruments based on a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement. Under ASC 820, Fair Value Measurement and Disclosures, the fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of March 31, 2023 and December 31, 2022, the only assets measured and recognized at fair value on a recurring basis were nominal cash equivalents. As of March 31, 2023 and December 31, 2022, there were
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
Certain of the Company's assets, including goodwill, intangible assets, and privately-held investments, are measured at fair value on a nonrecurring basis if impairment is indicated. Purchased intangible assets are measured at fair value primarily using discounted cash flow projections. For additional discussion of measurement criteria used in evaluating potential impairment involving goodwill and intangible assets, refer to Note 5, Goodwill and Intangible Assets.
As of March 31, 2023 and December 31, 2022, the Company had $
As of March 31, 2023 and December 31, 2022, there were
Assets and Liabilities Not Measured at Fair Value
The carrying amounts of the Company's accounts receivable, prepaid expenses and other current assets, accounts payable, and other accrued liabilities approximate fair value due to their short maturities. The carrying value of the Company's financial liabilities approximates fair value based upon borrowing rates currently available to the Company for loans with similar terms.
10
5. Goodwill and Intangible Assets
Goodwill
The following table summarizes the activity in goodwill (in thousands):
|
|
Identity |
|
|
Premises |
|
|
Total |
|
|||
Balance as of January 1, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Currency translation adjustment |
|
|
— |
|
|
|
|
|
|
|
||
Balance as of March 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Balance as of January 1, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Currency translation adjustment |
|
|
— |
|
|
|
|
|
|
|
||
Balance as of March 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
In accordance with ASC 350, Intangibles – Goodwill and Other, the Company tests goodwill for impairment on an annual basis, in the fourth quarter, or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. The Company performs an initial assessment of qualitative factors to determine whether the existence of events and circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In performing the qualitative assessment, the Company identifies and considers the significance of relevant key factors, events, and circumstances that affect the fair value of its reporting units. These factors include external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as actual and planned financial performance. If, after assessing the totality of relevant events and circumstances, the Company determines that it is more likely than not that the fair value of the reporting unit exceeds its carrying value and there is no indication of impairment, no further testing is performed; however, if the Company concludes otherwise, then the Company will perform the quantitative impairment test which compares the estimated fair value of the reporting unit to its carrying value, including goodwill. If the carrying amount of the reporting unit is in excess of its fair value, an impairment loss would be recorded in the condensed consolidated statements of comprehensive loss. During the three months ended March 31, 2023 and 2022, the Company noted
Intangible Assets
The following table summarizes the gross carrying amount and accumulated amortization for intangible assets resulting from acquisitions (in thousands):
|
|
|
|
|
Developed |
|
|
Customer |
|
|
|
|
||||
|
|
Trademarks |
|
|
Technology |
|
|
Relationships |
|
|
Total |
|
||||
Amortization period (in years) |
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross carrying amount as of March 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Accumulated amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Intangible assets, net as of March 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross carrying amount as of December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Accumulated amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Intangible assets, net as of December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Each period, the Company evaluates the estimated remaining useful lives of purchased intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. If a revision to the remaining period of amortization is warranted, amortization is prospectively adjusted over the remaining useful life of the intangible asset. Intangible assets subject to amortization are amortized on a straight-line basis over their useful lives as indicated in the table above. The Company performs an evaluation of its amortizable intangible assets for impairment at the end of each reporting period. The Company did
11
The following table summarizes the amortization expense included in the condensed consolidated statements of comprehensive income (loss) for the three months ended March 31, 2023 and 2022 (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cost of revenue |
|
$ |
|
|
$ |
|
||
Selling and marketing |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
The estimated annual future amortization expense for purchased intangible assets with definite lives as of March 31, 2023 was as follows (in thousands):
2023 (remaining nine months) |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
6. Balance Sheet Components
The Company’s inventories are stated at the lower of cost or net realizable value. Inventories consists of (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work-in-progress |
|
|
— |
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Property and equipment, net consists of (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
Building and leasehold improvements |
|
$ |
|
|
$ |
|
||
Furniture, fixtures and office equipment |
|
|
|
|
|
|
||
Plant and machinery |
|
|
|
|
|
|
||
Purchased software |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
||
The Company recorded depreciation expenses of $
Other accrued expenses and liabilities consist of (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
Accrued professional fees |
|
$ |
|
|
$ |
|
||
Accrued warranties |
|
|
|
|
|
|
||
Other accrued expenses |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
12
7. Financial Liabilities
The Company’s financial liabilities consist of (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Revolving loan facility |
|
$ |
|
|
$ |
— |
|
|
Less: Unamortized debt issuance costs |
|
|
( |
) |
|
|
— |
|
Financial liabilities, net of debt issuance costs |
|
$ |
|
|
$ |
— |
|
|
On February 8, 2017, the Company entered into a Loan and Security Agreement (as amended or amended and restated from time to time, the “Loan Agreement”) with East West Bank (“EWB”). Following subsequent amendments, on April 14, 2022, the Company and EWB amended the Loan Agreement replacing the $
The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, limits or restrictions on the Company’s ability to incur liens, incur indebtedness, make certain restricted payments (including dividends), merge or consolidate and dispose of assets, as well as other financial covenants. The Company’s obligations under the Loan Agreement are collateralized by substantially all of its assets. As of March 31, 2023, there was $
8. Income Taxes
The Company conducts business globally and, as a result, files federal, state and foreign tax returns. The Company strives to resolve open matters with each tax authority at the examination level and could reach agreement with a tax authority at any time. While the Company has accrued for amounts it believes are the probable outcomes, the final outcome with a tax authority may result in a tax liability that is more or less than that reflected in the condensed consolidated financial statements. Furthermore, the Company may later decide to challenge any assessments, if made, and may exercise its right to appeal.
The Company applies the provisions of, and accounted for uncertain tax positions, in accordance with ASC 740, Income Taxes (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
The Company generally is no longer subject to tax examinations for years prior to 2017. However, if loss carryforwards of tax years prior to 2017 are utilized in the U.S., these tax years may become subject to investigation by the tax authorities. While timing of the resolution and/or finalization of tax audits is uncertain, the Company does not believe that its unrecognized tax benefits would materially change in the next 12 months.
