Good afternoon. Welcome to Identiv's presentation of its Fourth Quarter and Fiscal Year 2023 Earnings Call. My name is John, and I will be your operator this afternoon. Joining us for today's presentation are the company's CEO, Steven Humphreys; and CFO, Justin Scarpulla. Following management's remarks, we will open the call for questions. Before we begin, please note that during this call, management may be making references to non-GAAP financial measures or guidance, including non-GAAP adjusted EBITDA, non-GAAP gross margin, and non-GAAP operating expenses. In addition, during the call, management will be making forward-looking statements. Any statement that refers to expectations, projections, or other characteristics of future events, including future financial results, future business and market conditions, strategic review, and future plans and prospects is a forward-looking statement. Actual results may differ materially from those expressed in these forward-looking statements. For more information, please refer to the risk factors discussed in the documents filed from time to time with the SEC, including the company's latest annual report on Form 10-K and quarterly report on Form 10-Q. Identiv assumes no obligation to update these forward-looking statements, which speak as of today. I will now turn the call over to CEO, Steven Humphreys for his comments. Sir, please proceed.

Thanks, operator, and thank you all for joining us. Before we get into our business and financial comments, I need to acknowledge a mistake we made in our processes. We mistakenly put our earnings results up on our website shortly before the market closed. We pulled it down when we became aware of it and immediately contacted NASDAQ. This has never happened before, and we've already implemented very tight cross-check processes to ensure it never occurs again. We pride ourselves on careful and complete disclosures and communications with our investors. Investors depend on our communications being available as expected and only then. I personally apologize for this, and we will not let it happen again. That was doubly unfortunate, as it negatively framed our business comments while we're making some significant progress. So we'll address any questions you've got about this or anything else in the Q&A section as always. But let me first get into our business update. 2023 finished with a fourth quarter that reflected our priorities of disciplined growth and balance sheet strengthening to position us for investment to accelerate our strategic position in both our RFID-enabled IoT and physical security businesses. Consistent with that strategy, in Q4 we kept our focus on high-margin revenue that supports our balance sheet and margins. Q4 net revenue was $29 million, while we drove balance sheet and working capital strength by reducing non-GAAP operating expenses below $10 million. Our cash position was improved by $3.6 million in free cash flow in Q4, the highest free cash flow quarter since Q4 2020, reflecting a sequential $4.7 million swing from Q3 2023. In addition to driving revenue in the fourth quarter, we put in substantial efforts towards the future direction of the business. As discussed on recent earnings calls, our Board initiated a strategic review to assess and execute the best strategy to maximize value creation opportunities in our two growth businesses, IoT and Physical Security. Both require dedicated management focus and execution and have different capital needs to drive growth. As you'll note in our financial results, there are substantial expenses below the operating expense line, some of which are associated with activities related to making progress towards a strategic action to generate capital and focus. We certainly wouldn't be expending this cash unless we're making tangible progress. We're, of course, continuing this activity in Q1 and continue to expect completion in early 2024, as we said by the end of last year. In the near term, we expect to announce specific actions to create substantial investor value in three ways. First, by investing in our transformational growth opportunities. Second, by strengthening our position in the verticals we've been strategically targeting, particularly healthcare and medical applications, but also across the category of specialty complex RF-enabled IoT solutions, which we call SCRI. And third, by bringing in world-class leadership to drive our strategy and execution to lead in this major market opportunity. Now before turning the call over to Justin to review our financial performance and operational updates for the fourth quarter, which we believe position us very well to leverage our next strategic steps. Starting with the IoT segment of our identity business. In Q4, we focused on the strategic IoT verticals of healthcare, smart packaging, and logistics, with margins remaining a key priority. Volume-wise, we shipped nearly 200 million units in 2023. We continue to build on our early leadership in SCRI. While we are still in the early stage, this category is our strategic focus. Because of the leadership we've established, we're consistently getting R&D inquiries to develop solutions for new potentially high-volume use cases. Our most important vertical for SCRI healthcare accounts for more than half of our NFC-based revenues. This reflects our drive over the past two years to focus on healthcare applications. Even at their current early stage volumes, some of these healthcare applications carry gross margins in the 40% range, with more margin opportunity over time. In the healthcare vertical, we have ongoing pilot projects with Arthrex, Shriners, and over two dozen other healthcare companies. More broadly, we continue to focus on pilot programs deploying innovative SCRI products. Based on the current TAMs in each of these specialized verticals of the healthcare market, we believe some of these applications could scale to $20 million annually or higher. Consistent with this focus, in a recent article in the RFID journal, we