I wasn’t planning on writing anything about Identiv’s first quarter. There was nothing that stood out about the results. The company reported so-so year over year growth (7%) that was hindered a little by slower growth in their Physical Access segment (5%) which is seasonally weak in the first quarter. The Credentials segment grew at 11% and the Identity segment grew at over 20%.
The company reiterated guidance, which was set at $64-$68 million in revenue for the full year 2017 and EBITDA of $4-$7 million.
Nothing exciting. Until the company decided to offer stock.
The news came out on Thursday. It was priced by Friday morning at $4.85 and oversubscribed. The pricing was favorable when compared to the close Thursday night (there was essentially no discount) but when you consider the stock has had maybe 3 or 4 up days in the last month, not so much.
So why did they do the offering?
The simplest explanation is that the stock price has moved significantly in the past few months, the company has only a small cash position on the balance sheet ($7 million) and the board thought it was prudent to raise funds (it ended up being about $12 million). This would be the Occam’s Razor explanation.
While it’s probably as simple as that, there are some circumstances that make me wonder if other reasons were at play. First, why would they do a share offering so close to the annual shareholders meeting? It seems odd to raise the ire of shareholders right before they get their chance to speak to management unless the timing was precipitated by some specific need of cash.
And speaking of the word precipitate, there was an awkward exchange on the first quarter conference call between Stephen Humphreys (Identiv’s CEO) and an analyst. The analyst asked about the recent shelf that Identiv filed. Humphreys provided the usual run-around, the marketplace is exciting, looking for opportunities, making sure they have access to funds if something comes up. But he also said there was “nothing precipitous”. That seems to me like an odd phrase to use if you are one week away from issuing equity. He didn’t have to give that color. So why did he, or what changed in the following 7 days?
Also on the call was an odd disclosure by Humphreys about potential opportunities. In his prepared remarks Humphreys explained the three tiers of growth for the company. First is the base business growth. Second is finding upside in their existing platform of products, new target markets or solution packages. And the third is “disruptive growth”. Humphreys spent some time on this, explaining how the company positions itself for a “black swan” event and “aspire for moon shots” with its “disruptive and transformational solutions”. There was nothing specific in these remarks, which made me think it was odd to mention it at all. What was the point? Put yourself in the position of CEO. What would cause you to decide to write prepared remarks discussing moonshots and black swans? Would you really decide to do that on a purely hypothetical basis?
Finally there is the move in the stock price. I was pretty surprised to see Identiv rocket up over a dollar after announcing the public offering. I’ve seen an offering lead to a positive move in the price of shares, but its usually happens to a company where investors are concerned about solvency and the offering puts those concerns to rest.
So I don’t know. Maybe the move was just a reaction from a very oversold state. Or maybe it had to do with the underwriter. Whatever it was, there was nothing I could find in the prospectus or its follow disclosures to justify the reaction. They were very standard documents. It will be curious to see what transpires over the next few weeks and to see what they use the cash for.