On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (the “Act”) into law. The $1.9 trillion Act includes COVID-19 relief, as well as broader stimulus, but also includes several revenue-raising and business tax provisions. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) also includes several significant provisions for corporations, including the usage of net operating losses and payroll benefits. Several foreign (non-U.S.) jurisdictions in which the Company operates have taken similar economic stimulus measures. The Act and the CARES Act had no material impact on the Company’s condensed consolidated financial statements and disclosures.
The Inflation Reduction Act (the “IRA”) was signed into the law on August 16, 2022. The IRA provides for a minimum tax on certain corporations having more than $
13
9. Stockholders’ Equity
Series B Convertible Preferred Stock Dividend Accretion
The following table summarizes Series B convertible preferred stock and the accretion of dividend activity for the three months ended March 31, 2023 and 2022 (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Series B Convertible Preferred Stock: |
|
|
|
|
|
|
||
Balance at beginning of period |
|
$ |
|
|
$ |
|
||
Cumulative dividends on Series B convertible preferred stock |
|
|
|
|
|
|
||
Balance at end of period |
|
$ |
|
|
$ |
|
||
Number of Common Shares Issuable Upon Conversion: |
|
|
|
|
|
|
||
Number of shares at beginning of period |
|
|
|
|
|
|
||
Cumulative dividends on Series B convertible preferred stock |
|
|
|
|
|
|
||
Number of shares at end of period |
|
|
|
|
|
|
||
Based on the current conversion price, the outstanding shares, including the accretion of dividends, of Series B convertible preferred stock as of March 31, 2023 would be convertible into
14
Common Stock Warrants
On May 5, 2020, the Company entered into a Note and Warrant Purchase Agreement with 21 April Fund, LP and 21 April Fund, Ltd., (collectively, the “April 21 Funds”), pursuant to which the Company issued warrants (“April 21 Funds Warrants”) to purchase
Below is the summary of outstanding warrants as of March 31, 2023:
Warrant Type |
|
Number of Shares |
|
|
Weighted |
|
|
Issue Date |
|
Expiration Date |
||
April 21 Funds Warrants |
|
|
|
|
$ |
|
|
|
||||
On April 24, 2023, April 21 Funds exercised their warrants, receiving
Common Stock Reserved for Future Issuance
Common stock reserved for future issuance as of March 31, 2023 was as follows:
Exercise of outstanding stock options, vesting of restricted stock units ("RSUs"), vesting of |
|
|
|
|
Employee Stock Purchase Plan |
|
|
|
|
Shares of common stock available for grant under the 2011 Plan |
|
|
|
|
Warrants to purchase common stock |
|
|
|
|
Shares of common stock issuable upon conversion of Series B convertible preferred stock |
|
|
|
|
Total |
|
|
|
10. Stock-Based Compensation
Stock Incentive Plan
The Company maintains a stock-based compensation plan, the 2011 Incentive Compensation Plan (the “2011 Plan”), as amended, to attract, motivate, retain and reward employees, directors and consultants by providing its Board or a committee of the Board the discretion to award equity incentives to these persons.
Stock Options
A summary of stock option activity for the three months ended March 31, 2023 is as follows:
|
|
Number |
|
|
Weighted Average Exercise |
|
|
Weighted Average |
|
|
Aggregate |
|
||||
Balance as of January 1, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Cancelled or Expired |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Balance as of March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Vested or expected to vest as of March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable as of March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
The aggregate intrinsic value in the table above represents the difference between the fair value of the Company’s common stock as of March 31, 2023 and the exercise price of in-the-money stock options multiplied by the number of such stock options.
15
The following table summarizes information about stock options outstanding as of March 31, 2023:
|
|
Stock Options Outstanding |
|
|
Stock Options Exercisable |
|
||||||||||||||
Range of Exercise Prices |
|
Number |
|
|
Weighted |
|
|
Weighted |
|
|
Number |
|
|
Weighted |
|
|||||
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|||||
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|||||
As of March 31, 2023, there was
Restricted Stock Units
The following is a summary of RSU activity for the three months ended March 31, 2023:
|
|
Number |
|
|
Weighted Average |
|
||
Unvested as of January 1, 2023 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Unvested as of March 31, 2023 |
|
|
|
|
$ |
|
||
RSUs vested but not released |
|
|
|
|
$ |
|
||
The fair value of the Company’s RSUs is calculated based upon the fair market value of the Company’s common stock at the date of grant. As of March 31, 2023, there was $
Performance Stock Units
The Company grants PSUs to certain key employees that are subject to the attainment of performance goals established by the Company’s Compensation Committee, the periods during which performance is to be measured, and other limitations and conditions. Performance goals are based on pre-established objectives that specify the manner of determining the number of PSUs that will vest if performance goals are attained. If an employee terminates employment, the non-vested portion of the PSUs will not vest and all rights to the non-vested portion will terminate.
The following is a summary of PSU activity for the three months ended March 31, 2023:
|
|
Number |
|
|
Weighted Average |
|
||
Unvested as of January 1, 2023 |
|
|
|
|
$ |
|
||
Granted |
|
|
— |
|
|
|
— |
|
Vested |
|
|
— |
|
|
|
— |
|
Forfeited |
|
|
— |
|
|
|
— |
|
Unvested as of March 31, 2023 |
|
|
|
|
$ |
|
||
As of March 31, 2023, there was $
16
Stock-Based Compensation Expense
The following table summarizes stock-based compensation expense related to stock options, RSUs, and PSUs included in the condensed consolidated statements of comprehensive income (loss) for the three months ended March 31, 2023 and 2022 (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cost of revenue |
|
$ |
|
|
$ |
|
||
Research and development |
|
|
|
|
|
|
||
Selling and marketing |
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Restricted Stock Unit Net Share Settlements
During the three months ended March 31, 2023 and 2022, the Company repurchased
11. Net Loss per Common Share
Basic net loss per common share is computed by dividing net loss available to common stockholders during the period by the weighted average number of common shares outstanding during that period. Diluted net loss per common share is impacted by equity instruments considered to be potential common shares, if dilutive, computed using the treasury stock or the if-converted method of accounting. Dilutive potential common share equivalents are excluded from the computation of net income (loss) per share in loss periods, as their effect would be antidilutive.