announced 15 pilot programs in Europe for a Bluetooth-based solution we developed in collaboration with Energous and Wiliot. This solution is ideal for cold chain monitoring in warehouses and refrigerated trucks. We announced one of the first adopters, the logistics company RPL Group. The initial feedback has been positive, and we expect to see further pilots deployed through 2024, with actual deployments ramping up later this year. Relatedly, our relationship with Wiliot remains strong. Our battery-assisted tag is a finalist for the best new product at next month's RFID journal awards, and we delivered nearly 14 million units to Wiliot in Q4. As I mentioned before, demand can fluctuate quarter-to-quarter in early-stage applications like this. Our understanding is that Wiliot is undergoing a technology transition, so we expect to pause shipments for the next two to four quarters. Fiscal year 2023 revenue from Wiliot was substantial, so we'll be working to fill the temporary gap with alternative demand. Due to the multiple pilots and our close relationship with Wiliot and other leaders in the category of BLE-enabled RFID, we believe we're in a good position to offset some of this pause and continue to lead the category. Another BLE company, NexSight, is also a partner with a focus on connected retail products, and we expect volumes from NexSight, Energous, and others to grow throughout 2024. Our technology production and process expertise also has encouraged two of the largest enterprise customers deploying BLE-enabled RFID to work directly with us for their next stage of technology deployment. In the consumer engagement part of our strategy, we've seen strong momentum for our Bitse.io IoT cloud platform. Last week, we announced the release of Bitse 3.0 with real-time visibility and traceability, making it an ideal solution for healthcare, pharma, medical devices, smart packaging, specialty retail, and industrial applications. A new Bitse-related initiative is with Mazars, a leading international audit, tax, and advisory firm on a new AI-enabled retail operation solution. This combines Mazars ERP systems expertise with our Bitse.io platform, NFC tags, and Microsoft Dynamics 365. We work directly with the Microsoft R&D team to integrate Microsoft AI Assistant Co-pilot with the data analytics enabled with Bitse. At the recent National Retail Federation Annual Show in January, the Mazars team demoed their new total experience offering for retailers in the Microsoft booth. We're also co-hosting a virtual panel with Mazars and the NFC Forum on March 28 on the Store of the Future. Now opening our Thailand production was another important step in 2023. As expected, our Thailand capacity for primary processes is 200 million units exiting 2023. Early production results from this facility suggest the potential for even higher production margin gains than we originally expected. We've also leased the adjacent building, securing our ability to expand efficiently. So let me now talk about our Premises security segment. After a very strong Q3, where we set a new record for segment revenues in the quarter, we saw normal seasonality. Our core packs business was up 9% for 2023, with underlying faster growth, partly offset as we transition our legacy video products into sales of our new Velocity Vision and Vision AI platform. Now product releases late in 2023 included the full launch of our cloud-first small to medium business product Primis, along with a wholly new edge controller, our EG2, and our Primis mobile app, setting the standard for high-security cloud offerings in the SMB space. We also launched Vision AI, our video intelligence solution, which is now a standard feature in all of our video offerings and ScrambleFactor, our new multi-factor intelligent reader. This is more than a product. It's the next generation of our iconic ScramblePad, with biometrics and a state-of-the-art LCD touchscreen keypad, creating a flexible access point with multiple authentication methods. We've designed it to easily expand to mobile and frictionless access, video, audio, and other entry point capabilities to support the next generation of infrastructure-light cloud-based access control platforms. Now as you can tell from these major product launches across access, video, and intelligent reader infrastructure, we came out of 2023 in a stronger position than we've ever been. Another metric of our progress is our high-margin software services and recurring revenues, which increased to over 20% of Premises revenues. There's still a portion of revenues that are perpetual licenses, which we expect to convert to subscriptions. Now this is a relatively near-term recurring revenue growth opportunity because it's grounded in our own customer base. Supporting our federal strength, the U.S. General Services Administration approved Identiv's Velocity 385 software, Hirsch hardware, and uTrust readers for listing on the GSA-approved products list following a rigorous testing led by the GSA APL FIPS 201 evaluation program. Our fourth quarter also reflected progress in key strategic directions, including our OEM and federal sales, hospital and healthcare systems, and Velocity Vision pilots. So in summary, our Premises business strengthened industry-wide with software services and recurring revenues reaching well over 20% of Premises revenues as we exited 2023 and positioned strongly with the product releases I described earlier across cloud, AI analytics, SMB, and next-generation sensors and biometrics. We focused our RFID business on SCRI applications, particularly in healthcare and consumer engagement, supported by continued progress developing our Bitse.io data analytics platform. And from an investor perspective, in Q4 we strengthened nearly all aspects of the strategic foundation of our businesses. We continue to believe we're on track to complete our strategic review and actions early in 2024. So with that, I'll pass the call over to Justin to review our fourth-quarter financial results in more detail.

