Identiv(INVE) - 2022 Q4 - Annual Report

PART I ITEM 1. BUSINESS Identiv is a global security technology company securing physical items and places through its Identity and Premises segments - Identiv's mission is to software-enable the entire physical world, securing both physical items (Identity segment) and physical places (Premises segment)[14][15] - The Identity segment focuses on RFID Internet of Things (IoT) devices and software, enabling secure digital interaction for various applications[14][16][18] - The Premises segment provides physical security systems including identification, access control, video surveillance, and analytics[15][20] - Key competitive advantages include best-in-class designs, patented technologies, vertical integration, and a comprehensive product line[21][22][24][25] - Growth strategies involve pervasive deployment of high-end RFID devices and expanding its Premises platform to government and commercial markets[27][30][31][32][34] - The company maintains global R&D facilities in Germany, Singapore/Southeast Asia, India, Vietnam, Mexico, and the U.S[37] - As of December 31, 2022, Identiv had 343 employees, with 73 in R&D and 92 in sales and marketing[43] ITEM 1A. Risk Factors The company faces risks from adverse economic conditions, supply chain disruptions, competition, technological change, and security breaches - Adverse global economic conditions, including inflation and higher interest rates, have negatively impacted demand and increased costs in fiscal year 2022[47][48] - The company is vulnerable to supply chain disruptions and component shortages, such as the ongoing global semiconductor shortage[49] - Financial performance is highly dependent on the pace of RFID market adoption, which can cause significant revenue fluctuations[50] - Reductions or delays in government security programs, particularly in the U.S, could adversely affect revenues[52][54] - The security technology market is intensely competitive, and rapid technological changes necessitate continuous product improvement[56][60] - Security breaches, product defects, and IT system failures could damage reputation and incur substantial costs[61][63][64][65] - Global operations expose the company to risks such as foreign currency fluctuations, diverse legal compliance, and political instability[66][68][78][79] - Revenue and operating results are subject to significant fluctuations, making accurate forecasting difficult[74][75] - The company's stock price is volatile, and future issuance of additional shares could dilute existing ownership interests[87][88][89] ITEM 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC - No unresolved staff comments were reported[91] ITEM 2. Properties The company leases global facilities, with corporate headquarters in Fremont, California and key sites in Germany, India, and Singapore - Corporate headquarters are in Fremont, California, and operational headquarters in Santa Ana, California[92] Major Facilities as of December 31, 2022 | Location | Function | Square Feet | Lease Expiration | | :--- | :--- | :--- | :--- | | Fremont, California | Corporate headquarters | 3,082 | November 2024 | | Santa Ana, California | Administration; manufacturing; research and development | 34,599 | January 2028 | | Sauerlach, Germany | European operations; research and development; sales | 5,156 | April 2026 | | Chennai, India | Research and development | 17,500 | September 2024 | | Singapore | RFID/NFC product manufacturing | 16,060 | May 2023 | ITEM 3. Legal Proceedings As of December 31, 2022, Identiv was not a party to any material legal proceedings - As of December 31, 2022, the company was not a party to any material legal proceedings[93] - Legal proceedings could result in material costs, divert management resources, and entail penalties[93] ITEM 4. Mine Safety Disclosures Mine safety disclosures are not applicable to Identiv's business - Mine Safety Disclosures are not applicable[95] Information About Our Executive Officers This section provides brief biographies of CEO Steven Humphreys and CFO Justin Scarpulla - Steven Humphreys has served as CEO since September 2015 and as a director since July 1996[96] - Justin Scarpulla has served as CFO since December 2021, bringing extensive finance experience from various technology companies[97] PART II ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Identiv's stock (INVE) trades on Nasdaq; the company repurchased shares in Q4 2022 for tax obligations and does not pay dividends - Identiv's common stock is traded on The Nasdaq Capital Market under the symbol "INVE"[100] - As of March 2, 2023, there were 108 registered holders of common stock[100] Issuer Purchases of Equity Securities (Q4 2022) | Period | Total number of shares purchased | Average price paid per share | | :--- | :--- | :--- | | October 1, 2022 – October 31, 2022 | 4,377 | $12.46 | | November 1, 2022 – November 30, 2022 | 4,500 | $11.47 | | December 1, 2022 – December 31, 2022 | 4,772 | $7.95 | | Total | 13,649 | $10.56 | - Shares repurchased were to satisfy tax withholding obligations for restricted stock units[102] - The company has never declared or paid cash dividends and intends to retain future earnings[102] ITEM 6. [Reserved] This item is reserved and contains no information ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, net revenue grew 9% to $112.9 million, but a net loss of $0.392 million was reported due to higher operating expenses - Identiv's mission is to digitally enable every physical thing and place through its comprehensive technology solutions[111] - Financial performance is significantly influenced by the pace and depth of RFID market adoption[113] - The business experiences seasonality, with stronger demand typically in the second half of the fiscal year[118] - Macroeconomic conditions, including inflation and supply chain challenges, have impacted costs and customer orders[120][121] Key Financial Highlights (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Net Revenue | $112,915 | $103,769 | 9% | | Gross Profit | $40,944 | $37,067 | 10% | | Gross Profit Margin | 36% | 36% | 0% | | Loss from Operations | $(333) | $(1,347) | (75)% | | Income (Loss) before Income Tax Provision | $(291) | $1,648 | (118)% | | Net Income (Loss) | $(392) | $1,620 | (124)% | Net Revenue by Segment (2022 vs. 2021) | Segment | 2022 (in thousands) | 2021 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Identity | $67,422 | $64,725 | 4% | | Premises | $45,493 | $39,044 | 17% | | Total | $112,915 | $103,769 | 9% | Gross Profit by Segment (2022 vs. 2021) | Segment | 2022 (in thousands) | 2021 