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Basic net loss per common share: |
|
|
|
|
|
|
||
Numerator: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Less: accretion of Series B convertible preferred stock dividends |
|
|
( |
) |
|
|
( |
) |
Net loss available to common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
||
Denominator: |
|
|
|
|
|
|
||
Weighted average common shares outstanding - basic |
|
|
|
|
|
|
||
Net loss per common share - basic |
|
$ |
( |
) |
|
$ |
( |
) |
The following common stock equivalents have been excluded from diluted net loss per share for the three months ended March 31, 2023 and 2022 because their inclusion would have been anti-dilutive (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Shares of common stock subject to outstanding RSUs |
|
|
|
|
|
|
||
Shares of common stock subject to outstanding PSUs |
|
|
|
|
|
|
||
Shares of common stock subject to outstanding stock options |
|
|
|
|
|
|
||
Shares of common stock subject to outstanding warrants |
|
|
|
|
|
|
||
Shares of common stock issuable upon conversion of Series B |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
17
1
Segment Reporting
ASC 280, Segment Reporting establishes standards for the reporting by public business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method for determining what information to report is based on the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenue and incur expenses and about which separate financial information is available to its chief operating decision makers (“CODM”). The Company’s CODM is its Chief Executive Officer.
The CODM reviews financial information and business performance for each operating segment. The Company evaluates the performance of its operating segments at the revenue and gross profit levels. The Company does not report total assets, capital expenditures or operating expenses by operating segment as such information is not used by the CODM for purposes of assessing performance or allocating resources.
Net revenue and gross profit information by segment for the three months ended March 31, 2023 and 2022 are as follows (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Identity: |
|
|
|
|
|
|
||
Net revenue |
|
$ |
|
|
$ |
|
||
Gross profit |
|
|
|
|
|
|
||
Gross profit margin |
|
|
% |
|
|
% |
||
Premises: |
|
|
|
|
|
|
||
Net revenue |
|
|
|
|
|
|
||
Gross profit |
|
|
|
|
|
|
||
Gross profit margin |
|
|
% |
|
|
% |
||
Total: |
|
|
|
|
|
|
||
Net revenue |
|
|
|
|
|
|
||
Gross profit |
|
|
|
|
|
|
||
Gross profit margin |
|
|
% |
|
|
% |
||
Operating expenses: |
|
|
|
|
|
|
||
Research and development |
|
|
|
|
|
|
||
Selling and marketing |
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
||
Restructuring and severance |
|
|
|
|
|
( |
) |
|
Total operating expenses: |
|
|
|
|
|
|
||
Loss from operations |
|
|
( |
) |
|
|
( |
) |
Non-operating income (expense): |
|
|
|
|
|
|
||
Interest expense, net |
|
|
( |
) |
|
|
( |
) |
Gain on investment |
|
|
— |
|
|
|
|
|
Foreign currency gains, net |
|
|
|
|
|
|
||
Loss before income tax benefit (provision) |
|
$ |
( |
) |
|
$ |
( |
) |
18
Geographic Information
Geographic net revenue is based on the customer’s ship-to location. Information regarding net revenue by geographic region for the three months ended March 31, 2023 and 2022 is as follows (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Americas |
|
$ |
|
|
$ |
|
||
Europe and the Middle East |
|
|
|
|
|
|
||
Asia-Pacific |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
As percentage of net revenue: |
|
|
|
|
|
|
||
Americas |
|
|
% |
|
|
% |
||
Europe and the Middle East |
|
|
% |
|
|
% |
||
Asia-Pacific |
|
|
% |
|
|
% |
||
Total |
|
|
% |
|
|
% |
||
Concentration of Credit Risk
Long-lived assets by geographic location as of March 31, 2023 and December 31, 2022 are as follows (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
Property and equipment, net: |
|
|
|
|
|
|
||
Americas |
|
$ |
|
|
$ |
|
||
Europe and the Middle East |
|
|
|
|
|
|
||
Asia-Pacific |
|
|
|
|
|
|
||
Total property and equipment, net |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Operating lease ROU assets: |
|
|
|
|
|
|
||
Americas |
|
$ |
|
|
$ |
|
||
Europe and the Middle East |
|
|
|
|
|
|
||
Asia-Pacific |
|
|
|
|
|
|
||
Total operating lease right-of-use assets |
|
$ |
|
|
$ |
|
||
13. Restructuring and Severance
During the three months ended March 31, 2023, restructuring expenses consisted of severance related costs of $
19
1
The Company’s leases consist primarily of operating leases for administrative office space, research and development facilities, a manufacturing facility, and sales offices in various countries around the world. The Company determines if an arrangement is a lease at inception. Some lease agreements contain lease and non-lease components, which are accounted for as a single lease component. Total rent expense was $
Initial lease terms are determined at commencement and may include options to or terminate the lease when it is reasonably certain the Company will exercise the option. Remaining lease terms range from to
The table below reconciles the undiscounted cash flows for the first five years and the total of the remaining years to the operating lease liabilities recorded on the condensed consolidated balance sheet as of March 31, 2023 (in thousands):
|
|
March 31, |
|
|
2023 (remaining nine months) |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total minimum lease payments |
|
|
|
|
Less: amount of lease payments representing interest |
|
|
( |
) |
Present value of future minimum lease payments |
|
|
|
|
Less: current liabilities under operating leases |
|
|
( |
) |
Long-term operating lease liabilities |
|
$ |
|
|
As of March 31, 2023, the weighted average remaining lease term for the Company’s operating leases was
15. Commitments and Contingencies
The following table summarizes the Company’s principal contractual commitments, excluding operating leases, as of March 31, 2023 (in thousands):
|
|
Purchase |
|
|
Other |
|
|
Total |
|
|||
2023 (remaining nine months) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
2024 |
|
|
|
|
|
— |
|
|
|
|
||
2025 |
|
|
|
|
|
— |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|||
20
Purchase commitments for inventories are highly dependent upon forecasts of customer demand. Due to the uncertainty in demand from its customers, the Company may have to change, reschedule, or cancel purchases or purchase orders from its suppliers. These changes may lead to vendor cancellation charges on these purchases or contractual commitments.
The following table summarizes the Company’s warranty accrual account activity during the three months ended March 31, 2023 and 2022:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Balance at beginning of period |
|
$ |
|
|
$ |
|
||
Charged (credited) to costs and expenses |
|
|
( |
) |
|
|
|
|
Cost of warranty claims |
|
|
|
|
|
|
||
Balance at end of period |
|
$ |
|
|
$ |
|
||
The Company provides warranties on certain product sales for periods ranging from
16. Subsequent Events
There were no subsequent events except as disclosed within Note 7, Financial Liabilities and Note 9, Stockholders' Equity.