Thanks, Steve. As Steve mentioned, in 2023 we were able to deliver revenue growth, consistent margins, controlled operating expenses, and generate positive cash flow from operations. This enabled us to maintain a strong working capital position. We achieved these results while focusing on driving disciplined growth in both our Identity and Premises businesses, including our new cutting-edge Premises products, our focus on SCRI, and the continued build-out of our operational Thailand facility, which positions the company to continue its growth momentum in 2024. Fourth-quarter 2023 revenue was $29 million, in line with our previously announced guidance range and flat versus the comparable prior year period. Fiscal year 2023 was $116.4 million, a 3% increase compared to fiscal year 2022. Fourth-quarter 2023 GAAP and non-GAAP adjusted gross margins were 35% and 37%, respectively, as compared to 36% and 38% in 2022. The year-over-year decline in margins versus the prior year period is attributable to the product mix between Premises and Identity segment sales. Fiscal year 2023 GAAP and non-GAAP adjusted gross margins were 36% and 38%, respectively, which is consistent with 2022. GAAP and non-GAAP adjusted gross margin reflect our continued focus on maintaining our margin profile in 2023 despite the rising cost of materials, while continuing to increase our investments in technology and manufacturing processes and equipment. We remain committed to a long-term non-GAAP adjusted gross margin target of 40% to 45%. GAAP and non-GAAP adjusted operating expenses for the fourth quarter of 2023, which include research and development, sales and marketing, and general and administrative costs, totaled $11.8 million and $9.8 million, respectively, as compared to $10.2 million and $9.3 million in 2022. Fourth-quarter 2023 GAAP operating expenses include $0.4 million in strategic review-related costs. GAAP and non-GAAP adjusted operating expenses for fiscal 2023 totaled $47.2 million and $41.3 million, respectively, as compared to $41.3 million and $37.1 million in 2022. Q4 GAAP net loss attributable to common shareholders was $1.9 million or $0.08 per share, compared to GAAP net income of $0.03 million in Q4 2022. Fiscal year 2023 GAAP net loss was $6.8 million or $0.29 per share, compared to GAAP net loss of $1.6 million in fiscal year 2022 or $0.07 per share. Non-GAAP adjusted EBITDA for Q4 2023 was $0.9 million compared to $1.7 million in the prior year period. For fiscal year 2023, non-GAAP adjusted EBITDA was $2.8 million compared to $5.4 million in fiscal year 2022. This change in non-GAAP adjusted EBITDA reflects our continued strategic investments in R&D, as evidenced by our new product launches, sales activities, and our expanding Thailand operations. In the appendix of today's presentation, we have provided a full reconciliation of GAAP to non-GAAP information, which is also included in our earnings release. Our next slide further analyzes trends by segment. Beginning with Identity, in Q4 2023, revenue from our Identity products totaled $17.5 million or 60% of the company's net revenue compared to $18.3 million or 57% of net revenue in Q3 2023 and $16.8 million or 58% of net revenue in Q4 2022. For fiscal year 2023, Identity revenue was $68.1 million versus $67.4 million in fiscal 2022. The year-over-year increase was primarily driven by our RF-enabled IoT products, which more than offset the decline in our legacy access cards. Identity segment GAAP and non-GAAP adjusted gross margins for Q4 2023 were 22% and 24%, respectively, flat compared to Q4 2022. For the full year, Identity segment GAAP and non-GAAP adjusted gross margins were 22% and 24%, respectively, also flat compared to fiscal year 2022. While quarter-to-quarter margins can fluctuate, we expect long-term margins to trend upwards from current levels as we expand and deepen our existing customer and technology partnerships and increase production at our Thailand facility, which has lower manufacturing costs than our Singapore operations. We believe our focus on high-value specialty IoT solutions and strategic relationships with industry partners and suppliers could further strengthen our margin profile. We remain committed to a long-term gross margin target of 35% to 40% in our Identity business. Now turning to the Premises segment. In Q4 2023, revenue from our Premises products and services accounted for $11.5 million or 40% of the company's net revenue compared to $13.6 million or 43% of net revenue in Q3 2023 and $12.2 million or 42% of net revenue in Q4 2022. The sequential decrease in Premises revenue was in line with our normal seasonality as Q3 coincides with the government's fiscal year end. For fiscal 2023, premises revenue was $48.3 million versus $45.5 million in fiscal 2022. The year-over-year increase was primarily driven by our physical access control systems, offset in part by decreases in video products. We continue to execute our go-to-market strategy by offering a comprehensive end-to-end security platform solution. Premises segment GAAP gross margin for Q4 2023 was 55%, a decrease of 1% compared to Q4 2022, primarily due to product mix. Premises segment non-GAAP adjusted gross margin for Q4 2023 was 57%, flat compared to Q4 2022. For the full year, Premises GAAP and non-GAAP adjusted gross margins were 57% and 58%, respectively, flat compared to fiscal year 2022. We remain committed to a long-term gross margin target of 55% to 60% in our Premises business. Now moving to our operating expense management, our non-GAAP operating expenses in Q4 of 2023 adjusted to exclude restructuring, strategic review, and severance costs, and certain non-cash charges consisting of stock-based compensation and depreciation and amortization was 34% of revenue compared to 32% in Q4 2022 and 32% in Q3 2023. Non-GAAP operating expenses for fiscal year 2023 was 35% of revenue compared to 33% in fiscal year 2022. Now turning to the balance sheet. We exited Q4 2023 with $24.4 million in cash, cash equivalents, and restricted cash, an increase of $3.5 million from Q3 2023. In Q4, the increase in cash was a result of $4.8 million in cash from operating activities, while we used $1.1 million in investing activities, primarily related to capital expenditures, and $0.4 million from financing activities. Our working capital exiting Q4 was $48.7 million, a decrease of $1.1 million from Q3 2023. Inventory decreased $0.7 million in Q4 as we continue to work through our inventory balances. As a result, we expect to continue rebalancing our working capital and anticipate repaying our revolver balance in 2024. In our 10-K filing, we will be providing a full reconciliation of the year-to-date cash flows. For completeness, we have included the full balance sheet in the appendix of today's earnings release. As Steve mentioned, with the anticipated technology transition from one of our key RFID customers, we expect a Q1 revenue range of $22 million to $24 million. This concludes the financial discussion. I'll now pass the call back to Steve.

