Marvelous Microcaps
Identiv: A specialty security company venturing out into new horizons
INTRO:
At Perritt Capital Management, we take focused positions in companies where we have a high conviction in their success; companies that are out of the mainstream of small cap investing. To highlight our process, we are pleased to present the second installment in our new series “Marvelous Microcaps – Big Ideas on Small Companies”. This series profiles companies that we believe have a niche in their existing markets or are launching a product that could disrupt their marketplace.
THE COMPANY:
Identiv, Inc. (INVE) is a technology company operating in the security space specifically addressing needs around physical and logical access to secure sites and identity verification for access and cyber security purposes. In addition to that they provide asset tracking, archiving, and monitoring products. The company sells both hardware and software on a contract and subscription basis. They market their products through a diversified network of distributors, security system integrators and value add resellers. In addition to their core security markets, the company has leveraged their expertise in radio-frequency identification (RFID) technology to expand use into several other markets where asset tracking and verification needs were not being sufficiently met, opening several new market opportunities for their products in an increasingly networked world.
Identiv, Inc. offers a wide variety of products including hardware for controlling access to secure facilities such as government facilities, corporate facilities, schools, and apartment buildings. These range from the ubiquitous number pads found on many secure entry points to state-of-the-art passive, touchless RFID readers that allow for frictionless entry for authorized individuals while preventing access to those without authorization. The company offers products in the video surveillance space that include features such as facial recognition, vehicle recognition and object identification/tracking. This data is then stored for future use as indexed records for their customers and as real time data around occupancy and utilization. The core competencies of the company in the security space have given the company substantial expertise in the development and use of RFID technology. The key long term growth driver for the company is leveraging their expertise to expand its use in the security space as well as its deployment in other industries.
WHY WE OWN: THE PERRITT ADVANTAGE
We own Identiv in both mutual funds and the investment thesis is based on the growth prospects of the company, their patent portfolio, and the strength of the company’s financials. The company has leveraged their expertise in security focused RFID technology to bring the technology to other verticals. As an example, CVS Pharmacies uses Identiv’s RFID technology in their labels to enable a program called Spoken Rx™ , designed for consumers with visual impairment to scan any prescription label with their phones to receive an audio readout of their prescription. They recently announced the rollout of this program in all CVS locations nation-wide. In other use cases their labels have been used on prefilled syringes in healthcare settings to track the time, place and medication used in injections and been used to track blood samples in laboratory settings. Outside of healthcare, Nike has installed Identiv’s tags inside of some of their shoes. These tags can provide consumers with additional features and serve as verifications of authenticity which can be popular with collectors. The company also has sold their technology and services into the cannabis space with a recent contract award from a customer for an initial order of 20 million units. To date the company estimates their devices have been installed on 1.5 billion physical objects worldwide with the market potential for networked devices being in the hundreds of billions.
The company has a substantial portfolio of 36 different patent families as well as additional trade secrets. Their ability to design products around their customer’s needs has led to over 150 antenna designs and in-house RFID designs. We believe that this background gives them an advantage over competitors that do not offer the same high-touch level of service and expertise and serves as a defensive moat around the company’s business model. The company recently paid off all their outstanding loans and is now debt free with $29.2 million in cash available to fund their internal growth needs as well as potential acquisitions.
We consider Identiv to be a high conviction name. At the close of the most recent fiscal year ending October 31, 2021, the Ultra MicroCap Fund had a weighting of 1.74% of assets and the MicroCap Opportunities Fund had a weighting of 0.87% versus only 0.05% in the Russell Microcap Index. We believe the company is in the early innings of a multi-year market expansion driven by the growth of RFID use around the world and based on fundamental analysis, Identiv could be a successful, long-term player in the space.
Perritt. Marvelous Microcaps – Big Ideas on Small Companies.