21
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other parts of this Quarterly Report on Form 10-Q (“Quarterly Report”) contain forward-looking statements, within the meaning of the safe harbor provisions under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. Forward-looking statements reflect current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “will,” “believe,” “could,” “should,” “would,” “may,” “anticipate,” “intend,” “plan,” “estimate,” “expect,” “project” or the negative of these terms or other similar expressions. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part II, Item 1A of this Report and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 under the heading “Risk Factors,” The following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2022. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.
Each of the terms the “Company,” “Identiv,” “we,” “us” and “our” as used herein refers collectively to Identiv, Inc. and its wholly-owned subsidiaries, unless otherwise stated.
Overview
Identiv is a global provider of secure identification and physical security.
We are leveraging our Radio Frequency Identification (“RFID”)-enabled physical device-management expertise as well as our physical access, video and analytics solutions to provide leading solutions as our customers, and our customers’ customers, embracing the Internet of Things (“IoT”). Customers in the technology and mobility, consumer, government, healthcare, education and other sectors rely on Identiv’s identification and access solutions. Identiv’s platform encompasses RFID and Near-Field Communication (“NFC”), cybersecurity, and the full spectrum of physical access, video, and audio security. We are bringing the benefits of the IoT to a wide range of physical, connected items.
Identiv’s mission is to digitally enable every physical thing and every physical place on the planet. Our full continuum of security solutions is delivered through our platform of RFID-enabled devices, mobile, client/server, cloud, web, dedicated hardware and software defined architectures. In doing so, we believe that we will create smart physical security and a smarter physical world.
Segments
We have organized our operations into two reportable business segments, principally by solution families: Identity and Premises. Our Identity segment includes products and solutions enabling secure access to information serving the logical access and cyber-security market, and protecting connected objects and information using RFID embedded security. Our Premises segment includes our solutions to address the premises security market for government and enterprise, including access control, video surveillance, analytics, audio, access readers and identities.
22
Factors Affecting Our Performance
Market Adoption
Our financial performance depends on the pace, scope and depth of end-user adoption of our RFID products in multiple industries. Such pace, scope and depth accelerated during 2020, causing large fluctuations in our operating results. During 2021, we believe RFID deployments occurred at a much faster pace of growth than historically. We believe significant improvement in chip capabilities at lower costs, combined with the incorporation of the full NFC Data Exchange Format (“NDEF”) protocol by Apple Inc. in its iPhone 12 and iOS 14, has accelerated the opportunities for product engineers to integrate RFID into their products to create new and more engaging customer experiences, product reliability and performance. As the market hit this pivot point, we expanded both our capacity and technical leadership. We track growth indicators including design wins, customer launches and technology launches. We have made investments in our technology, world class quality and automation, and we believe that our competitive advantages will continue to drive growth.
We believe the underlying, long-term trend is continued RFID adoption by multiple verticals. We also believe that expanding use cases fosters adoption across verticals and into other markets. In addition, we do not have any significant concentration of customers so we believe that our demand will continue to be resilient to the loss of any individual customer or application.
If RFID market adoption, and adoption of our products specifically, does not meet our expectations then our growth prospects and operating results will be adversely affected. If we are unable to meet end-user or customer volume or performance expectations, then our business prospects may be adversely affected. In contrast, if our RFID sales exceed expectations, then our revenue and profitability may be positively affected.
Given the uncertainties of the specific timing of our new customer deployments, we cannot assure you that we have appropriate inventory and capacity levels or that we will not experience inventory shortfalls or overages in the future or acquire inventory at costs to maintain gross margins. We attempt to mitigate those risks by being deeply embedded in our customers’ design cycles, working with our chip partners on long lead time components, managing our limited capital equipment needs within a short cycle and future proofing our facilities to accommodate several scenarios for growth potential.
If end users with sizable projects change or delay them, we may experience significant fluctuation in revenue on a quarterly or annual basis, and we anticipate that uncertainty to continue to characterize our business for the foreseeable future.
Seasonality and Other Factors
We experience variations in demand for our offerings from quarter to quarter, and typically experience a stronger demand cycle in the second half of our fiscal year. Sales of our physical access control solutions and related products to U.S. Government agencies are subject to annual government budget cycles and generally are highest in the third quarter of each year. Sales of our Identity readers, many of which are sold to government agencies worldwide, are impacted by project schedules of government agencies, as well as roll-out schedules for application deployments. Further, this business is typically subject to seasonality based on differing commercial and global government budget cycles. Lower sales are expected in the U.S. in the first half, and in particular, the first quarter of the year, with higher sales typically in the second half of each year. In the Asia-Pacific, with fiscal year-ends in March and June, order demand can be higher in the first quarter as customers attempt to complete projects before the end of the fiscal year. Accordingly, our net revenue levels in the first quarter each year often depend on the relative strength of project completions and sales mix between our U.S. customer base and our international customer base.
Purchasing of our Products and Services for U.S. Federal Government Security Programs
In addition to the general seasonality of demand, overall U.S. Federal Government expenditure patterns have a significant effect on demand for our products due to the significant portion of revenue that is typically sourced from U.S. Federal Government agencies. Drivers of growth included our technology strength and proven security solutions, work-from-home mandates, and continued strength in investments for security across a number of different agencies. We believe that the success and growth of our business will continue through the U.S. Federal Government focus on security and our successful procurement of government business. If there are changes in government purchasing policies or budgetary constraints, there could be implications for our growth prospects and operating results. If we are unable to meet end-user or customer volume or performance expectations, then our business prospects and operating results may be adversely affected.
Impacts of Macroeconomic Conditions and Other Factors on our Business
The COVID-19 pandemic and the responses to combat it have had a negative impact on the global economy, including industry-wide global supply chain challenges, such as manufacturing, transportation and logistics. We purchase certain products and key components from a limited number of sources that depend on the supply chain, including freight, to receive components, transport finished goods and deliver our products across the world. In view of the rapidly changing business environment, we have experienced
23
delays and reductions in customer orders, shifting supply chain availability, component shortages, and other production-related challenges. We are currently unable to determine if there will be any continued disruption and the extent to which this may have future impact on our business. We continue to monitor the global supply chain challenges and its effect on our financial position, results of operations, and cash flows.
