Identiv Inc. (INVE) Situation Analysis – Rubicon Capital Group

Rubicon Capital Group’s situation analysis of Identiv Inc (Nasdaq: INVE).

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  • Mkt Cap: $ 120 MM
  • Ent Val: $ 130 MM
  • EV / Rev: 1.5x LTM, 1.4x fwd.
  • EV / EBITDA: 19.1x LTM, 11.3x fwd.
  • Price Target: $10 + (trading), $20+ (transaction)

Situation Analysis

  • Identiv (“INVE” or the “Company”) is a global provider of physical security and secure identification consisting of products, software and systems that address the markets for physical and logical access control as well as a wide range of Radio Frequency Identification (“RFID”) enabled applications (chips, transponders and inlays).
    • Key products include premise security solutions, work from home access products, identification tools, smart cards, readers, premise security controllers and consoles, RFID inlays, tags and readers.
    • INVE is a technological leader in physical access control, security, surveillance and analytics with decades of relationships and a strong reputation in the government and private sector.
  • Identiv has been a storied stock over the years and has not been a great performer. Management (led by one of the original founders of the Company who rejoined in 2015) has methodically taken steps to position the Company to be the best in several key security segments that feature compelling future growth prospects.
  • The investment case to own INVE at first is hard to fully ascertain as it manages multiple products in niche segments, sell side coverage is anemic and there is not a true public comp in the market.
  • While INVE operates a generally economically resilient baseline access and security business (over-indexed to the gov’t sector with some COVID-19 tailwinds), our excitement for INVE is based on their opportunity in the RFID sector– a market with enormous growth potential which is not sufficiently addressed by the sell side.
  • While RFID technology has been used for years (retail tags, logistics, tracking), INVE excels in two niche technologies therein (High Frequency “HF” and Near-field Communication “NFC”) where adoption has reached a watershed moment driven by contactless transactions and the Internet of Things (“IoT”).
  • Currently Identiv backlogs for RFID products are up significantly (60%+) and are poised to double near term.
  • The impressive near term growth excludes a pending major project where INVE will be a sole supplier for an undisclosed large consumer electronics maker (we suspect it is the “Fruit” company) which could lead to a much larger follow on supply agreement that would be a gamechanger for the Company.
  • While the use cases for RFID are virtually endless (some will be highlighted in the report), it is our view that increasing demand for such applications has the potential to at least double INVE revenues ($100MM+) over time with EBITDA growing from a current run rate of ~$5MM to closer to $25-40MM.
  • In terms of valuation, it is easy to pencil out a $10 stock (~100% upside) based upon modest end-market growth but we see potential for a much higher value ($20+) should the RFID market really take off.
  • It is also likely that longer-term Identiv ’s business represents an attractive acquisition target for its technological superiority, market reputation and deep supplier and customer relationships.

Company Overview

  • Premises Segment (50% of LTM sales / 63% of GM) – Includes physical location security, identity management, video analytics, mobility solutions, the well-known Hirsch brand & Cisco premises control platforms and video business intelligence solutions (3VR video and analytics).
    • Leading supplier of physical access control solutions (ID card readers, chips, card firmware) to both federal and state government customers including agencies within the DOJ, Treasury, FBI, U.S. Marshall, courthouses etc.
      • One of ~30 approved vendors to provide security and access under the Federal Identity, Credential & Access Management (FICAM) framework. INVE believes they have the most cost-effective framework and that expansion opportunities from its installed base exist.
      • 85% of this segment sold to the Federal, State and Local Governments where budgets remain strong. Q3 is a seasonally strong quarter (end of federal government fiscal year).
      • In response to COVID-19 workplace demands, Identiv is actively working on platforms with its existing tech to track, trace, pre-vet and analyze credentialed individuals entering facilities, attending meetings as well as mobile employees needing workspace.
      • Recurring software is ~LDD% percent of total revenue and is growing (47% y/y last quarter). INVE recently introduced to the market a security as a service platform (through 3VR) that requires no upfront hardware costs from the customer.
    • Fragmented competitive landscape includes a division of Honeywell, HID, a division of Assa Abloy, Lenel, Genetec, Gallagher Group Ltd. and Milestone Systems.
  • Identity Segment (50% of LTM sales / 37% of GM) – Broad range of access cards, smart card readers, RFID and Near-field Communication (“NFC”) products, tags, transponders and inlays.
    • Includes Thursby Software, a provider of high-end mobile security devices to gov’t and enterprise clients which is experiencing strong demand due to recent work from home mandates.
      • The new app-based direction for Identiv addresses the needs of those who often work remotely and need real-time access to their security systems. Currently, due to work from home mandates, sales for such solutions have been robust and broad based.
    • INVE is a differentiated player in advanced RFID applications (50 patents) which support the Internet of Things (IoT) with a low-cost method to apply identity and state to physical objects.
      • RFID solutions address a wide range of IoT applications from access control to asset tracking, product authenticity, customer engagement, tamper detection and transportation access.
    • INVE works with chip manufacturers (including a strategic relationship NXP Semiconductor) to form advanced RFID inlays. Through its facility in Singapore, INVE electrically fuses rolls of NXP chips with in-house designed antennae to create tags efficiently. INVE has a strong reputation as a high quality, high volume manufacturer and has engendered trust among its chip partners and customers.
    • Competitors on the smart card reader side include Gemalto (subsidiary of Thales) and HID Global (a subsidiary of ASSA Abloy). In RFID, the market is fragmented with the top competitor being SMARTRAC NV, which was acquired by Avery Dennison for €225MM in March of 2020.
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