Identive Group Announces 3Q 2012 Results

Identive Group, Inc. announced results for the fiscal third quarter (Q3), ended Sept. 30, 2012. Q3 2012 highlights include:
• Continued operating expense reduction and further lowering of break-even point.
• Record smart card reader sales for U.S. government programs.
• Recovery in demand for transponder products, creating a stronger Q4 forecast.
• Continued progress in emerging growth opportunities for near field communication (NFC), payment and cloud-based solutions.
• Strong cash performance during quarter.

“Our core business continued to be affected by global economic and budget uncertainties, particularly in Europe. While some sales of access systems for U.S. government customers slipped into October, new cyber security programs at federal agencies drove a strong increase in smart card reader sales and previously delayed transponder orders also began to recover towards the end of the quarter,” said Ayman S. Ashour, CEO and chairman of Identive. “Our continued focus on cost reduction drove a further 9% sequential decline in our base operating expenses and adjusted EBITDA also improved significantly, bringing us close to breakeven on relatively weak revenues. Our cash performance in Q3 was better than anticipated and in October we also secured additional non-dilutive debt financing, strengthening our ability to manage our growth needs.”

As reported in accordance with U.S. generally accepted accounting principles (GAAP), Q3 2012 revenues were $22.9 million, down 4% from $23.9 million in Q2 2012 and down 14% from $26.8 million in Q3 2011. By segment, Identity Management Services and Solutions (Identity Management) revenues were $13.8 million and ID Products revenues were $9.1 million in Q3 2012.

GAAP gross profit margin was 42% in Q3 2012, compared with 40% in Q2 2012 and 44% in Q3 2011. Total research and development, sales and marketing, and general and administrative expenses (referred to in this release as base operating expenses) were $12.1 million in Q3 2012, down 9% from $13.3 million in Q2 2012 and down 17% from $14.5 million in Q3 2011 as a result of the restructuring plan we initiated in June of this year and from ongoing initiatives to improve the efficiency of our business.

On a GAAP basis, Identive recorded net loss of $(7.9) million, or $(0.13) per share in Q3 2012, compared with net loss of $(41.9) million, or $(0.70) per share in Q2 2012 and net loss of $(3.7) million, or $(0.06) per share in Q3 2011. Reflected in results for Q3 2012 are non-cash impairment charges of $5.8 million, which accounted for $(0.10) of the $(0.13) GAAP net loss per share recorded in the quarter. In Q2 2012, non-cash impairment charges and other associated non-cash adjustments accounted for $(0.66) of the reported net loss.

Non-GAAP gross profit margin was 46% in Q3 2012, compared with 45% in Q2 2012. Identive recorded non-GAAP net loss of $(1.6) million, or $(0.03) per share in Q3 2012, compared with a non-GAAP net loss of $(1.1) million, or $(0.02) per share in Q2 2012. Adjusted EBITDA was $(0.3) million in Q3 2012, compared with $(1.2) million in Q2 2012.

“As we projected, we were able to continue to reduce our costs and manage our cash effectively during the quarter.,” David Wear, CFO of Identive, commented. “Expense reductions to date have helped to lower our EBITDA breakeven point significantly to between $23 million and $24 million in revenue per quarter. Our ongoing focus on cost efficiency and continued improvement in our revenue outlook should allow us to take advantage of this lower breakeven point to deliver EBITDA positive results on a consistent basis.”

Ongoing investment in product development resulted in the announcement of several important new products in the quarter, including:
• The launch of Hirsch Velocity 3.5, a next generation access control software platform that now enables access to real-time system information across a wide range of corporate and mobile devices and environments, enabling enterprise customers greater levels of security and control.
• The TouchSecure Desktop Reader, an innovative identity authentication solution that allows enterprise customers to implement secure access to their physical facilities, corporate networks, shared printers and copiers using a single identity credential – their employees’ existing building access cards.
• A new family of multi-protocol LEGIC card readers that address the growing trend in corporate, campus and other environments towards the use of a single smart ID card to perform many functions.
• Identive gained visibility at the London Olympics this summer as more than 100,000 visitors used the company’s payment and identity management products and solutions:
• The Polyright identity management solution provided secure entry to the Olympic Club for members of the International Olympic Committee (IOC), VIP visitors and staff.
• In cooperation with the leading Dutch bank Rabobank, Identive enabled cashless payment at one of the Olympics’ largest hospitality venues. Using innovative convertible payment cards based on the Company’s patent pending tomPAY tag technology, visitors were able to tap and pay for refreshments using either the card or a removable NFC payment sticker that enables payment using a mobile phone.

In addition, Identive’s payment solution cashless payment system was selected for use at various music festivals in Europe and for the Rat Verlegh Stadium in Breda, The Netherlands.

“Looking forward, a higher than usual backlog of orders for access control systems and readers for U.S. government agencies and the commencement of both delayed and new NFC and other transponder projects are creating an improved sales outlook for Q4,” Ashour concluded. “Successful development efforts also continue to reinforce our early leadership position in emerging growth opportunities. We have now expanded our www.IdentiveNFC.com online NFC marketplace to sell to a wider and growing customer base. We also are encouraged by the strong reception we are receiving from beta trials for our NFC marketing platform and are preparing for the platform’s public launch in Q4. The progress we are making to position Identive as the signature company in cecure ID is further supported by the improvements we have made to our financial base.”

Based on its current expectations, for the fourth quarter of 2012, management expects revenues of $26.0 million to $28.0 million and non-GAAP, adjusted EBITDA of $1.5 million to $2.0 million.