More recently, we have also been impacted by other adverse macroeconomic conditions, including but not limited to, inflation, foreign currency fluctuations, and the slowdown of economic activity around the globe. These conditions have also impacted our suppliers, contract manufacturers, logistics providers, and distributors, causing increases in cost of materials and higher shipping and transportation rates, which then impacted the pricing of our products. Price increases may not successfully offset cost increases or may cause us to lose market share and, in turn, may adversely impact our financial position, results of operations, and cash flows.
Results of Operations
The following table includes net revenue and net profit information by business segment and reconciles gross profit to loss before income tax benefit (provision) (in thousands).
|
|
Three Months Ended March 31, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
% |
|
|||
Identity: |
|
|
|
|
|
|
|
|
|
|||
Net revenue |
|
$ |
14,678 |
|
|
$ |
14,579 |
|
|
|
1 |
% |
Gross profit |
|
|
3,079 |
|
|
|
3,159 |
|
|
|
(3 |
%) |
Gross profit margin |
|
|
21 |
% |
|
|
22 |
% |
|
|
|
|
Premises: |
|
|
|
|
|
|
|
|
|
|||
Net revenue |
|
|
11,319 |
|
|
|
10,482 |
|
|
|
8 |
% |
Gross profit |
|
|
6,132 |
|
|
|
5,807 |
|
|
|
6 |
% |
Gross profit margin |
|
|
54 |
% |
|
|
55 |
% |
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|||
Net revenue |
|
|
25,997 |
|
|
|
25,061 |
|
|
|
4 |
% |
Gross profit |
|
|
9,211 |
|
|
|
8,966 |
|
|
|
3 |
% |
Gross profit margin |
|
|
35 |
% |
|
|
36 |
% |
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|||
Research and development |
|
|
2,707 |
|
|
|
2,529 |
|
|
|
7 |
% |
Selling and marketing |
|
|
6,097 |
|
|
|
5,110 |
|
|
|
19 |
% |
General and administrative |
|
|
2,948 |
|
|
|
2,488 |
|
|
|
18 |
% |
Restructuring and severance |
|
|
191 |
|
|
|
(140 |
) |
|
|
(236 |
%) |
Total operating expenses: |
|
|
11,943 |
|
|
|
9,987 |
|
|
|
20 |
% |
Loss from operations |
|
|
(2,732 |
) |
|
|
(1,021 |
) |
|
|
168 |
% |
Non-operating income (expense): |
|
|
|
|
|
|
|
|
|
|||
Interest expense, net |
|
|
(50 |
) |
|
|
(25 |
) |
|
|
100 |
% |
Gain on investment |
|
|
— |
|
|
|
24 |
|
|
|
(100 |
%) |
Foreign currency gains, net |
|
|
89 |
|
|
|
19 |
|
|
|
368 |
% |
Loss before income tax benefit (provision) |
|
$ |
(2,693 |
) |
|
$ |
(1,003 |
) |
|
|
168 |
% |
Geographic net revenue based on each customer’s ship-to location is as follows (in thousands):
24
|
|
Three Months Ended March 31, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
% |
|
|||
Americas |
|
$ |
21,628 |
|
|
$ |
16,891 |
|
|
|
28 |
% |
Europe and the Middle East |
|
|
2,984 |
|
|
|
3,794 |
|
|
|
(21 |
%) |
Asia-Pacific |
|
|
1,385 |
|
|
|
4,376 |
|
|
|
(68 |
%) |
Total |
|
$ |
25,997 |
|
|
$ |
25,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Percentage of net revenue: |
|
|
|
|
|
|
|
|
|
|||
Americas |
|
|
83 |
% |
|
|
67 |
% |
|
|
|
|
Europe and the Middle East |
|
|
12 |
% |
|
|
15 |
% |
|
|
|
|
Asia-Pacific |
|
|
5 |
% |
|
|
18 |
% |
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
Net Revenue
Net revenue for the three months ended March 31, 2023 was $26.0 million, an increase of 4% compared with $25.1 million for the comparable period of 2022. Net revenue in the Americas was $21.6 million for the three months ended March 31, 2023, an increase of 28% compared to $16.9 million for the comparable period of 2022. Net revenue in Europe, the Middle East, and the Asia-Pacific was approximately $4.4 million for the three months ended March 31, 2023, a decrease of 47% compared with the comparable period of 2022.
Identity Segment
Net revenue in our Identity segment was $14.7 million for the three months ended March 31, 2023, an increase of 1% compared with $14.6 million for the comparable period of 2022. Net revenue in this segment for the three months ended March 31, 2023 represented 56% of our net revenue, compared to 58% in the comparable period of the prior year.
Net revenue in this segment in the Americas for the three months ended March 31, 2023 increased 49% compared to the three months ended March 31, 2022. The increase was primarily due to higher sales of RFID transponder products to consumer products contract manufacturers and higher sales of access cards.
Net revenue in this segment in Europe, the Middle East, and the Asia-Pacific for the three months ended March 31, 2023 decreased 49% compared with the comparable period of 2022. The decrease was primarily due to lower sales of RFID transponder products, access cards and our legacy smart card readers to existing customers in the medical device and library markets.
Premises Segment
Net revenue in our Premises segment was $11.3 million for the three months ended March 31, 2023, an increase of 8% compared with $10.5 million for the comparable period of 2022. Net revenue in our Premises segment for the three months ended March 31, 2023 represented 44% of our net revenue, compared to 42% in the comparable period of the prior year.
Net revenue in this segment in the Americas for the three months ended March 31, 2023 increased 12%, compared with the comparable period of 2022 due to higher sales of Hirsch Velocity hardware, software, and video product offerings across both federal government and commercial businesses.
Net revenue in this segment across Europe, the Middle East, and the Asia-Pacific for the three months ended March 31, 2023 decreased 26%, compared with the comparable period of 2022. Net revenue in these regions is primarily project driven and can vary period to period.
As a general trend, U.S. Federal agencies continue to be subject to security improvement mandates under programs such as Homeland Security Presidential Directive-12 (“HSPD-12”) and reiterated in memoranda from the Office of Management and Budget (“OMB M-11-11”). We believe that our solutions for trusted physical access is an attractive offering to help federal agency customers move towards compliance with federal directives and mandates. To address sales opportunities in the United States in general and with our U.S. Government customers in particular, we focus on a strong U.S. sales organization and our sales presence in Washington D.C.
