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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______ to ______

 

Commission File Number: 000-29440

 

IDENTIV, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

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)

Registrant’s telephone number, including area code: (949) 250-8888

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

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

 

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.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

 

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 2, 2024, the registrant had 23,382,459 shares of common stock outstanding.

 


 

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

3

 

 

Condensed Consolidated Balance Sheets

3

 

 

Condensed Consolidated Statements of Comprehensive Loss

4

 

 

Condensed Consolidated Statements of Stockholders’ Equity

5

 

 

Condensed Consolidated Statements of Cash Flows

6

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

 

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

40

Item 5.

 

Other Information

 

Item 6.

 

Exhibits

41

 

 

 

SIGNATURES

42

 

 

 

 

2


 

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

IDENTIV, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except par value)

 

 

 

March 31,
2024

 

 

December 31,
2023

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,623

 

 

$

23,312

 

Restricted cash

 

 

811

 

 

 

1,072

 

Accounts receivable, net of allowances of $701 and $2,627 as of March 31, 2024
   and December 31, 2023, respectively

 

 

17,811

 

 

 

21,969

 

Inventories

 

 

28,460

 

 

 

28,712

 

Prepaid expenses and other current assets

 

 

4,159

 

 

 

4,421

 

Total current assets

 

 

72,864

 

 

 

79,486

 

Property and equipment, net

 

 

8,832

 

 

 

9,320

 

Operating lease right-of-use assets

 

 

4,756

 

 

 

5,214

 

Intangible assets, net

 

 

3,995

 

 

 

4,251

 

Goodwill

 

 

10,192

 

 

 

10,218

 

Other assets

 

 

1,150

 

 

 

1,234

 

Total assets

 

$

101,789

 

 

$

109,723

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

9,564

 

 

$

12,250

 

Financial liabilities, net of debt issuance costs of $106 and $51
   as of March 31, 2024 and December 31, 2023, respectively

 

 

9,894

 

 

 

9,949

 

Operating lease liabilities

 

 

1,655

 

 

 

1,714

 

Deferred revenue

 

 

1,744

 

 

 

2,341

 

Accrued compensation and related benefits

 

 

2,099

 

 

 

2,334

 

Other accrued expenses and liabilities

 

 

2,351

 

 

 

2,194

 

Total current liabilities

 

 

27,307

 

 

 

30,782

 

Long-term operating lease liabilities

 

 

3,309

 

 

 

3,716

 

Long-term deferred revenue

 

 

981

 

 

 

927

 

Other long-term liabilities

 

 

26

 

 

 

26

 

Total liabilities

 

 

31,623

 

 

 

35,451

 

Commitments and contingencies (see Note 15)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value: 10,000 shares authorized; 5,000 shares
   issued and outstanding as of March 31, 2024 and December 31, 2023

 

 

5

 

 

 

5

 

Common stock, $0.001 par value: 50,000 shares authorized; 25,022 and 24,902 shares
   issued and
23,334 and 23,247 shares outstanding as of March 31, 2024 and
   December 31, 2023, respectively

 

 

25

 

 

 

25

 

Additional paid-in capital

 

 

501,771

 

 

 

500,752

 

Treasury stock, 1,688 and 1,655 shares as of March 31, 2024 and December 31, 2023,
   respectively

 

 

(13,246

)

 

 

(12,969

)

Accumulated deficit

 

 

(419,428

)

 

 

(414,870

)

Accumulated other comprehensive income

 

 

1,039

 

 

 

1,329

 

Total stockholders' equity

 

 

70,166

 

 

 

74,272

 

Total liabilities and stockholders' equity

 

$

101,789

 

 

$

109,723

 

 

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

 

3


 

IDENTIV, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited, in thousands, except per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net revenue

 

$

22,494

 

 

$

25,997

 

Cost of revenue

 

 

14,102

 

 

 

16,786

 

Gross profit

 

 

8,392

 

 

 

9,211

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

3,011

 

 

 

2,707

 

Selling and marketing

 

 

5,302

 

 

 

6,097

 

General and administrative

 

 

4,252

 

 

 

2,948

 

Restructuring and severance

 

 

22

 

 

 

191

 

Total operating expenses

 

 

12,587

 

 

 

11,943

 

Loss from operations

 

 

(4,195

)

 

 

(2,732

)

Non-operating income (expense):

 

 

 

