February 3, 2015
Identiv Board of Directors
39300 Civic Center Drive
Suite 160
Fremont, CA 94538
Board Members:
This is my third official letter to the board of directors. If any of you did not receive a copy of the previous letters, please check with Mr. Humphreys. I personally would not know because I have never received an official response or even an acknowledgement of receipt. Therefore I have taken the necessary delivery measures to see fit that you each get a copy of this. Might I suggest in the future that when a shareholder of your company takes the time to engage fellow owners of his company that you professionally reply to them. It might also prevent attorneys from having to be copied to begin legal paper trails when seemingly their perception of being disregarded is brought to the forefront. For Daniel Wenzel and Saad Alazem (outside of the United States) please have the courtesy to forward this and all prior correspondence so they are fully aware of my calls for action, and my reminder of fiduciary responsibility.
As you are aware, I have been very supportive of this company. I have been complimentary and non-critical of the actions of this board. And yet I find myself strangely in an adversarial position based on your failure to communicate, and most recently your comments via email from Lennart Striebel on January 13, 2015, when I requested a call with Mr. Humphreys. Again hopefully you are all aware that rather than speak to a significant owner of the company, you have elected as a liable board to spend our shareholder money on legal fees to combat the money I am already spending on legal fees. Might I suggest that each of you see the thread of content between myself and Lennart (Jason Hart also copied). Part of which were detailed suggestions for brand recognition, as well as suggestions on how to promote Identiv labs. The good news is based upon some of the recent press releases on Identiv labs, that it seems at least somebody considered my thoughts. I really just have no idea of what any one member on this board is aware of or not aware of, so I feel compelled to question what if any content you have.
I pointed out in my last letter to you dated November 7, 2014 that the company was not promoting the business and would never be in the proper position to promote itself based upon the confidentiality constraints that are inherent to the nature of the Identiv business. My thoughts on this matter have not changed and since strengthened by the fact that the company has yet to announce any significant material information to help build shareholder value. We continue to trade below the secondary pricing, and well short of industry standards and comps. This all continues despite the hiring of a professional investor relation firm. And speaking of two press releases that “will be issued” on your last conference call back in early November (which are yet to be issued almost three months later) is not good business practice. Might I professionally suggest the company never engage in this tactic again? It is only evidence of how constrained, and frankly, desperate to disseminate information we truly are. My view as to why I feel we need to consider a sale, however, is supported now by another alarming matter.
It has been brought to my attention by the most recent Northland Capital research coverage report that the company will not make money in 2015. In fact, they are projecting a loss to the tune of close to $7 million dollars (-.68 per share). As Cowen was the lead underwriter, and the secondary has failed tremendously since the offering, their projection of earning $.10 or approximately $1 million is obviously incorrect. Based on legal exposure, they will wait for you to tell the investment community the bad news, so they can keep an arms length from their original projection (just my opinion). Personally I think the future lies somewhere between the two reports, which raises the following concern. It is very obvious to any business person we have hit what most call the “acquire or be acquired” level as we all learned in advanced business classes. Acquire is clearly not an option for this company, especially with the tainted history and years of failed acquisitions this company has engaged in the past. As a company losing money and with limited resources, the size of the acquisition that would need to be made would place the company and its shareholders at great risk and would immediately devalue, overleverage, and/or over dilute the shareholders. So that leaves us the obvious answer which is to consider being acquired. This is the most self-evident and sensible business option that each of you should be aware of at this time. The fact that we will grow revenues over 20% this year, that we have cut significant costs from the system (after a costly 16 month process), the fact that our interest rates should be significantly lower this year, headcounts and severance pay have been reduced, but yet the company will lose significantly is the evidence we are at that ever so familiar juncture of decision time. I have crossed this road several times in my personal career.
The company based on its own projections is telling the investment community and its shareholders the facts. That they are understaffed and lack the necessary infrastructure to handle the growth that lies in front of them. While that might sound negative (and positive at the same time) for our own future, it is a very appealing opportunity for larger entities that already have the infrastructure and personnel to immediately absorb our business and move it to the next level of profit significantly faster, and with a measurable amount of less risk. There simply is no arguing these facts, and why would you want to even try. Regardless of where the stock is trading, whether it is the $13 level, of even the $20 level, this scenario is upon us. Any sensible person would know that this is the time to explore the sale of the company. It is a time to determine the path of the company. It is a time to measure our risk, and potentially mitigate that risk. But most importantly, this is the time we are of most interest to prospective acquirers. A time when the slate has been cleaned so well by this board over the last 16 months; a time when the business structure is at its least complicated time; and at a time when a large company through leverage of scale can strike so much quicker than us trying to slowly grow through a “managed growth” strategy. I am confident that if Mr. Hart had an open checkbook and an existing sales force four times what he has today, he would be far more successful. Just imagine where the research and development could really go with a big budget. That should also scare us at the same time when we measure future competition should we remain a standalone. As an example, I passed along a couple of medical device leads to Jason back in July (when he still spoke to me), one of which was a $23 billion company with whom I am friendly with both the Chief Financial Officer and the Chief Technology Officer. There were several major changes that took place with regard to traceability in the industry for required implementation for 2015 that Identiv products not only have application fits for, but we all considered advanced fits. I was never taken up on those leads. And I do not blame Jason for missing this, as the company and the sales force simply was not capable of handling everything that was and is being thrown at them. I get this, but also know a larger company would have an entire separate sales force with it’s own divisional leader dedicated to the medical device/biotech/pharmaceutical space alone. It would be great if we could clone and have a sales team of 100 Jason Harts (we could all get rich), but we don’t, and we can’t.