Thank you, Justin. In 2024, we anticipate continued growth in SCRI use cases and expansion to new customers. Our Premises segment is equipped with a robust refreshed product lineup, which will support increasing revenues from our comprehensive platform while maintaining strong margins and growing recurring revenue from software and services. As we enhance our competitive edge in both of our growth businesses, we will ensure our balance sheet and working capital remain strong. Let me start by discussing the Identity business, with a specific focus on the RFID segment. For IoT RFID applications, we are creating value in three main ways. First, by assisting in pilots for complex SCRI applications, particularly within healthcare and consumer engagement sectors. The healthcare sector is critical for our RFID IoT solutions. Our goal is to offer solutions that meet the stringent technical standards required by our SCRI clients, positioning us to pioneer entirely new categories. Currently, healthcare projects advance slowly; while there is incremental progress, large-scale implementations are challenging to predict. Our NRE and pilot pipeline looks promising, and we are allocating more resources towards the most promising near-term revenue opportunities. This is a key area for increased investment, as we balance immediate applications like auto injectors with long-term market opportunities in medication compliance. This compliance arena is arguably the healthcare industry's largest chance to achieve significant economic benefits. It's noteworthy that nearly 25% of first-time prescriptions go unfilled, and almost half of those aren't taken according to their prescribed regime. We believe RFID presents a unique platform to tackle this significant issue for the healthcare sector. We will delve deeper into this once we finalize our strategic activities, understanding that realizing the full potential will require time, focus, and investment. Nonetheless, the opportunity's scale and our unique capability to address it justify the effort. We are also advancing five distinct auto injector projects across four companies, each with varying average selling prices based on solution complexity. For instance, the second phase of application testing for one FDA-approved project is currently in progress. Meanwhile, our largest auto injector customer has rolled out approximately 10,000 auto injectors in a controlled pilot with selected physicians and patients assessing usability and effectiveness. This remains an exciting opportunity that is steadily developing, and we'll continue to provide updates, as timelines for medical devices can be lengthy. Anyone monitoring the rapidly growing applications for auto injectors recognizes the substantial volumes projected by pharmaceutical companies, marking it as one of the largest and fastest-expanding categories in medication administration. In the area of consumer engagement, we are observing an increase in use cases, including a novel smart home electronics application that saw sales double quarter-over-quarter. We continue to see high-end garment use, including life of garment applications, the Mazars retail application, among others. The second approach to creating value in IoT involves strengthening our reputation as a provider of specialized applications and reinforcing our industry leadership through joint marketing and product initiatives. We collaborate with partners such as NXP, collectID, Wiliot, Mazars, and Energous, and engage with institutions like the Axia Institute at Michigan State and the NFC Forum, which play a role in establishing standards for advanced RFID applications. This area is a significant growth driver, with widespread use cases emerging, exemplified by the digital product passport introduced by the European Commission in the Circular Economy Action Plan. Finally, we are expanding our cost-effective, high-quality production capabilities in Thailand, with our initial capital expenditures there nearly complete. The benefits of manufacturing IoT devices in Thailand will reduce production expenses related to rent and labor, streamline supply chains, and grant access to a skilled workforce. These represent our value creation strategies in IoT for 2024. One issue we faced in previous years, the supply chain, is not anticipated to be a concern in 2024. Now, I’d like to discuss our