inve-10q_20200331.htm

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. Yes ☑ No ☐

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). Yes ☑ No ☐

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.

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 ☐ No

As of May 8, 2020, the registrant had 17,674,570 shares of common stock outstanding.

	March 31,			December 31,
	2020			2019
ASSETS
Current assets:
Cash	$	8,696		$	9,383
Accounts receivable, net of allowances of $281 and $299 as of March 31, 2020 and December 31, 2019, respectively		20,040			18,363
Inventories		15,943			16,145
Prepaid expenses and other current assets		2,533			2,292
Total current assets		47,212			46,183
Property and equipment, net		1,956			2,042
Operating lease right-of-use assets		4,102			4,629
Intangible assets, net		9,342			10,104
Goodwill		10,138			10,238
Other assets		1,051			1,122
Total assets	$	73,801		$	74,318
LIABILITIES AND STOCKHOLDERS´ EQUITY
Current liabilities:
Accounts payable	$	8,473		$	8,799
Current portion - contractual payment obligation		664			1,311
Current portion - financial liabilities, net of discount and debt issuance costs of $107 and $41 as of March 31, 2020 and December 31, 2019, respectively		17,758			14,189
Operating lease liabilities		1,662			1,814
Deferred revenue		1,736			2,193
Accrued compensation and related benefits		1,877			1,671
Other accrued expenses and liabilities		4,015			4,498
Total current liabilities		36,185			34,475
Long-term contractual payment obligation		720			360
Long-term operating lease liabilities		2,635			3,013
Long-term deferred revenue		550			640
Other long-term liabilities		357			364
Total liabilities		40,447			38,852
Commitments and contingencies (see Note 17)
Stockholders´ equity:
Series B convertible preferred stock, $0.001 par value: 5,000 shares authorized; 5,000 shares issued and outstanding as of March 31, 2020 and December 31, 2019		5			5
Common stock, $0.001 par value: 50,000 shares authorized; 18,746 and 18,209 shares issued and 17,475 and 16,986 shares outstanding as of March 31, 2020 and December 31, 2019, respectively		19			18
Additional paid-in capital		448,604			447,965
Treasury stock, 1,271 and 1,223 shares as of March 31, 2020 and December 31, 2019, respectively		(9,268	)		(9,043	)
Accumulated deficit		(407,551	)		(405,504	)
Accumulated other comprehensive income		1,545			2,025
Total stockholders´ equity		33,354			35,466
Total liabilities and stockholders' equity	$	73,801		$	74,318

The accompanying notes are an integral part of these condensed consolidated financial statements.

	Three Months Ended March 31,
	2020			2019
Net revenue	$	18,120		$	19,522
Cost of revenue		10,620			10,818
Gross profit		7,500			8,704
Operating expenses:
Research and development		2,596			2,026
Selling and marketing		4,497			4,498
General and administrative		2,191			2,622
Restructuring and severance		65			(12	)
Total operating expenses		9,349			9,134
Loss from operations		(1,849	)		(430	)
Non-operating income (expense):
Interest expense, net		(252	)		(279	)
Foreign currency gains (losses), net		86			(2	)
Loss before income taxes		(2,015	)		(711	)
Income tax provision		(32	)		(104	)
Net loss	$	(2,047	)	$	(815	)

Net loss per common share:
Basic	$	(0.13	)	$	(0.06	)
Diluted	$	(0.13	)	$	(0.06	)
Weighted average common shares outstanding, basic and diluted		17,521			16,837

The accompanying notes are an integral part of these condensed consolidated financial statements.

	Series B Convertible Preferred Stock				Common Stock					Additional Paid-in			Treasury			Accumulated			Accumulated Other Comprehensive			Total Stockholders'
	Shares		Amount		Shares			Amount		Capital			Stock			Deficit			Income			Equity
Balances, December 31, 2019		5,000	$	5		16,986		$	18	$	447,965		$	(9,043	)	$	(405,504	)	$	2,025		$	35,466
Net loss		—		—		—			—		—			—			(2,047	)		—			(2,047	)
Unrealized loss from foreign currency translation adjustments		—		—		—			—		—			—			—			(480	)		(480	)
Issuance of common stock in connection with vesting of stock awards		—		—		150			—		—			—			—			—			—
Stock-based compensation		—		—		—			—		640			—			—			—			640
Shares withheld in payment of taxes in connection with net share settlement of restricted stock units		—		—		(48	)		—		—			(225	)		—			—			(225	)
Issuance of common stock in connection with warrant exercise		—		—		387			1		(1	)		—			—			—			—
Balances, March 31, 2020		5,000	$	5		17,475		$	19	$	448,604		$	(9,268	)	$	(407,551	)	$	1,545		$	33,354