25
Gross Profit and Gross Margin
Gross profit for the three months ended March 31, 2023 was $9.2 million, or 35% of net revenue, compared with $9.0 million, or 36% of net revenue in the comparable period of 2022. Gross profit represents net revenue less direct cost of product sales, manufacturing overhead, other costs directly related to preparing the product for sale including freight, scrap, inventory adjustments and amortization, where applicable.
Identity Segment
In our Identity segment, gross profit in the three months ended March 31, 2023 was $3.1 million compared with $3.2 million in the comparable period of 2022. Gross profit margins in the Identity segment for the three months ended March 31, 2023 decreased to 21% from 22% in the comparable period of 2022. The decrease in gross profit margins was primarily attributable to continued investments in technology, manufacturing processes and equipment, and changes in product mix, with lower sales of higher margin legacy smart card readers and higher sales of lower margin RFID transponder products.
Premises Segment
In our Premises segment, gross profit in the three months ended March 31, 2023 was $6.1 million compared with $5.8 million in the comparable period of 2022. Gross profit margins in the Premises segment for the three months ended March 31, 2023 decreased to 54% from 55% in the comparable period of 2022. The decrease in gross profit margins was primarily attributable to changes in product mix.
We expect there will be variation in our total gross profit from period to period, as our gross profit has been and will continue to be affected primarily by varying mix among our products. Within each product category, gross margins have tended to be consistent, but over time may be affected by a variety of factors, including, without limitation, competition, product pricing, the volume of sales in any given quarter, manufacturing volumes, product configuration and mix, the availability of new products, product enhancements, software and services, risk of inventory write-downs and the cost and availability of components.
Operating Expenses
Information about our operating expenses for the three months ended March 31, 2023 and 2022 is set forth below (dollars in thousands).
Research and Development
|
|
Three Months Ended March 31, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
|||
Research and development |
|
$ |
2,707 |
|
|
$ |
2,529 |
|
|
|
7 |
% |
as a % of net revenue |
|
|
10 |
% |
|
|
10 |
% |
|
|
|
|
Research and development expenses consist primarily of employee compensation and fees for the development of hardware, software and firmware products. We focus the bulk of our research and development activities on the continued development of existing products and the development of new offerings for emerging market opportunities.
Research and development expenses for the three months ended March 31, 2023 increased compared to the comparable prior year period primarily due to higher subscriptions and licensing costs as well as higher travel related costs.
Selling and Marketing
|
|
Three Months Ended March 31, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
|||
Selling and marketing |
|
$ |
6,097 |
|
|
$ |
5,110 |
|
|
|
19 |
% |
as a % of net revenue |
|
|
23 |
% |
|
|
20 |
% |
|
|
|
|
Selling and marketing expenses consist primarily of employee compensation as well as amortization expense of certain intangible assets, customer lead generation activities, tradeshow participation, advertising and other marketing and selling costs.
Selling and marketing expenses for the three months ended March 31, 2023 increased compared to the three months ended March 31, 2022 primarily due to higher headcount and related payroll costs, higher stock-based compensation costs as well as higher travel related costs.
26
General and Administrative
|
|
Three Months Ended March 31, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
|||
General and administrative |
|
$ |
2,948 |
|
|
$ |
2,488 |
|
|
|
18 |
% |
as a % of net revenue |
|
|
11 |
% |
|
|
10 |
% |
|
|
|
|
General and administrative expenses consist primarily of compensation expenses for employees performing administrative functions, and professional fees incurred for legal, auditing and other consulting services.
General and administrative expenses for the three months ended March 31, 2023 increased compared to the prior year period primarily due to higher headcount and related payroll costs as well as higher stock-based compensation costs.
Restructuring and Severance Charges
|
|
Three Months Ended March 31, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
|||
Restructuring and severance |
|
$ |
191 |
|
|
$ |
(140 |
) |
|
|
(236 |
%) |
Restructuring expenses for the three months ended March 31, 2023, consisted of severance related costs of $191,000. During the three months ended March 31, 2022, we entered into a settlement agreement associated with outstanding rental payments due the landlord on leased office space in San Francisco, California. As a result of the settlement, we recorded a net credit of $153,000 representing the difference between amounts accrued and the settlement amount. The settlement credit was partially offset by severance related costs of $13,000.
Non-operating Income (Expense)
Information about our non-operating income (expense) for the three months ended March 31, 2023 and 2022 is set forth below (dollars in thousands).
|
|
Three Months Ended March 31, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
|||
Interest expense, net |
|
$ |
(50 |
) |
|
$ |
(25 |
) |
|
|
100 |
% |
Gain on investment |
|
$ |
— |
|
|
$ |
24 |
|
|
|
(100 |
%) |
Foreign currency gains, net |
|
$ |
89 |
|
|
$ |
19 |
|
|
|
368 |
% |
Interest expense, net consists of interest on financial liabilities and amortization of debt issuance costs. The increase in interest expense for the three months ended March 31, 2023 compared to the comparable period of 2022 was attributable to borrowings under our revolving loan facility with our lender in the first quarter of 2023.
Changes in currency valuation in the periods mainly were the result of exchange rate movements between the U.S. Dollar, the Indian Rupee, the Canadian Dollar, and the Euro. Our foreign currency gains and losses primarily result from the valuation of current assets and liabilities denominated in a currency other than the functional currency of the respective entity in the local financial statements.
Income Tax Benefit (Provision)
|
|
Three Months Ended March 31, |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
|||
Income tax benefit (provision) |
|
$ |
(26 |
) |
|
$ |
4 |
|
|
|
(750 |
%) |
Effective tax rate |
|
|
(0 |
%) |
|
|
0 |
% |
|
|
|
|
As of March 31, 2023, our deferred tax assets are fully offset by a valuation allowance. Accounting Standards Codification (“ASC”) 740, Income Taxes, provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based upon the weight of available evidence, which includes historical operating performance, reported cumulative net losses since inception and difficulty in accurately forecasting our future results, we provided a full valuation allowance against all of our net U.S. and foreign deferred tax assets. We reassess the need for our valuation allowance on a quarterly basis. If it is later determined that a portion or all of the valuation allowance is not required, it generally will be a benefit to the income tax provision in the period such determination is made.
27
We recorded an income tax provision during the three months ended March 31, 2023. The effective tax rates for the three months ended March 31, 2023 and 2022 differ from the federal statutory rate of 21% primarily due to a change in valuation allowance, and the provision or benefit in certain foreign jurisdictions, which are subject to higher tax rates.