Premises business. In physical security, we achieved our industry leadership objectives in four major ways. First, by providing an integrated end-to-end physical security solution, featuring our newly announced ScrambleFactor, along with our Vision AI and Velocity platforms. The value of our complete solution has clearly resonated with commercial customers. End users value this comprehensive offering, while integrators benefit from increased profitability due to the reduced complexity of partnering with fewer vendors, which also leads to faster installations and simplified maintenance. This is a strategic area where our Identity and Premises segments intersect. The physical security sector is increasingly adopting the convergence of identity management for both logical and physical security. According to a 2022 Gartner study, 41% of companies intend to merge aspects of their cyber and physical security operations by 2025, up from 10% in 2020. Our identity readers facilitate logical access and serve enrollment and issuance functions for access control identities. We possess robust technical foundations for secure authentication and a broad market presence. This year, our leadership was further demonstrated by securing a $2 million order for Identity readers, intended for company-wide deployment at one of the largest online retailers globally. Our second leadership initiative focuses on enhancing our position in federal physical security solutions, covering both on-site and cloud-based services. We are concentrating on increasing the number of agencies we serve as well as maximizing our market share within existing clients. These efforts have contributed to a 9% growth in federal sales in 2023, and we believe this will continue to drive growth in 2024. Our third industry leadership tactic involves extending high-security measures to the SMB market, effectively delivering enterprise-level security through our new Primis Cloud EG2 controller and encryption bridge platform. This offering is also appealing for customers with multiple locations seeking a cost-efficient, uniform access control solution. Already in 2024, we have seen demand for EG2s exceed our initial forecasts. Fourth, we are enhancing our enterprise software services and recurring revenue by promoting our Cirrus cloud solution among both our current and new enterprise customers. Software and recurring revenues made up over 20% of our Premises revenue by the end of 2023, a trend we expect to continue into 2024. Boosting recurring revenues is one of our top priorities for the coming year. Alongside our Cirrus platform, we are exploring pricing models aimed at facilitating adoption within the channel, thereby enhancing recurring revenue growth. To support this progress, we are dedicated to maintaining a strong balance sheet with adequate working capital for our strategic growth initiatives. We are tightly controlling our expenses, as reflected in the sequential reduction in costs, while still prioritizing investments in key growth areas. As you can see from our discussion, we are optimistic about the value creation and industry leadership advance we believe we are achieving in both of our business segments. From a planning perspective, we have expanded our next-generation products and production capabilities. Both of our business areas are well-positioned for a strong performance in 2024, following our investments in 2023. Although our product launches and production in Thailand impacted capital and operating results, they have set us up favorably for 2024 and beyond. For Q1, we anticipate revenue in the range of $22 million to $24 million, with sustained strong contributions from our Premises security and Identity reader sectors. We believe our strategic efforts may slightly impact near-term operations, as we concentrate on making the right moves for long-term value generation. The next significant step for our business will be the culmination of our strategic initiatives. We are committed to maximizing shareholder value through substantial investments in our growth opportunities and strategic verticals while bolstering our leadership teams to execute our strategic plans. As I noted earlier, we expect to take strategic actions in these areas, in line with the plan we outlined at the end of last year. With that, I will now ask the operator to open the lines for questions.