	Series B Convertible Preferred Stock				Common Stock					Additional Paid-in		Treasury			Accumulated			Accumulated Other Comprehensive			Noncontrolling			Total Stockholders'
	Shares		Amount		Shares			Amount		Capital		Stock			Deficit			Income			Interest			Equity
Balances, December 31, 2018		5,000	$	5		15,967		$	17	$	444,145	$	(8,153	)	$	(404,353	)	$	2,209		$	(170	)	$	33,700
Net loss		—		—		—			—		—		—			(815	)		—			—			(815	)
Unrealized loss from foreign currency translation adjustments		—		—		—			—		—		—			—			(129	)		—			(129	)
Issuance of common stock in connection with acquisition of business		—		—		419			1		1,634		—			—			—			—			1,635
Issuance of common stock in connection with vesting of stock awards		—		—		126			—		—		—			—			—			—			—
Stock-based compensation		—		—		—			—		687		—			—			—			—			687
Shares withheld in payment of taxes in connection with net share settlement of restricted stock units		—		—		(43	)		—		—		(228	)		—			—			—			(228	)
Issuance of common stock in connection with warrant exercise		—		—		10			—		—		—			—			—			—			—
Balances, March 31, 2019		5,000	$	5		16,479		$	18	$	446,466	$	(8,381	)	$	(405,168	)	$	2,080		$	(170	)	$	34,850

The accompanying notes are an integral part of these condensed consolidated financial statements.

	Three Months Ended
	March 31,
	2020			2019
Cash flows from operating activities:
Net loss	$	(2,047	)	$	(815	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		847			852
Accretion of interest on contractual payment obligation		32			44
Stock-based compensation expense		640			687
Amortization of debt issuance costs		24			25
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable		(1,671	)		157
Inventories		208			1,431
Prepaid expenses and other assets		(170	)		318
Accounts payable		(324	)		268
Contractual payment obligation liability		(319	)		(310	)
Deferred revenue		(547	)		560
Accrued expenses and other liabilities		(382	)		(1,728	)
Net cash (used in) provided by operating activities		(3,709	)		1,489
Cash flows from investing activities:
Capital expenditures		(137	)		(65	)
Acquisition of business, net of cash acquired		—			(1,287	)
Net cash used in investing activities		(137	)		(1,352	)
Cash flows from financing activities:
Proceeds from issuance of debt, net of issuance costs		4,346			1,646
Repayments of debt		(709	)		(1,371	)
Repayments of notes payable		—			(2,000	)
Taxes paid related to net share settlement of restricted stock units		(225	)		(228	)
Net cash provided by (used in) financing activities		3,412			(1,953	)
Effect of exchange rates on cash		(253	)		(120	)
Net decrease in cash		(687	)		(1,936	)
Cash at beginning of period		9,383			10,866
Cash at end of period	$	8,696		$	8,930
Supplemental Disclosures of Cash Flow Information:
Interest paid	$	228		$	245
Taxes paid, net	$	39		$	29
Non-cash investing and financing activities:
Common stock issued for acquisition of business, net	$	—		$	1,635

The accompanying notes are an integral part of these condensed consolidated financial statements.

The accompanying unaudited condensed consolidated financial statements include the accounts of Identiv, Inc. (“Identiv” or the “Company”) and its wholly and majority owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

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, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 or any future period. 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, 2019.

No material changes have been made to the Company's significant accounting policies disclosed in Note 1, Summary of Significant Accounting Policies, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which simplifies the accounting for incomes taxes by removing certain exceptions to the general principles in Topic 740 and amending existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.

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.

The Company derives revenue primarily from sales of hardware products, software licenses, professional services, software maintenance and support, and extended hardware warranties.

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 delivery 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, physical possession, 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”). Payments for hardware contracts are generally due 30 to 60 days after shipment of the hardware product.

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 one to three years. The Company accounts for these arrangements as two performance obligations: (1) the software licenses, and (2) the related updates and technical support. The software license revenue is recognized upon delivery of the license to the customer, while the software updates and technical support revenue is recognized over the term of the support contract. Payments are generally due 30 to 60 days after delivery of the software licenses.

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 one to three year period.

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 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 one to two year periods after the expiration of the original assurance warranty.

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 the most current information or trends.

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. The Company operates as two operating segments.