Liquidity and Capital Resources
As of March 31, 2023, our working capital, defined as current assets less current liabilities, was $49.4 million, a decrease of $2.3 million compared to $51.7 million as of December 31, 2022. As of March 31, 2023, our cash and cash equivalents balance was $20.8 million.
On February 8, 2017, we entered into a Loan and Security Agreement (as amended or amended and restated from time to time, the “Loan Agreement”) with East West Bank (“EWB”). Following subsequent amendments, on April 14, 2022, we amended and restated the Loan Agreement by replacing the $20.0 million revolving loan facility subject to a borrowing base with a non-formula revolving loan facility with no borrowing base requirement and a maturity date of February 8, 2023. In addition, the interest rate was lowered from prime to prime minus 0.25%, and certain financial covenants were amended. On February 8, 2023, we entered into an amendment (the "Fourth Amendment") to the Loan Agreement. The Fourth Amendment amends the Loan Agreement to, among other things, extend the maturity date to February 8, 2025 and amend certain financial covenants. As of March 31, 2023, we were in compliance with all financial covenants under the Loan Agreement.
As our previously unremitted earnings have been subjected to U.S. federal income tax, we expect any repatriation of these earnings to the U.S. would not incur significant additional taxes related to such amounts. However, our estimates are provisional and subject to further analysis. Generally, most of our foreign subsidiaries have accumulated deficits and cash and cash equivalents that are held outside the United States are typically not cash generated from earnings that would be subject to tax upon repatriation if transferred to the United States. We have access to the cash held outside the United States to fund domestic operations and obligations without any material income tax consequences. As of March 31, 2023, the amount of cash included at such subsidiaries was $5.2 million. We have not, nor do we anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.
We have historically incurred operating losses and negative cash flows from operating activities, and we may continue to incur losses in the future. As of March 31, 2023, we had an accumulated deficit of $412.1 million. During the three months ended March 31, 2023, we had a net loss of $2.7 million.
We believe our existing cash and cash equivalents, together with cash generated from operations and available credit under our Loan Agreement will be sufficient to satisfy our working capital needs to fund operations for the next 12 months. We may also use cash to acquire or invest in complementary businesses, technologies, services or products that would change our cash requirements. We may also choose to finance our business through public or private equity offerings, debt financings or other arrangements. However, there can be no assurance that additional capital will be available to us or that such capital will be available to us on acceptable terms. If we raise funds by issuing equity securities, dilution to stockholders could result. Debt or any equity securities issued also may provide for rights, preferences or privileges senior to those of holders of our common stock. The terms of debt securities issued or loans could impose significant restrictions on our operations. The incurrence of additional indebtedness or the issuance of certain debt or equity securities could result in increased fixed payment obligations and could also result in restrictive covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely affect our ability to conduct our business. Our Loan Agreement imposes restrictions on our operations, increases our fixed payment obligations and has restrictive covenants. In addition, the issuance of additional equity securities by us, or the possibility of such issuance, may cause the market price of our common stock to decline. If we are not able to secure additional funding when needed, we may have to curtail or reduce the scope of our business or forgo potential business opportunities.
The following summarizes our cash flows for the three months ended March 31, 2023 and 2022 (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Net cash used in operating activities |
|
$ |
(4,698 |
) |
|
$ |
(34 |
) |
Net cash used in investing activities |
|
|
(1,225 |
) |
|
|
(486 |
) |
Net cash provided by (used in) financing activities |
|
|
9,752 |
|
|
|
(399 |
) |
Effect of exchange rates on cash, cash equivalents, and restricted cash |
|
|
201 |
|
|
|
(200 |
) |
Net increase (decrease) in cash, cash equivalents, and restricted cash |
|
|
4,030 |
|
|
|
(1,119 |
) |
Cash, cash equivalents, and restricted cash at beginning of period |
|
|
17,137 |
|
|
|
29,807 |
|
Cash, cash equivalents, and restricted cash at end of period |
|
$ |
21,167 |
|
|
$ |
28,688 |
|
28
Cash flows from operating activities
Cash used in operating activities for the three months ended March 31, 2023 of $4.7 million, was primarily due to net loss of $2.7 million, a decrease in cash from net changes in operating assets and liabilities of $3.6 million, which included $1.7 million in strategic inventory purchases, partially offset by adjustments for certain non-cash items of $1.6 million, consisting primarily of depreciation, amortization and stock-based compensation.
Cash used in operating activities for the three months ended March 31, 2022 of less than $0.1 million was primarily due to net loss of $1.0 million, a decrease in cash from net changes in operating assets and liabilities of $0.4 million, offset by adjustments for certain non-cash items of $1.4 million, consisting primarily of depreciation, amortization and stock-based compensation.
Cash flows from investing activities
Cash used in investing activities for the three months ended March 31, 2023 was $1.2 million, which related primarily to capital investment expenditures in our manufacturing facility in Thailand (expected to begin production in the third quarter of 2023). Cash used in investing activities for the three months ended March 31, 2022 was $0.5 million, which related primarily to capital expenditures in our manufacturing facility in Singapore.
Cash flows from financing activities
Cash provided by financing activities during the three months ended March 31, 2023 was $9.8 million, which consisted of net borrowings of $9.9 million under our revolving loan facility with our lender, partially offset by net share settlements of restricted stock units. Cash used in financing activities during the three months ended March 31, 2022 was related to net share settlements of restricted stock units of $0.4 million.
Contractual Obligations
We lease facilities, certain equipment, and automobiles under non-cancelable operating lease agreements. See Note 14, Leases, in the accompanying notes to our condensed consolidated financial statements.
Purchases for inventories are highly dependent upon forecasts of customer demand. Due to the uncertainty in demand from our customers, we may have to change, reschedule, or cancel purchases or purchase orders from our suppliers. These changes may lead to vendor cancellation charges on these orders or contractual commitments. See Note 15, Commitments and Contingencies, in the accompanying notes to our condensed consolidated financial statements.
Our other long-term liabilities include gross unrecognized tax benefits, and related interest and penalties. At this time, we are unable to make a reasonably reliable estimate of the timing of payments in individual years in connection with these tax liabilities.
29
Off-Balance Sheet Arrangements
We have not entered into off-balance sheet arrangements, or issued guarantees to third parties.