Thank you. We will now begin the question-and-answer session. Our first question comes from Craig Ellis with B. Riley. Please proceed.

Thanks for taking the questions and all the information, guys. Steve, I wanted to follow up on a couple of things and just clarify the revenue items. So one, it sounds like, given what's happening with Wiliot, strong production in the fourth quarter, but a period of digestion upcoming, so that would impact the Identity business sequentially in 1Q. And then you mentioned, as you closed out your prepared comments, that there might be some near-term impacts on the business from strategic efforts. And I'm wondering if there was any additional allowance factored into headline revenue guidance or anything you'd expect in either segment that we should look for in the first quarter, potentially the second quarter on that matter?

Yes. Thanks for the question, Craig. I think those cover it in terms of the headwinds, and there are a number of tailwinds in all these areas. But we want to be very careful that we're setting ourselves up to meet what we put out there. And so, I think that's exactly the way to characterize it. There are a couple of things that we're offsetting, but we also are seeing good momentum, and we talked about the consumer electronic company that's growing, some of the other healthcare areas that are growing nicely, and physical security with all the product launches are going well. And I also mentioned the Identity reader order that we had in the first quarter, which was pretty substantial. So it's got pros and cons pushing it, but we wanted to be sure to get the cons out there as well, and you identified the ones that we wanted to highlight.

Got it. And just on the revenue point, Steve. We have a very challenging macro that lingers at least from the mosaic we put together. How are you feeling about the business's forecast stability on the top line now? Is it starting to lock in? Is it still a little bit difficult just given the crosscurrents from the macro? Can you give us a sense for how you're feeling about the visibility that you have and the ability to forecast each segment of business overall in the top line?

Yes, thank you for that. We're optimistic about our visibility, which is why we wanted to detail the positive factors as well as the challenges we face. We don't believe there are many unpredictable elements; we have clear insights into the factors driving our opportunities. As a result, we feel we have strong predictability, actually quite solid predictability.

Got it. On that note, I'll flip it over to Justin. Justin, on gross margins, can you give us some help with the gives and takes just beyond volume for the first quarter from the level that we hit in the Q4? I think, at least versus my model, gross margins were lighter mostly due to significant mix shift towards Identity from Premises. But what are the gives and takes with first quarter's gross margin, please?

Yes. We do see a bounce back. It's primarily going to be mix in Q1 when we do anticipate a bounce back to Premises on that side. So we'll see a slight bump in margins for Q1 off of closing out what we did in Q4. We're trying not to go too granular, but yes, we should see a rebalancing in that in Q1.

