Identive Group showed higher revenue in the third quarter, thanks to a jump in NFC and RFID sales, but took a large impairment charge and will sell some “noncore assets,” as its share price continues to hover around historic lows.
The company has been restructuring to simplify its organization and narrow its focus to areas that it considers “high growth,” including supplying NFC tags for consumer electronics applications, as well as secure access and identity, especially “cloud-based” identity and mobile authentication, with support for NFC.
Identive reported a big operating loss for the third quarter of just under $25 million, largely from impairment charges to goodwill of $22.6 million, including its U.S. federal government physical access control business. The loss also included restructuring expenses of nearly $1.3 million. Identive's net loss for the quarter was $24.2 million. The company said it would have recorded a non-GAAP net loss of $1 million without the impairment and restructuring charges. The company reported an operating loss of $8.2 million and net loss of $7.9 million for third quarter of 2012.
“I believe we've been doing too much with too little; it's a classic way for us to not perform,” said CEO Jason Hart during a conference call last Thursday. "We will continue to divest what I call our noncore assets.” Hart in September replaced former Identive CEO Ayman S. Ashour.
Identive expects those divestitures to bring revenue of $5 million to $6 million in the coming quarter, although the company has not yet announced which of its business will be sold or exactly when those sales will occur.
U.S.- and Germany-based Identive Group and its predecessor, SCM Microsystems, made a string of acquisitions in recent years. Identive was created in 2009 with the acquisition by SCM Microsystems of Bluehill ID. SCM had earlier acquired Hirsch Electronics, among other companies.
The company’s share price closed down to $.67 on Friday. The price hit a record low Nov. 4 of just under $.64. The company announced a private stock placement in August to raise $7 million to shore up its balance sheet and help fund operations. In a statement, Hart said last week during the conference call that “our overall operating costs and access to working capital have challenged the business.”
Hart, in the conference call, said that Identive’s current priority is simplifying its operations and reducing its operating costs. “Today, the number one priority for the management team is simplification, and as part of that, addressing the long-term balance sheet and cash position of the business.”
That process includes restructuring what he termed the company’s previously complex organization.
“I believe that the business has been structured in a set of silos that have caused us to have a fairly significant operating expense base that, quite frankly, has been really tough for management to change,” said Hart. “In the last eight weeks…we've taken all lines of business from product management, engineering, the sales organization, as well as the management, and we've globalized all functions.”
As part of the changes, Identive recently hired a new executive vice president of marketing, Phil Montgomery, formerly of software company VMWare.
“We have also hired, but not yet announced, another high-level marketing executive and a high level sales executive. In addition to the new expertise being brought on board, several members of the management team now have expanded or different roles than they did before,” a spokeswoman told NFC Times.
In the second half of 2012, in response to worsening losses in the second quarter of that year, Identive implemented a restructuring plan that cut its global workforce by 11%, about 50 employees of its global total of 436. In recent quarters, the company has reported decreasing operational expenses, but in the third quarter of 2013, those expenses remained unchanged at $12.1 million.
Following Identive’s appointment of Hart as CEO in September, it was initially unclear how his planned changes would affect the company’s tag business, which former Ashour had often credited with offsetting revenue lost to slowed access-control business due to the U.S. federal government budget sequestration.
Not Just Toying with NFC
It appears that Identive considers tags part of its core business. During the conference call, CFO David Wear said that the quarter’s increased revenue “primarily driven” by strong revenue from both RFID and NFC product sales, which increased 131% year over year.
Both Wear and Hart attributed the company’s NFC revenue in large part to sales of tags for toy figures that accompany video games.
Hart said the company has seen “increasing demand with the popularity of NFC-enabled toys for video games,” a trend the company expects to continue into 2014.
“We saw a strong demand for some of our segment products, particularly in high-growth areas such as our cloud-identity security products and in a lot of our new electronic toy NFC-RFID products, particularly with some strong contracts from at least one gaming company,” he said during the conference call.
The Identive spokeswoman told NFC Times that the gaming orders are from a single customer. Identive continues to decline to identify the gaming company involved. It released a small amount of detail in its second quarter earnings call in August, when Ashour said, “in the coming weeks, you will be able to see the use of NFC, of our NFC, in games compatible with XBox, Playstations, et cetera.”
Two video games using NFC-enabled toys were scheduled for release in the weeks following the second quarter earnings call. Pokémon Rumble U, which was released in August, is available only for Nintendo’s Wii U console, meaning that it was likely not the title to which Ashour referred. Disney Infinity was also released in August 2013 and is available for Microsoft’s Xbox 360, Sony’s Playstation 3, and Nintendo’s Wii U. Identive has not named the title or titles for which it supplies tags.
Revenue from sales of these NFC tags helped offset an 11% decrease in revenue from access control and security products, which have experienced slowed sales due to the U.S. federal government shutdown. However, Hart said during the conference call, “we are beginning to see some slight recovery in that, and we saw that in Q3." The company reported total revenue of $26.3 million in the third quarter, with the net loss of $24.2 million (GAAP).
Identive expects revenue of $25 million to $27 million for the fourth quarter.