This is the time we all need to come together as owners of the company. This is not David Callan the activist speaking to you in threatening manners as I do with other boards that I am highly critical of. This is David Callan speaking to sensible business people that know I am looking out for my interest as a shareholder, which is the same interest you should have as both owners in common, as well as board members with the fiduciary responsibility to do what is best for shareholders. I am not here today to tell you to change paths and not to go grow the business (knowing it will come at a cost to shareholders), or to not hire people and focus solely on earning a profit instead. I am here simply to point out the obvious that we need to hire an investment bank and form a special committee to do what is right at this time in the company’s history. This is not, and should not, be something to be adversarial about, or something to waste time and shareholder money on legally to battle me. While I have far too much free time and significant resources, I prefer to use them more wisely. I think this board understands my goal is to build shareholder value, and I have a great record of doing it.
Changing subjects. I mentioned in my last letter that I intended to communicate with other shareholders. First off, I have begun some dialogues (as I feel this is the necessary time), but I have come across some rather concerning matters. Hopefully you are aware of them and share the same concerns. Nonetheless, I will make sure we are all on the same page. Have any of you ever spoken to Espalier Global Management or visited their website? There is no website and the registered phone number does not lead to their company. As experienced traders some of you should know what that means. Does anybody know what type of firms Bogle Investment Management or Renaissance Technologies are? Again assuming you know your top tier shareholders, you are aware they are fully quantitative and have no direct fund managers. This should speak volumes to you as it does to me. My council has requested I leave the assumptions up to you, but the precipitous drops and spikes in our stock price should speak loudly to you. And these are just naming a few that control over 10% of our company. At any rate, I have reached out to other holders where names are actually attached to this position and will be sending the following correspondence to them (attached) in the coming week. It is my goal to continue to be transparent with my intentions with this board, and with the other large owners of our company so we can build value together. I think it prudent we all do not miss the opportunity that lie before us. Shareholders are all financial people. We each own a stake in this company, and making money is our common goal. My being vocal on how to go about doing that is a means to achieving that. I have and continue to do it in an extremely positive manner with the public as well as my communication with this board. As stated that is never the case in my history, so hopefully my non-critical manner will not be mistaken for weakness by anyone.
Gentleman, I will close in saying that you have done an excellent job to position us quite possibly for the ultimate shareholder result, the sale of the company at a premium. In a tumultuous market, an ever evolving technology environment, having to deal from a position of weakness where we have to manage our risk and be critical of cash burn rates, the time to mitigate those risks and all the others is now. While you may think we had success in the stock price last year, lets not be blinded to the fact that it was coming off the lowest price in the history of the company as well as the most shorted period. It also came with the help of my involvement and the many followers I am consciously aware of that have latched on to my path of success (all with current sizeable positions not to mention mine added during the summer 2014), the involvement from my influence of Seeking Alpha who has helped play the investor relations role (with an author that also has significant subscription followers and now owners in the company), and the disappointing need to use shareholder funds to buy back our own shares. But most importantly, the addition to the Russell index, which is noted by an average daily volume increase of approximately 108% as well as noted by the ludicrous quantitative fund positions that have been created. A low float and option trading makes for an algorithm play ground, but sadly at the expense of constructive and dedicated shareholders. Here is the up side to look at moving forward, we have Jason Hart, who is quite possibly the best person to sell this company for a premium. He stated we are worth $400M, and while as an outsider without inside information, we may never reach that valuation, I genuinely believe based upon what has been accomplished with him in position and his enthusiasm knowing what he knows, he can go out and attain a significant premium from the levels we trade at today and take all the future risk and subsequent fiscal losses off the table for shareholders. I am confident that with a few key announcements of business deals that we have secured, possible preannouncements of earnings or upside guidance, as well as this board choosing to announce that we are grossly undervalued and that the company in the best interest of its shareholders will undergo the prudent exercise of exploring strategic alternatives (we should discuss this as I am very familiar with perception of the positives and negatives and I know how best to word it), the premium we attain should come off a $18 stock trade price, making the low $20’s and higher very realistic as a sale price. Again not being an insider, I am sure the things you can share with prospective buyers of the company through non-disclosures will make them want to jump now at the opportunity to strike it rich with our portfolio of products and technology. Coupled with their infrastructure and leverage of scale, they can take Identiv and its employees to the next level of greatness. Exploring this option is both sensible and prudent, and in the best interest of shareholders. The time is now before the pattern of growth with losses weakens our appeal or strength to negotiate. I have seen that mistake happen before and it did not end well for anyone, both from a financial standpoint, as well as personally.
I look forward to your immediate action on this and offer you my time and experience so we can work constructively as a team to be successful together.
Respectfully,
David Callan
Cc: Joel Bernstein, Esq.
Comments by Scott Matusow;
We agree with Callan's view here and believe INVE should hire an investment bank to explore a sale.