Okay. And then lastly, you had talked last year about improving cash generation with better working capital management. It does seem like that came through strongly in Q4. The question is, how much of that is still ahead of you, and what can we expect with cash from operations over the next couple of quarters? And for debt pay-down, what linearity should we expect through the year? Is it going to be first-half weighted, ratable, or more back-half weighted? Thank you.

Yes. I think it will be more back-half weighted. I think as you saw in our Q4 press release, we had some pretty significant costs related to that strategic transaction, and those will be cash that's going out the door, and that's going to continue into 2024 as well. So we did from my prior guides that we do have some pressure on cash with the strategic review and other items that we're working on. So it will be a little bit more back-half weighted than we had originally anticipated.

All right, guys. Thank you. I'll hop back in the queue.

Thank you.

Thanks, Craig.

Thanks, everyone. Steven, you went through the Wiliot explanation pretty quickly in your prepared remarks. Is it just a matter of inventory digestion, or did I hear you mention they're transitioning to next-generation technology? Additionally, regarding the guidance for lower revenues, how much of that is related to Wiliot?

So it is a technology transition even more so than inventory topics. Again, I'll let them address that, but we wanted to cover that as well. And that's the major factor there. What was the second part of your question, Tony?

How much of the reduction or the down sequential revenues can you attribute to Wiliot? Is it half the reduction for Q1 or ballpark?

It's of that order. They were a couple of $1 million a quarter customer. So that's material, and we expect to offset a chunk of it, but we want to be careful about how much, how fast.

Got it. And then just bigger picture, you guys surprised yourselves in a lot of healthcare-related design wins, a lot of healthcare revenue, which typically isn't cyclical. Are you now seeing more of a cyclical nature even from your healthcare customers?

Good question. The answer is no. There is some seasonality to various healthcare use cases, particularly with surgical instruments and ICU devices, which experience different levels of demand throughout the year. However, it doesn't follow a pattern like the federal government, which sees a significant increase in the third quarter due to its cyclical nature. Instead, the seasonality we observe is more tied to specific products rather than a broader cyclical trend in healthcare, as the overall healthcare market is not cyclical.

Got it. And then lastly for me, Justin, just when you look at kind of the starting point for Q1 and the nature of Wiliot going to pause for two to four quarters? Help us understand, to me, it looks like 2024 revenues are probably going to be lower than 2023 revenues.

We typically try not to give full-year guidance. We're getting away from that. We're going quarterly at this point, but we don't think it'll be less than 2023. No.

Okay. Appreciate it.

Yes. Thanks.

Yes. Thanks for taking my questions. Understanding sort of the dynamics with Wiliot. I think last call you mentioned seeing some kind of order push outs across the board. Just curious if you're still seeing that occur?

In terms of related to Wiliot per se or other categories, just want to be sure I'm answering the right thing?

Yes, just within the RFID business.

No, we're not seeing push outs in RFID in terms of delays or people having oversupply or something. It's much more project-specific like I was mentioning, whether it's the healthcare products and their project cycles or with the BLE applications or any others, it's very much project-specific.

Got it. And then just as a follow-up, Justin, how should we think about OpEx trending throughout this year?

I think what we're looking at, are you talking about non-GAAP or GAAP or both?

Non-GAAP.

Yes. Directionally, it will go up a few percent. Basically, we have a merit increase here in April that will be throughout the organization, that will be upping it a little bit, but not a significant uptick, but slightly up from 2023.

Okay. That's helpful. Thanks a lot, guys.

Hi, guys. Thanks for taking my question and I appreciate you taking the time to chat. One statistic stood out to me in the presentation. I wanted to get a better sense of how it's changed as the percentage of recurring revenue in Premises. I think you guys said it was above 20% in 2023. I'm not sure if you guys have disclosed it before, but just curious what that percentage may have been in the one or two years prior? And how high of a percentage of revenue do you think that could go on a longer-term basis like out years?