 

 

 

Interest expense, net

 

 

(87

)

 

 

(50

)

Foreign currency gains (losses), net

 

 

(256

)

 

 

89

 

Loss before income tax provision

 

 

(4,538

)

 

 

(2,693

)

Income tax provision

 

 

(20

)

 

 

(26

)

Net loss

 

 

(4,558

)

 

 

(2,719

)

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax

 

 

(290

)

 

 

120

 

Comprehensive loss

 

$

(4,848

)

 

$

(2,599

)

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

Basic

 

$

(0.21

)

 

$

(0.13

)

Diluted

 

$

(0.21

)

 

$

(0.13

)

Weighted average shares used in computing net
   loss per common share:

 

 

 

 

 

 

Basic

 

 

23,368

 

 

 

22,794

 

Diluted

 

 

23,368

 

 

 

22,794

 

 

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

4


 

IDENTIV, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, in thousands)

 

 

 

 

Three Months Ended March 31, 2024

 

 

 

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, January 1, 2024

 

 

5,000

 

 

$

5

 

 

 

23,247

 

 

$

25

 

 

$

500,752

 

 

$

(12,969

)

 

$

(414,870

)

 

$

1,329

 

 

$

74,272

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,558

)

 

 

 

 

 

(4,558

)

Unrealized income from foreign
   currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(290

)

 

 

(290

)

Issuance of common stock in connection
   with vesting of stock awards

 

 

 

 

 

 

 

 

120

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,019

 

 

 

 

 

 

 

 

 

 

 

 

1,019

 

Shares withheld in payment of taxes in
   connection with net share settlement of
   restricted stock units

 

 

 

 

 

 

 

 

(33

)

 

 

 

 

 

 

 

 

(277

)

 

 

 

 

 

 

 

 

(277

)

Balances, March 31, 2024

 

 

5,000

 

 

$

5

 

 

 

23,334

 

 

$

25

 

 

$

501,771

 

 

$

(13,246

)

 

$

(419,428

)

 

$

1,039

 

 

$

70,166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2023

 

 

 

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, January 1, 2023

 

 

5,000

 

 

$

5

 

 

 

22,623

 

 

$

24

 

 

$

495,818

 

 

$

(12,173

)

 

$

(409,381

)

 

$

1,101

 

 

$

75,394

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,719

)

 

 

 

 

 

(2,719

)

Unrealized loss from foreign
   currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

120

 

 

 

120

 

Issuance of common stock in connection
   with vesting of stock awards

 

 

 

 

 

 

 

 

78

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

990

 

 

 

 

 

 

 

 

 

 

 

 

990

 

Shares withheld in payment of taxes in
   connection with net share settlement of
   restricted stock units

 

 

 

 

 

 

 

 

(24

)

 

 

 

 

 

 

 

 

(184

)

 

 

 

 

 

 

 

 

(184

)

Balances, March 31, 2023

 

 

5,000

 

 

$

5

 

 

 

22,677

 

 

$

24

 

 

$

496,808

 

 

$

(12,357

)

 

$

(412,100

)

 

$

1,221

 

 

$

73,601

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

5


 

IDENTIV, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash flows used in operating activities

 

 

 

 

 

 

Net loss

 

$

(4,558

)

 

$

(2,719

)

Adjustments to reconcile net loss to net cash used in
   operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

785

 

 

 

623

 

Amortization of debt issuance costs

 

 

26

 

 

 

5

 

Stock-based compensation expense

 

 

1,019

 

 

 

990

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

4,160

 

 

 

3,661

 

Inventories

 

 

234

 

 

 

(1,667

)

Prepaid expenses and other assets

 

 

346

 

 

 

(214

)

Accounts payable

 

 

(2,684

)

 

 

(4,876

)

Deferred revenue

 

 

(543

)

 

 

(210

)

Accrued expenses and other liabilities

 

 

(86

)

 

 

(291

)

Net cash used in operating activities

 

 

(1,301

)

 

 

(4,698

)

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(232

)

 

 

(1,225

)

Net cash used in investing activities

 

 

(232

)

 

 

(1,225

)

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings under revolving loan facility, net of issuance costs

 

 

5,919

 

 

 

9,936

 

Repayments under revolving loan facility

 

 

(6,000

)

 

 

 

Taxes paid related to net share settlement of restricted stock units

 

 