Total net revenue based on the disaggregation criteria described above is as follows (in thousands):

	Three Months Ended March 31,
	2020						2019
	Point-in- Time		Over Time		Total		Point-in- Time		Over Time		Total
Americas	$	12,705	$	1,163	$	13,868	$	13,524	$	1,201	$	14,725
Europe and the Middle East		2,504		97		2,601		2,865		65		2,930
Asia-Pacific		1,651		—		1,651		1,867		—		1,867
Total	$	16,860	$	1,260	$	18,120	$	18,256	$	1,266	$	19,522

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 30 to 60 days of contract inception. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined its contracts do not include a significant financing component. The primary purpose of the Company’s invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company’s products and services, not to receive financing from its customers.

Changes in deferred revenue during the three months ended March 31, 2020 were as follows (in thousands):

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 $1.3 million as of March 31, 2020. Since the Company typically invoices customers at contract inception, this amount is included in its deferred revenue balance. As of March 31, 2020, the Company expects to recognize 48% of the revenue related to these unsatisfied performance obligations during the remainder of 2020, 32% during 2021, and 20% thereafter.

The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year. The Company has determined that certain sales incentive programs (i.e. commissions) meet the requirements to be capitalized. Capitalized incremental costs related to contracts are amortized over the respective contract periods. For the three months ended March 31, 2020, total capitalized costs to obtain contracts were immaterial.

On November 1, 2018, the Company completed the acquisition of Thursby Software Systems, Inc. (“Thursby”), a provider of security software for mobile devices, pursuant to an Agreement and Plan of Merger (the “Thursby Agreement”), by and among the Company, TSS Merger Sub, Inc., a wholly owned subsidiary of the Company (“Merger Sub 1”), TSS Acquisition, LLC., a wholly owned subsidiary of the Company (“Merger Sub 2” and together with Merger Sub 1, the “Merger Subs”), Thursby, and William Thursby as the sole Shareholder of Thursby. Pursuant to the Thursby Agreement, at the effective time, Merger Sub 1 merged with and into Thursby and Thursby became a wholly-owned subsidiary of the Company (“Merger 1”), following which Thursby merged with and into Merger Sub 2, whereupon which the separate corporate existence of Thursby ceased with Merger Sub 2 surviving the merger (“Merger 2”).

Under the terms of the Thursby Agreement, at the closing of the acquisition, the Company acquired all of the outstanding shares of Thursby for total purchase consideration of $3.1 million, consisting of:

An aggregate of up to $0.5 million, or 85,324 shares, of the Company’s common stock issuable at the closing of the transaction were held back for a period of up to 12 months following the closing for the satisfaction of certain indemnification claims. In the fourth quarter of 2019, the Company and William Thursby reached agreement as to the satisfaction of the indemnification claims, and accordingly, the Company released the 85,324 holdback shares.

Additionally, in the event that revenue from Thursby products was greater than $8.0 million, $11.0 million, or $15.0 million in product shipments in 2019, the Company would have been obligated to issue earnout consideration of up to a maximum of $7.5 million payable in shares of the Company’s common stock, subject to certain conditions. In the event that such revenue was less than $15.0 million in 2019, but 2020 revenue from Thursby products exceeds $15.0 million, the Company will be obligated to issue an additional $2.5 million in earnout consideration payable in shares of the Company’s common stock. The maximum total earnout consideration payable for all periods is $7.5 million in the aggregate, payable in shares of the Company’s common stock. Management has assessed the probability of the issuance of shares related to the earnout consideration and determined it as remote. Accordingly, no value was ascribed to the earnout consideration as of March 31, 2020.

Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and assumptions used by the Company. The following table summarizes the fair values of assets acquired and liabilities assumed at the date of acquisition (in thousands):

Cash	$	3,485
Accounts receivable		526
Inventory		1,297
Prepaid expenses and other current assets		12
Trademarks		200
Customer relationships		1,500
Developed technology		700
Total identifiable assets acquired		7,720
Accounts payable		(31	)
Accrued expenses and liabilities		(67	)
Deferred revenue		(243	)
Other current liabilities		(4,307	)
Total liabilities assumed		(4,648	)
Net identifiable assets acquired		3,072
Goodwill		3,554
Purchase price		6,626
Less: cash acquired		(3,485	)
Net purchase price	$	3,141

Acquisition related intangibles included in the above table are finite-lived and are being amortized on a straight-line basis over their estimated lives, which approximates the pattern in which the economic benefits of the intangible assets are expected to be realized, as follows (in thousands):

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of Thursby resulted in $3.6 million of goodwill, which is not deductible for tax purposes. With the addition of the Thursby security software for mobile devices, the Company believes this goodwill largely reflects the synergistic strengthening of its Identity offerings providing complete solutions for secure and convenient logical access across smart cards and derived credentials on Apple iOS and Android mobile devices. In accordance with ASC 350, goodwill will not be amortized but is tested for impairment at least annually in the fourth quarter. See Note 6, Goodwill and Intangible Assets.