Climate Change
We believe that neither climate change, nor governmental regulations related to climate change, have had a material effect on our business, financial condition or results of operations.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires management to establish accounting policies that contain estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. These policies relate to revenue recognition, inventory, income taxes, goodwill, intangible and long-lived assets and stock-based compensation. We have other important accounting policies and practices; however, once adopted, these other policies either generally do not require us to make significant estimates or assumptions or otherwise only require implementation of the adopted policy and not a judgment as to the policy itself. Management bases its estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Despite our intention to establish accurate estimates and assumptions, actual results may differ from these estimates under different assumptions or conditions.
During the three months ended March 31, 2023, management believes there have been no significant changes to the items that we disclosed within our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022.
Recent Accounting Pronouncements
See Note 2, Significant Accounting Policies and Recent Accounting Pronouncements, in the accompanying notes to our unaudited condensed consolidated financial statements in Item 1 of Part I of this Quarterly Report for a description of recent accounting pronouncements, which is incorporated herein by reference.
10b5-1 Trading Plans
From time to time, our executive officers and directors have, and we expect they will in the future, enter into written trading plans pursuant to Rule 10b5-1 of the Securities and Exchange Act of 1934.
30
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are primarily exposed to changes in currency exchange rates as certain of our operations are conducted in foreign currencies such as the Indian Rupee, the Canadian Dollar, and the Euro.
Economic Exposure
We transact business in various foreign currencies and have significant international revenues, as well as costs denominated in foreign currencies. This exposes us to the risk of fluctuations in foreign currency exchange rates. Our objective is to identify material foreign currency exposures and to manage these exposures to minimize the potential effects of currency fluctuations on our condensed consolidated financial statements.
Transaction Exposure
Our exposure to foreign currency transaction gains and losses is the result of assets and liabilities (including inter-company transactions) that are denominated in currencies other than the relevant entity’s functional currency. In certain circumstances, changes in the functional currency value of these assets and liabilities create fluctuations in our condensed consolidated financial statements. We have performed sensitivity analyses as of March 31, 2023 and December 31, 2022 using a modeling technique that evaluated the hypothetical impact of a 10% movement in the value of the U.S. Dollar compared to the functional currency of the foreign subsidiary, with all other variables held constant, to determine the incremental transaction gains or losses that would have been incurred. The foreign exchange rates used were based on market rates in effect at each of March 31, 2023 and December 31, 2022. The results of these sensitivity analyses indicated that the impact on a hypothetical 10% movement in foreign currency exchange rates would result in increased foreign currency gains or losses of $1.3 million as of March 31, 2023 and $1.1 million as of December 31, 2022.
Translation Exposure
We are also exposed to foreign exchange rate fluctuations as we convert the financial statements of our foreign subsidiaries into U.S. Dollars in consolidation. If there is a change in foreign currency exchange rates, the conversion of the foreign subsidiaries’ financial statements into U.S. Dollars results in a gain or loss which is recorded as a component of accumulated other comprehensive income (loss) in our condensed consolidated statements of stockholders’ equity.
With respect to our international operations, we have re-measured accounts which are denominated in the non-functional currencies into the functional currency of the subsidiary and recorded the resulting gains (losses) within foreign currency gains (losses), net in our condensed consolidated statements of comprehensive loss. We re-measure all monetary assets and liabilities at the current exchange rate at the end of the period, non-monetary assets and liabilities at historical exchange rates, and revenue and expenses at average exchange rates in effect during the periods.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
31
Changes in Internal Controls over Financial Reporting
We have made no changes to our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the three months ended March 31, 2023, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
32
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
We are and from time to time, may become subject to various legal proceedings and claims arising in the ordinary course of business or could be named a defendant in other lawsuits. Legal proceedings could result in material costs, occupy significant management resources and entail penalties, even if we prevail. The outcome of such claims or other proceedings cannot be predicted with certainty and may have a material effect on our financial condition, results of operations or cash flows.
Item 1A. Risk Factors
Our business and results of operations are subject to numerous risks, uncertainties, and other factors that you should be aware of. You should carefully review and consider the information regarding certain factors that could materially affect our business, financial condition or future results set forth in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 under the heading “Risk Factors.” There have been no material changes from the risk factors disclosed in our 2022 Annual Report on Form 10-K. The risks, uncertainties and other factors described in the risk factors are not the only ones facing our company. Additional risks, uncertainties and other factors not presently known to us or that we currently deem immaterial may also impair our business operations. Any of the risks, uncertainties and other factors could have a materially adverse effect on our business, financial condition, results of operations, cash flows or product market share and could cause the trading price of our common stock to decline substantially.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended March 31, 2023, we repurchased 24,812 shares of our common stock. The table below sets forth information regarding the Company’s purchases of its common stock during the three months ended March 31, 2023:
|
|
Issuer Purchases of Equity Securities |
|
|||||||||||||
Period |
|
Total number of shares purchased(1) |
|
|
Average price paid per share |
|
|
Total number of shares purchased as part of publicly announced plans or programs |
|
|
Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs |
|
||||
January 1, 2023 – January 31, 2023 |
|
|
13,388 |
|
|
$ |
7.38 |
|
|
|
— |
|
|
|
— |
|
February 1, 2023 – February 28, 2023 |
|
|
4,832 |
|
|
|
8.38 |
|
|
|
— |
|
|
|
— |
|
March 1, 2023 – March 31, 2023 |
|
|
6,592 |
|
|
|
6.79 |
|
|
|
— |
|
|
|
— |
|
Total |
|
|
24,812 |
|
|
$ |
7.42 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(1) Consists of shares surrendered to the Company to satisfy tax withholding obligations in connection with the vesting of restricted stock units issued to employees. |
|
|||||||||||||||
33
Item 6. Exhibits
Exhibit Number |
|
Description |
|
|
|
|
|
|
10.1 |
|
|
|
|
|
31.1^ |
|
|
|
|
|
31.2^ |
|
|
|
|
|
32# |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
|
|
|
# Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates them by reference.
^ Filed herewith.
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
IDENTIV, INC. |
||
|
|
|
|
|
May 9, 2023 |
|
By: |
|
/S/ Steven Humphreys |
|
|
|
|
Steven Humphreys |
|
|
|
|
Chief Executive Officer |
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
May 9, 2023 |
|
By: |
|
/S/ Justin Scarpulla |
|
|
|
|
Justin Scarpulla |
|
|
|
|
Chief Financial Officer |
|
|
|
|
(Principal Financial and Accounting Officer) |
35