(277

)

 

 

(184

)

Net cash provided by (used in) financing activities

 

 

(358

)

 

 

9,752

 

Effect of exchange rates on cash, cash equivalents, and restricted cash

 

 

(59

)

 

 

201

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

(1,950

)

 

 

4,030

 

Cash, cash equivalents, and restricted cash at beginning of period

 

 

24,384

 

 

 

17,137

 

Cash, cash equivalents, and restricted cash at end of period

 

$

22,434

 

 

$

21,167

 

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

Interest paid

 

$

94

 

 

$

28

 

Taxes paid, net

 

$

24

 

 

$

27

 

Non-cash investing and financing activities:

 

 

 

 

 

 

Operating lease right-of-use assets obtained in exchange for operating lease liabilities

 

$

 

 

$

323

 

 

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

6


 

IDENTIV, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

 

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Identiv, Inc. and its wholly owned subsidiaries (the “Company”). 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, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or any future period. The unaudited condensed consolidated balance sheet as of December 31, 2023 has been derived from audited consolidated financial statements at that date, but does not include all disclosures required by U.S. GAAP for complete financial statements. 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, 2023, as amended. The accompanying unaudited condensed consolidated financial statements contain historical financial information for the periods presented and do not reflect any impact of the Stock and Asset Purchase Agreement entered into on April 2, 2024 more fully disclosed in Note 16, Subsequent Events.

2. Significant Accounting Policies and Recent Accounting Pronouncements

Significant Accounting Policies

No material changes have been made to the Company's significant accounting policies disclosed in Note 2, Significant Accounting Policies and Recent Accounting Pronouncements, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as amended.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed, the Company does not believe that the impact of recently issued standards that are not yet effective will have a material impact on its financial position or results of operations upon adoption.

In November 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. Early adoption is permitted. The Company is currently evaluating the impact of the new standard on the consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU is intended to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The ASU’s amendments are effective for public business entities for annual periods beginning after December 15, 2024. Entities are permitted to early adopt the standard for “annual financial statements that have not yet been issued or made available for issuance.” Adoption is either prospectively or retrospectively, the Company will adopt this ASU on a prospective basis. The Company is currently evaluating the impact of the new standard on the consolidated financial statements and related disclosures.

7


 

3. Revenue

Revenue Recognition

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.

Nature of Products and Services

The Company derives revenues from sales of hardware products, software licenses, subscriptions, 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 shipment 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, 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.

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 when the license is delivered to the customer or made available for download, while the software updates and technical support revenue is recognized over the term of the support contract.

Subscription Revenue Subscription revenues consist of fees received in consideration for providing customers access to one or more of the Company’s software-as-a-service (“SaaS”) based solutions. These SaaS arrangements include access to the Company’s licensed software and, in certain arrangements, use of various hardware devices over the contract term. These SaaS arrangements do not provide the customer the right to take possession of the software supporting the subscription service, or if applicable, any hardware devices at any time during the contract period, and as such are not considered separate performance obligations. Revenue is recognized ratably on a straight-line basis over the term of the contract beginning when the service is made available to the customer. Subscription contract terms range from month-to-month to six years in length and are billed monthly or annually.

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-or 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 to 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.

8


 

 

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

Subscriptions

 

Ratably over the course of the subscription term (over time)

 

In advance of subscription term

 

Contractually stated or list price

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

 

 

9


 

Significant Judgments

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 current information or trends.

Disaggregation of Revenue

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.

 

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

 

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

 

Point-in-
Time

 

 

Over Time

 

 

Total

 

 

Point-in-
Time

 

 

Over Time

 

 

Total

 

Americas

$

15,360

 

 

$

1,144

 

 

$

16,504

 

 

$

20,874

 

 

$

754

 

 

$

21,628

 

Europe and the Middle East

 

3,897

 

 

 

101

 

 

 

3,998

 

 

 

2,899

 

 

 

85

 

 

 

2,984

 

Asia-Pacific

 

1,992

 

 

 

 

 

 

1,992

 

 

 

1,385

 

 

 

 

 

 

1,385

 

Total

$

21,249

 

 

$

1,245

 

 

$

22,494

 

 

$

25,158

 

 

$

839

 

 

$

25,997

 

Contract Balances

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, 2024 and 2023 were as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Deferred revenue, beginning of period

 

$

3,268

 

 

$

2,655

 

Deferral of revenue billed in current period, net of recognition

 

 

542

 

 

 

504

 

Recognition of revenue deferred in prior periods

 

 

(1,085

)

 

 

(714

)

Deferred revenue, end of period

 

$

2,725

 

 

$

2,445

 

Amounts recognized as revenue in excess of amounts billed are recorded as unbilled receivables and are included in other current assets on the condensed consolidated balance sheets. As of March 31, 2024 and December 31, 2023, the amount of unbilled receivables was immaterial.