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Identity | $15,153 | $15,670 | (3)% | | Premises | $25,791 | $21,397 | 21% | | Total | $40,944 | $37,067 | 10% | Operating Expenses (2022 vs. 2021) | Expense Category | 2022 (in thousands) | 2021 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Research and Development | $9,916 | $8,673 | 14% | | Selling and Marketing | $20,730 | $17,033 | 22% | | General and Administrative | $10,429 | $11,891 | (12)% | | Restructuring and Severance | $202 | $817 | (75)% | | Total Operating Expenses | $41,277 | $38,414 | 7% | - Cash used in operating activities was $7.8 million in 2022, compared to cash provided of $1.2 million in 2021[155][156][157] - Cash used in investing activities increased to $3.9 million in 2022 due to capital investments in manufacturing and R&D[155][158][159] - Cash used in financing activities was $1.0 million in 2022, a significant change from $19.3 million provided in 2021 from a public offering[155][160][161] - Working capital as of December 31, 2022, was $51.7 million, with cash and cash equivalents at $16.7 million[149] - The company's Loan and Security Agreement with East West Bank was amended in February 2023, extending the maturity date to February 2025[150] ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk Identiv is primarily exposed to market risks from fluctuations in foreign currency exchange rates - Identiv is primarily exposed to changes in currency exchange rates, particularly the Indian Rupee, Canadian Dollar, and Euro[198][199] - A hypothetical 10% movement in foreign currency exchange rates would result in increased gains or losses of $1.1 million as of December 31, 2022[200] - The company's exposure includes both transaction exposure and translation exposure[200][201] ITEM 8. Financial Statements and Supplementary Data This section presents Identiv's audited consolidated financial statements and supplementary data for fiscal years 2020-2022 - The consolidated financial statements received an unqualified opinion from the independent auditor, BPM LLP[208][209] - A critical audit matter identified was inventory valuation, due to significant management judgment in forecasting product demand[213][214] Consolidated Balance Sheet Highlights (in thousands) | Metric | December 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $75,098 | $72,726 | | Total Assets | $102,765 | $96,663 | | Total Current Liabilities | $23,393 | $20,848 | | Total Liabilities | $27,371 | $22,151 | | Total Stockholders' Equity | $75,394 | $74,512 | Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net Revenue | $112,915 | $103,769 | $86,920 | | Gross Profit | $40,944 | $37,067 | $33,681 | | Loss from Operations | $(333) | $(1,347) | $(3,448) | | Net Income (Loss) | $(392) | $1,620 | $(5,105) | | Basic EPS | $(0.07) | $0.02 | $(0.34) | | Diluted EPS | $(0.07) | $0.02 | $(0.34) | Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(7,807) | $1,228 | $(1,766) | | Net cash used in investing activities | $(3,872) | $(1,476) | $(1,564) | | Net cash provided by (used in) financing activities | $(1,039) | $19,341 | $4,853 | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $(12,670) | $18,398 | $2,026 | | Cash, cash equivalents, and restricted cash, end of year | $17,137 | $29,807 | $11,409 | - The company adopted ASU No 2016-13 (Financial Instruments-Credit Losses) on January 1, 2022, with no material impact[257] - As of December 31, 2022, Identiv had federal NOL carryforwards of $121.0 million, fully offset by a valuation allowance[184][296] - The company recognized a net loss of $392 thousand in 2022, compared to a net income of $1,620 thousand in 2021[220] ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure were reported[348] ITEM 9A. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - As of December 31, 2022, Identiv's disclosure controls and procedures were deemed effective at the reasonable assurance level[350] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022[354][355] - BPM LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[355][359] - No material changes to internal control over financial reporting occurred during the fourth quarter of 2022[356] ITEM 9B. Other Information This item states that there is no other information to report - No other information was reported[366] ITEM 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections This item states that there are no disclosures regarding foreign jurisdictions that prevent inspections - No disclosures regarding foreign jurisdictions that prevent inspections were reported[367] PART III ITEM 10. Directors, Executive Officers and Corporate Governance Information regarding directors, officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement[369] - No waivers under the Code of Conduct and Ethics have been granted to date[369] ITEM 11. Executive Compensation Details on executive compensation are incorporated by reference from the company's Proxy Statement - Executive compensation information is incorporated by reference from the Proxy Statement[370] ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the company's Proxy Statement - Security ownership and equity compensation plan information is incorporated by reference from the Proxy Statement[371] ITEM 13. Certain Relationships and Related Transactions, and Director Independence Information on related transactions and director independence is incorporated by reference from the company's Proxy Statement - Information on related transactions and director independence is incorporated by reference from the Proxy Statement[372] ITEM 14. Principal Accountant Fees and Services Details on principal accountant fees and services are incorporated by reference from the company's Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the Proxy Statement[373] PART IV ITEM 15. Exhibits and Financial Statement Schedule This section lists all exhibits and financial statement schedules filed as part of the 10-K report - The section lists financial statements, schedules, and exhibits filed as part of the report[375] - Exhibits include corporate governance documents, incentive plans, loan agreements, and certifications[376][377] ITEM 16. Form 10-K Summary This item indicates that a Form 10-K summary is not applicable - Form 10-K Summary is not applicable[378] SIGNATURES SIGNATURES The report is duly signed by the CEO, CFO, and Board of Directors, affirming their authorization and responsibility - The report is signed by Steven Humphreys (CEO) and Justin Scarpulla (CFO) on March 15, 2023[381][384] - Other directors, including James E. Ousley (Chairman), also signed the report[384]