So I'll take that from a couple of angles and then Justin just jump on in if you want. That number has been 15% a year ago, and now it’s roughly round, but it’s around 24%, so it's well over 20%. And where we expect that to go, we want to drive it in the physical security business to be clear. We want to drive that to be the majority of the revenue base there. It's going to take five to seven years for that transition. But when we talk about that Primis cloud and our Cirrus products, those are all driving towards a recurring revenue model, which we want to become the core business model for the business.

And just one follow-up on that. I think you mentioned that it was a shift in contracts that they were changing the terms, I think you had said, forgive me if I misunderstood?

That most of our market opportunity near-term is selling to current customers and transitioning them from an on-prem solution to a cloud solution. That's certainly the case for commercial velocity customers. In federal, we've got our FedRAMP cloud solution. And then with Primis with SMB, there's a predisposition towards cloud, and that's a very much cloud natural product. So it really is across the board. But what I was referring to was Velocity Commercial and Velocity Federal were the vast majority of current customers are perpetual license customers, and they're the lowest hanging fruit for conversion to recurring revenues.

Got it. That was very helpful. Thank you.

Okay. We have a follow-up coming from Craig Ellis with B. Riley. Craig, please proceed.

Yes. Thanks for taking the question. Steve, it seems like the Thai facility is having a really nice ramp. And my understanding from past conversations with the team is that, that is a location where we were working on Wiliot production. So one, can you confirm that that's where that production was based? And two, as we think about the Wiliot pods, what does it mean for utilization in that facility as we look out at that facility and then just overall for Identity segment gross margins in 2024?

The Wiliot production took place in Singapore. We have now balanced the technology to allow production in both locations, which is a recent development. As for the Thai facility, it has indeed been a key focus. During our first COGS qualification run, we updated our standard costing and found that the operational costs in Thailand were lower than we initially estimated in our ROI calculations. Additionally, we discovered that we can implement higher technology process capabilities in Thailand more quickly than we anticipated. This means we can ramp up production faster and potentially gain a gross margin advantage. Regarding overhead absorption on gross margins, this is an ongoing balancing act for us. We occasionally accept lower margin business to utilize capacity and reduce overhead costs. However, it is possible that we may experience some pressure on margins due to operational overhead absorption, which could be mitigated by increasing production in Thailand where we enjoy better gross margins compared to Singapore.

That's very helpful. And is it possible to quantify the mix of production you'd like the team to achieve out of Thailand as we look out over the next 12 months and maybe 24 months? Are there some milestones that you have, whether it's getting to 30%, 50%, whatever percent of total production given that significant cost advantage that you have there?

Yes, there are two aspects to consider. First, we are focusing on the scale of production and the processes involved. With our recent advancements, we have expedited the transition of some of our higher-end processes to Thailand. We took advantage of the Chinese New Year shutdown to accelerate this move. Ideally, I would like to see more than 50% of our production coming from Thailand by the end of the year. We need to ensure we balance quality with production speeds, run times, and the input from our sales teams. However, aiming for that 50% target seems reasonable. We have realized there are no technological barriers, as the workforce in Thailand is highly capable in both engineering and production, and costs are lower as well. Additionally, the lease of an extra building right next to our current facilities will allow us to expand efficiently. If we hadn't secured that space, our next expansion would have been further away, complicating logistics and production flow. I believe Thailand will provide a competitive advantage for us in the near future.

Very helpful. Thank you, Steve.

Thanks, Craig.

Okay. We have no further questions in queue. I'd like to turn the floor back to management for any closing remarks.

Okay. Thanks, operator, and thank you all for joining us today. We really appreciate the continued support of both our team and our shareholders and all of you who are listening to us. Anyone wanting to keep up with our business's progress, please join that Mazars webinar on March 28 that we mentioned. Also, visit us in early April in Las Vegas, both RFID Journal and ISC West are in the second week in April, both in Las Vegas. So you can visit there in person for both parts of the business. And then we'll also from an investor perspective be holding an NDR with Lake Street Capital Markets in April likely. And of course, we'll be at the B. Riley Conference in May. So again, thank you all for joining us. And of course, we look forward to communicating thoroughly as soon as we have a strategic action that can be shared. So thanks again and have a good evening.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.