 

Unsatisfied Performance Obligations

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 $1.5 million as of March 31, 2024. Since the Company typically invoices customers at contract inception, this amount

10


 

is included in the deferred revenue balance. As of March 31, 2024, the Company expects to recognize 30% of the revenue related to these unsatisfied performance obligations during the remainder of 2024, 29% during 2025, and 41% thereafter.

4. Fair Value Measurements

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 820, Fair Value Measurement and Disclosures, the fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:

Level 1 – Quoted prices (unadjusted) for identical assets and liabilities in active markets;
Level 2 – Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly; and
Level 3 – Unobservable inputs.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of March 31, 2024 and December 31, 2023, the only assets measured and recognized at fair value on a recurring basis were nominal cash equivalents. As of March 31, 2024 and December 31, 2023, there were no liabilities measured and recognized at fair value on a recurring basis.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

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 5, Goodwill and Intangible Assets.

As of March 31, 2024 and December 31, 2023, 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 any 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, 2024 and December 31, 2023, there were no liabilities that are measured and recognized at fair value on a non-recurring basis.

Assets and Liabilities Not Measured at Fair Value

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

 

11


 

5. Goodwill and Intangible Assets

Goodwill

The following table summarizes the activity in goodwill (in thousands):

 

 

Identity

 

 

Premises

 

 

Total

 

Balance as of January 1, 2023

 

$

3,554

 

 

$

6,636

 

 

$

10,190

 

Currency translation adjustment

 

 

 

 

 

2

 

 

 

2

 

Balance as of March 31, 2023

 

$

3,554

 

 

$

6,638

 

 

$

10,192

 

 

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2024

 

$

3,554

 

 

$

6,664

 

 

$

10,218

 

Currency translation adjustment

 

 

 

 

 

(26

)

 

 

(26

)

Balance as of March 31, 2024

 

$

3,554

 

 

$

6,638

 

 

$

10,192

 

 

In accordance with ASC 350, Intangibles – Goodwill and Other, 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. The Company performs an initial assessment of qualitative factors to determine whether the existence of events and circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In performing the qualitative assessment, the Company identifies and considers the significance of relevant key factors, events, and circumstances that affect the fair value of its reporting units. These factors include external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as actual and planned financial performance. If, after assessing the totality of relevant events and circumstances, the Company determines that it is more likely than not that the fair value of the reporting unit exceeds its carrying value and there is no indication of impairment, no further testing is performed; however, if the Company concludes otherwise, then the Company will perform the quantitative impairment test which compares the estimated fair value of the reporting unit to its carrying value, including goodwill. If the carrying amount of the reporting unit is in excess of its fair value, an impairment loss would be recorded in the condensed consolidated statements of comprehensive loss. During the three months ended March 31, 2024 and 2023, the Company noted no indicators of goodwill impairment and concluded no further testing was necessary.

Intangible Assets

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

 

 

 

 

 

Developed

 

 

Customer

 

 

 

 

 

Trademarks

 

 

Technology

 

 

Relationships

 

 

Total

 

Amortization period (in years)

 

5

 

 

10 – 12

 

4 – 12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross carrying amount as of March 31, 2024

 

$

760

 

 

$

9,088

 

 

$

15,742

 

 

$

25,590

 

Accumulated amortization

 

 

(760

)

 

 

(7,220

)

 

 

(13,615

)

 

 

(21,595

)

Intangible assets, net as of March 31, 2024

 

$

 

 

$

1,868

 

 

$

2,127

 

 

$

3,995

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross carrying amount as of December 31, 2023

 

$

760

 

 

$

9,098

 

 

$

15,748

 

 

$

25,606

 

Accumulated amortization

 

 

(760

)

 

 

(7,110

)

 

 

(13,485

)

 

 

(21,355

)

Intangible assets, net as of December 31, 2023

 

$

 

 

$

1,988

 

 

$

2,263

 

 

$

4,251

 

 

Each period, the Company evaluates the estimated remaining useful lives of purchased intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. If a revision to the remaining period of amortization is warranted, amortization is prospectively adjusted over the remaining useful life of the intangible asset. Intangible assets subject to amortization are amortized on a straight-line basis over their useful lives as indicated in the table above. The Company performs an evaluation of its amortizable intangible assets for impairment at the end of each reporting period. The Company did not identify any impairment indicators during the three months ended March 31, 2024.