Pursuant to ASC 805, the Company incurred and expensed approximately $27,000 in acquisition and transactional costs associated with the acquisition of Thursby during the year ended December 31, 2019, which were primarily general and administrative expenses. No expenses were incurred in the three months ended March 31, 2020.

On January 2, 2019, the Company completed the purchase of substantially all the assets of the Freedom, Liberty, and Enterphone™ MESH products and services of Viscount Systems, Inc. (“Viscount”) and the assumption of certain liabilities (the “Asset Purchase”). Under the terms of the Asset Purchase, the Company was obligated to pay at closing aggregate consideration of $2.9 million consisting of:

An aggregate of approximately 31,447 shares of the Company’s common stock issuable at the closing of the transaction were held back for 12 months following the closing for the satisfaction of certain indemnification claims. In the first quarter of 2020, the Company released the 31,447 holdback shares as the indemnification claims were satisfied.

Additionally, in the event that revenue from the assets purchased under the agreement in 2019 was greater than certain specified revenue targets, the Company would be obligated to issue earnout consideration of up to a maximum of $3.5 million payable in shares of the Company’s common stock (subject to certain conditions). In the event that such revenue targets were not met in 2019, but 2020 revenue from the assets purchased exceeds certain higher targets for 2020, then the Company will be obligated to issue up to a maximum of $2.25 million in earnout consideration in the form of common stock. The maximum total earnout consideration liability for all periods is $3.5 million in the aggregate, payable in the Company’s common stock. At December 31, 2019, management had assessed the probability of the issuance of shares related to the earnout consideration and determined its fair value to be $750,000. In the first quarter of 2020, the Company and the selling stockholders of the net assets acquired from Viscount reached agreement that certain of the revenue targets were achieved. Accordingly, in the second quarter of 2020, the Company will issue to the selling stockholders, noted above, the related earnout consideration of 157,233 shares of its common stock. The amount of earnout consideration is included in other accrued expenses and liabilities in the accompanying condensed consolidated balance sheets.

Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and assumptions used by the Company. Such estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition. The following table summarizes the fair values of assets acquired and liabilities assumed at the date of acquisition (in thousands):

Accounts receivable	$	636
Inventory		249
Prepaid expenses and other current assets		29
Property and equipment		190
Operating lease ROU assets		550
Trademarks		160
Customer relationships		710
Developed technology		800
Total identifiable assets acquired		3,324
Accounts payable		(372	)
Operating lease liabilities		(61	)
Accrued expenses and liabilities		(120	)
Deferred revenue		(34	)
Earnout consideration liability		(200	)
Other current liabilities		(326	)
Long-term operating lease liabilities		(489	)
Total liabilities assumed		(1,602	)
Net identifiable assets acquired		1,722
Goodwill		1,200
Net purchase price	$	2,922

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The Asset Purchase resulted in $1.2 million of goodwill. With the addition of Viscount’s products and services, the Company believes this goodwill largely reflects the expansion of its Premises offerings with advanced, complementary solutions for the commercial and small- and medium-sized business markets, leveraging Freedom’s IT-centric software, defined architecture, and hardware-light

platform. In accordance with ASC 350, goodwill will not be amortized but is tested for impairment at least annually in the fourth quarter. See Note 6, Goodwill and Intangible Assets.

Pursuant to ASC 805, the Company incurred and expensed approximately $27,000 in acquisition and transactional costs associated with the Asset Purchase during the year ended December 31, 2019, which were primarily general and administrative expenses. No expenses were incurred in the three months ended March 31, 2020.

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 Topic 820, Fair Value Measurement and Disclosures (“ASC 820”), the fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:

As of March 31, 2020 and December 31, 2019, there were nominal cash equivalents.

The Company’s only liabilities measured at fair value on a recurring basis are the contingent consideration associated with the acquisitions of Thursby and Viscount. The fair value of the earnout consideration is based on achieving certain revenue and profit targets as defined under the respective acquisition agreements. The valuation of the earnout consideration is classified as a Level 3 measurement as it is based on significant unobservable inputs and involves management judgment and assumptions about achieving revenue and profit targets and discount rates. The unobservable inputs used in the measurement of the earnout consideration are highly sensitive to fluctuations and any changes in the inputs or the probability weighting thereof could significantly change the measured value of the earnout consideration at each reporting period. As of December 31, 2019, management had assessed the probability of the issuance of shares related to the Viscount earnout consideration and determined its fair value to be $750,000. No fair value was assigned to the earnout consideration in the Thursby acquisition. The amount of earnout consideration is included in other accrued expenses and liabilities in the accompanying condensed consolidated balance sheets.

