Identiv (ticker: INVE) is a $50M EV company trading for approximately ½ EV/Sales due to a recent revenue miss that has seen the stock collapse from its $15.00/share secondary offering in September to Monday’s 52-week low of $5.82. This throwing in of the towel by a few shareholders is understandable, given that some of them might have jumped on the bandwagon of a recent activist, who in turn expressed disappointment following the latest quarterly earnings that the company hadn’t already sold itself and might have “hit a wall” at $100M in revenues.
Perhaps those comments and the mediocre Q1 revenues shook investors who had hoped for the $400M company valuation that the CEO mentioned a year ago as his internally communication valuation for the company. It definitely also doesn’t help that the company is now a non-timely filer on its latest 10-Q, although Identiv did announce that they will file before the NASDAQ Plan of Compliance deadline.
However, mentioned in that disappointing earnings call was also the news that Identiv had picked up a key strategic relationship with Cisco to add to its win with Verizon and its already significant presence with Disney via Disney’s Infinity toy collection—in which Identiv has already shipped well over 150 million inlays for those toys.
THE INTERNET OF HACKED THINGS:
I was reading Marc Goodman’s excellent book Future Crimes: Everything is Connected, Everyone is Vulnerable and What We Can Do About It, in which he refers to the Internet of Things (IoT) as the Internet of Hacked Things. Identiv’s key customer wins in the credentialing division of their company makes them a promising player in security and authentication for IoT devices.
Despite the dramatic headlines in the main stream press, a bit of research reveals that the media has actually understated the vulnerability of our systems and devices. Smart devices in the IoT can be hacked, but just as disquieting, having so many monitors plugged into the network means opening up one’s network to that many more vendors who monitor these IoT devices—thermostats, cameras, etc. that need to be monitored and maintained. For example, the Target credit card breach in their point-of-sale systems came via the server access granted to a refrigeration and HVAC vendor at Target. Brian Krebs, the former Washington Post reporter who now writes Krebs on Security, has a good summary: http://krebsonsecurity.com/2014/02/target-hackers-broke-in-via-hvac-company/. In another article, Krebs discusses the Internet of Dangerous Things while giving credit to an MIT researcher’s Internet of Treacherous Things research paper. As investors, while we read widely and none of this sneaks past us, further research shows that the coverage in the NYT and WSJ, to mention some of the better publications, barely brushes the surface of the current vulnerabilities.
Back to Identiv, and let’s start at what can only be a prematurely enthusiastic if not completely regrettable quote from the CEO at the end of his prepared remarks during their 2014q2 conference call:
So as you can see while we have made great progress over the last couple of quarters by simplifying focus the management's attention is now extremely focused on growth. I've often remarked internally that Identive is a $400 million company, when you look at comparables. It's just the quite frankly we are in the penalty box because of the company's prior performance. And my job as coach is to get us out of the penalty box and coach the team towards a victory.
And I think we have got the right team, we're at an interesting intersection in the market where the timing of the post password era is upon us with the technology and the patents that we have that will -- that have allowed us to position the business to be a dominant player in this space.
Perhaps the better quote to have paid attention to was less than a minute later when the CFO responded to a question about revenue momentum:
... as you know we are trying to be extremely cautious in the numbers and expectation that we give to the street. And the reason is frankly the company has had such a poor history of predictability. We’ve had couple of quarters where things have been pretty good. We are seeing the early investment in sales and marketing have some effect. The credential business is absolutely an excellent business for us. And we do see seasonality in that business. But we also see seasonality in the other parts of the business particularly the high margin premises business.
A closer look at quarterly revenues reveals that last year’s Q2 was a great YoY and sequential comp, hence that initial enthusiasm. Here are quarterly revenues including discontinued operations (seems to be how Bloomberg reports them) and in the final line excluding discontinued operations:
In order for 2015 to meet the company’s guidance of $90M to $95M, Identiv will have to average approximately $26M per quarter for the rest of the year. While guidance needs to be taken with a grain of salt at this point, they did mention that the Q1 revenues fell short in part to the timing of the Cisco partnership, which will include an upfront payment. They seemed fairly confident on their timing.
In the 10-K, they mention that one customer was 23% of revenues. Given that their CFO mentioned that they have shipped over 150 million inlays for the Disney Infinity toys, and the toy line will be expanded to include the new Star Wars line, it’s a safe guess that Disney is their key customer. In addition to the toys, it appears that Identiv provides the authentication security in the Disney MagicBand—Disney’s billion dollar bet on a better theme park experience: http://www.wired.com/2015/03/disney-magicband/