12


 

 

The following table summarizes the amortization expense included in the condensed consolidated statements of comprehensive income (loss) for the three months ended March 31, 2024 and 2023 (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cost of revenue

 

$

110

 

 

$

111

 

Selling and marketing

 

 

130

 

 

 

155

 

Total

 

$

240

 

 

$

266

 

 

 

The estimated annual future amortization expense for purchased intangible assets with definite lives as of March 31, 2024 was as follows (in thousands):

 

2024 (remaining nine months)

 

$

721

 

2025

 

 

961

 

2026

 

 

961

 

2027

 

 

961

 

2028

 

 

391

 

Total

 

$

3,995

 

 

6. Balance Sheet Components

 

The Company’s inventories are stated at the lower of cost or net realizable value. Inventories consist of (in thousands):

 

 

March 31,
2024

 

 

December 31,
2023

 

Raw materials

 

$

14,255

 

 

$

15,122

 

Work-in-progress

 

 

 

 

 

5

 

Finished goods

 

 

14,205

 

 

 

13,585

 

Total

 

$

28,460

 

 

$

28,712

 

 

Property and equipment, net consists of (in thousands):

 

 

March 31,
2024

 

 

December 31,
2023

 

Building and leasehold improvements

 

$

1,999

 

 

$

2,203

 

Furniture, fixtures and office equipment

 

 

1,064

 

 

 

1,017

 

Plant and machinery

 

 

18,957

 

 

 

18,920

 

Purchased software

 

 

855

 

 

 

836

 

Total

 

 

22,875

 

 

 

22,976

 

Accumulated depreciation

 

 

(14,043

)

 

 

(13,656

)

Property and equipment, net

 

$

8,832

 

 

$

9,320

 

 

The Company recorded depreciation expenses of $0.5 million and $0.4 million during the three months ended March 31, 2024 and 2023, respectively.

Other accrued expenses and liabilities consist of (in thousands):

 

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Accrued professional fees

 

$

449

 

 

$

441

 

Accrued warranties

 

 

301

 

 

 

378

 

Other accrued expenses

 

 

1,601

 

 

 

1,375

 

Total

 

$

2,351

 

 

$

2,194

 

 

13


 

7. Financial Liabilities

The Company’s financial liabilities consist of (in thousands):

 

March 31,

 

 

December 31,

 

 

2024

 

 

2023

 

Revolving loan facility

 

$

10,000

 

 

$

10,000

 

Less: Unamortized debt issuance costs

 

 

(106

)

 

 

(51

)

Financial liabilities, net of debt issuance costs

 

$

9,894

 

 

$

9,949

 

On February 8, 2017, the Company entered into a Loan and Security Agreement (as amended or amended and restated from time to time, the “Loan Agreement”) with East West Bank (“EWB”). Following subsequent amendments, on April 14, 2022, the Company and EWB amended the Loan Agreement replacing the $20.0 million revolving loan facility subject to a borrowing base with a non-formula revolving loan facility with no borrowing base requirement and a maturity date of February 8, 2023. In addition, the interest rate was lowered from prime to prime minus 0.25% (interest rate as of March 31, 2024 was 8.50%), and certain financial covenants were amended. On February 8, 2023, the Company entered into an amendment (the "Fourth Amendment") to the Loan Agreement. The Fourth Amendment amends the Loan Agreement to, among other things, extend the maturity date to February 8, 2025, and amend certain financial covenants.

The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, limits or restrictions on the Company’s ability to incur liens, incur indebtedness, make certain restricted payments (including dividends), merge or consolidate and dispose of assets, as well as other financial covenants. The Company’s obligations under the Loan Agreement are collateralized by substantially all of its assets. The Company was not in compliance with a financial covenant under the Loan Agreement as of March 31, 2024, which non-compliance was waived by EWB on May 6, 2024.