Changes in the fair value of liabilities classified in Level 3 of the fair value hierarchy were as follows (in thousands):

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 6, Goodwill and Intangible Assets.

Privately-held investments, which are normally carried at cost, are measured at fair value due to events and circumstances that the Company identified as significantly impacting the fair value of the investments. The Company estimates the fair value of its privately-held investments using an analysis of the financial condition and near-term prospects of the investee, including recent financing activities and the investee's capital structure.

As of March 31, 2020 and December 31, 2019, the Company had $348,000 of privately-held investments measured at fair value on a nonrecurring basis which were classified as Level 3 assets due to the absence of quoted market prices and inherent lack of liquidity. The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment. The Company adjusts the carrying value for its privately-held investments for impairment if the fair value is less than the carrying value of the respective assets on an other-than-temporary basis. The amount of privately-held investments is included in other assets in the accompanying condensed consolidated balance sheets.

As of March 31, 2020 and December 31, 2019, there were no liabilities that are measured and recognized at fair value on a non-recurring basis.

The carrying amounts of the Company's accounts receivable, prepaid expenses and other current assets, accounts payable, financial liabilities and other accrued liabilities approximate fair value due to their short maturities. Based on the borrowing rates currently available to the Company for debt with similar terms, the carrying value of the outstanding debt approximates fair value.

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. In testing for goodwill impairment, the Company compares the fair value of its reporting unit to its carrying value including the goodwill of that unit. If the carrying value, including goodwill, exceeds the reporting unit’s fair value, the Company will recognize an impairment loss for the amount by which the carrying amount exceeds the reporting unit’s fair value. During the quarter ended March 31, 2020, the Company noted no indicators of goodwill impairment and concluded no further testing was necessary.

The following table summarizes the gross carrying amount and accumulated amortization for intangible assets resulting from acquisitions (in thousands):

DELAWARE	77-0444317
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2201 Walnut Avenue, Suite 100 Fremont, California	94538
(Address of principal executive offices)	(Zip Code)

Title of each class		Trading Symbol(s)		Name of exchange on which registered
Common Stock, $0.001 par value per share		INVE		The Nasdaq Stock Market LLC

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019	3
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019	4
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2020 and 2019	5
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31,2020 and 2019	6
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 6.	Exhibits	37

SIGNATURES		38

Performance Obligation	When Performance Obligation is Typically Satisfied	When Payment is Typically Due	How Standalone Selling Price is Typically Estimated
Hardware products	When customer obtains control of the product (point-in-time)	Within 30-60 days of shipment	Observable in transactions without multiple performance obligations
Software licenses	When license is delivered to customer or made available for download, and the applicable license period has begun (point-in-time)	Within 30-60 days of the beginning of license period	Established pricing practices for software licenses bundled with software maintenance, which are separately observable in renewal transactions
Professional services	As services are performed and/or when contract is fulfilled (point-in-time)	Within 30-60 days of delivery	Observable in transactions without multiple performance obligations
Software maintenance and support services	Ratably over the course of the support contract (over time)	Within 30-60 days of the beginning of the contract period	Observable in renewal transactions
Extended hardware warranties	Ratably over the course of the support contract (over time)	Within 30-60 days of the beginning of the contract period	Observable in renewal transactions

	Amount
Deferred revenue as of December 31, 2019	$	2,833
Deferral of revenue billed in current period, net of recognition		384
Recognition of revenue deferred in prior periods		(931	)
Deferred revenue as of March 31, 2020	$	2,286

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☑	Smaller reporting company	☑
Emerging growth company	☐

	Gross Purchased Intangible Assets		Estimated Useful Life (in Years)
Trademarks	$	200		5
Customer relationships		1,500		10
Developed technology		700		10
	$	2,400

	Viscount Earnout Consideration
Balance as of December 31, 2019	$	750
Increase (decrease) in fair value of liability		—
Balance as of March 31, 2020	$	750

	Premises			Identity		Total
Balance as of December 31, 2019	$	6,684		$	3,554	$	10,238
Currency translation adjustment		(100	)		—		(100	)
Balance as of March 31, 2020	$	6,584		$	3,554	$	10,138

			Developed		Customer
	Trademarks		Technology		Relationships		Total
Amortization period (in years)	5		10 – 12		4 – 12

Gross carrying amount as of March 31, 2020	$	749	$	9,054	$	15,712	$	25,515