 

8. Income Taxes

The Company conducts business globally and, as a result, files federal, state and foreign tax returns. The Company strives to resolve open matters with each tax authority at the examination level and could reach agreement with a tax authority at any time. While the Company has accrued for amounts it believes are the probable outcomes, the final outcome with a tax authority may result in a tax liability that is more or less than that reflected in the condensed consolidated financial statements. Furthermore, the Company may later decide to challenge any assessments, if made, and may exercise its right to appeal.

The Company applies the provisions of, and accounted for uncertain tax positions, in accordance with ASC 740, Income Taxes (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

The Company generally is no longer subject to tax examinations for years prior to 2018. However, if loss carryforwards of tax years prior to 2017 are utilized in the U.S., these tax years may become subject to investigation by the tax authorities. While timing of the resolution and/or finalization of tax audits is uncertain, the Company does not believe that its unrecognized tax benefits would materially change in the next 12 months.

 

14


 

9. Stockholders’ Equity

Series B Convertible Preferred Stock Dividend Accretion

The following table summarizes Series B convertible preferred stock and the accretion of dividend activity for the three months ended March 31, 2024 and 2023 (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Series B Convertible Preferred Stock:

 

 

 

Balance at beginning of period

 

$

26,589

 

$

25,323

 

Cumulative dividends on Series B convertible preferred stock

 

 

248

 

 

313

 

Balance at end of period

 

$

26,837

 

$

25,636

 

Number of Common Shares Issuable Upon Conversion:

 

 

 

Number of shares at beginning of period

 

 

6,647

 

 

6,331

 

Cumulative dividends on Series B convertible preferred stock

 

 

62

 

 

78

 

Number of shares at end of period

 

 

6,709

 

 

6,409

 

 

Based on the current conversion price, the outstanding shares, including the accretion of dividends, of Series B convertible preferred stock as of March 31, 2024 would be convertible into 6,709,359 shares of the Company’s common stock. However, the conversion rate will be subject to adjustment in certain instances, such as if the Company issues shares of its common stock at a price less than $4.00 per common share, subject to a minimum conversion price of $3.27 per share. As of March 31, 2024, none of the contingent conditions to adjust the conversion rate had been met.

Each share of Series B convertible preferred stock is entitled to a cumulative annual dividend of 5% for the first six years following the issuance of such share and 3% for each year thereafter, with the Company retaining the option to settle each year’s dividend after the 10th year in cash. The dividends accrue and are payable in kind upon such time as the shares convert into the Company’s common stock. In general, the shares are not entitled to vote except in certain limited cases, including in change of control transactions where the expected price per share distributable to the Company’s stockholders is expected to be less than $4.00 per share. The Certificate of Designation with respect to the Series B convertible preferred stock further provides that in the event of, among other things, any change of control, liquidation or dissolution of the Company, the holders of the Series B convertible preferred stock will be entitled to receive, on a pari passu basis with the holders of the common stock, the same amount and form of consideration that the holders of the Company’s common stock receive (on an as-if-converted-to-common-stock basis and without regard to the Beneficial Ownership Limitation (as defined in the Certificate of Designation) applicable to the Series B convertible preferred stock).

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance as of March 31, 2024 was as follows:

 

Exercise of outstanding stock options, vesting of restricted stock units ("RSUs"), and issuance of RSUs vested but not released

 

 

1,304,248

 

Employee Stock Purchase Plan

 

 

293,888

 

Shares of common stock available for grant under the 2011 Plan

 

 

286,899

 

Shares of common stock issuable upon conversion of Series B convertible preferred stock

 

 

7,541,449

 

Total

 

 

9,426,484

 

 

15


 

10. Stock-Based Compensation

Stock Incentive Plan

The Company maintains a stock-based compensation plan, the 2011 Incentive Compensation Plan, as amended (the “2011 Plan”), to attract, motivate, retain and reward employees, directors and consultants by providing its Board or a committee of the Board the discretion to award equity incentives to these persons.

Stock Options

A summary of stock option activity for the three months ended March 31, 2024 is as follows:

 

 

 

Number
Outstanding

 

 

Weighted Average Exercise
Price per Share

 

 

Weighted Average
Remaining
Contractual Term
(Years)

 

 

Aggregate
Intrinsic
Value

 

Balance as of January 1, 2024

 

 

494,960

 

 

$