Steven Humphreys - CEO Steve Finney - CFO

Saliq Khan - Imperial Capital Mike Latimore - Northland Securities

Thanks, Adriane, and thank you all for joining us. As reflected in our earnings release, we've made a lot of progress, focusing, solidifying, and positioning our business for growth after a challenging 2015 on many fronts.

As we'll go into today, we've made this progress across all areas, our operational business, restructuring, and legal and compliance. So I'd like to do a short introduction, framing the highlights in each of these areas, and turn it over to Steve Finney to go into the financials in more detail, and then I'll get into a fairly detailed business discussion, expanding on the strategy and execution plan as we laid it out in our last investor update.

So looking at the Q1 highlights, again, as we noted in our earnings release, revenues came in on target despite major organization realignment and expense reductions taken right in the midst of the quarter. This reflects the strength of our team, our Hirsch Physical Access Business, our Smart Card Reader business, our Cisco relationship, and our international sales strengths.

Hitting our targets also, despite normal sales deal timing puts and takes, and even absorbing U.S. transponder customer changes is a tribute to the resilience of the business position we're building.

We also saw above-planned gross margins due to the Physical Access focus that we're driving. Now, we did incur restructuring charges and expenses to implement a pretty far-reaching operational streamlining, as we announced previously.

These benefits will be realized in the run rate over the next couple of quarters and carrying over into subsequent years as a more efficient and effective organization. At the organizational level, our customer activity, our product releases have been accelerating consistent with our plan, again in the context of a lot of internal dynamics and customer dynamics.

Now, net of all these and other actions, I'll outline later, is that our core strategy has really been demonstrated and it's positioned us to execute 2016 as planned and as described before. So drilling down into some more specifics, looking at some of the highlights at a deeper level, the headcount reductions we took, very difficult, but they've been completed across all personnel actions, and in fact we're running about 5% under our headcount plan, which we think is a prudent approach as we build our business.

The business itself has been streamlined. Our organization is aligned around our physical access and transponder focus.

We've closed, downsized, or partnered and outsourced facilities across Germany, Japan, Australia, and California, and I'll point out that in fact that hasn't had an impact on the business in some areas, notably Japan, we've seen a very strong reaction in a positive way in terms of business. Our product and development teams have been focused, and our core products have accelerated.

I'll go into substantially more detail on these, but to highlight a few, our secure network interface board, our federal IC CAM [ph], our low-cost access readers and others are in the pipeline and moving out quickly. And we've also been connecting vigorously with our customers across our entire organization.

Our government, Cisco physical access partnership, German transponder customers, Japanese and U.S. smart card customers, both at the commercial and government level have been beneficiaries of personal visits and connections across our entire leadership team, and again, that's helped, I think, with strengthening the business base and the growth that we're already seeing.

We also had a major presence and a successful re-launch of the Hirsch brand at ISC West, the major physical access tradeshow, again which I'll go into more detail later about. And then many other organizations across –- activities across the organization at the company-wide, team and product level.

So in summary, all the major actions to achieve focus, growth, profit, and growing market share have been completed. Financially, there are restructuring charges in the quarter, and in fact above-anticipated level, but that's due to reductions being taken that were greater than the additional plan.

So those benefits will also accrue in our OpEx in subsequent periods. We also believe that our non-operating legal expenses are falling increasingly within insurance coverage ranges, so hopefully that will reduce our cash and expense impact going forward from this category.

So in addition to the business progress, we've also been working hard on the regulatory and compliance issues. So we're now on tract for full compliance this week.

We regained our timely filer [ph] status last month, as we also announced. We're now today doing our first quarter '16 earnings on schedule, and we have our shareholder meeting for 2015 and '16 coming tomorrow morning.

As a result, all outstanding compliance actions will have been completed this week for the first time in many months, with the holding of that successful AGM tomorrow. So on that note, I'd like to turn it over to Steve Finney for a financial review, after which we'll return to the business discussion.

Steve?

Thank you very much Steve. Turning now to our financial report results for the first quarter, revenues in the seasonally weakest first quarter were $12.5 million, as Steve said, as compared with $13.1 million in the prior quarter, an approximate 5% sequential decrease, and compared to revenues of $14.9 million in the comparable quarter of 2015, a decrease of 16%.

As usual, I'll talk to this by segment. Our Physical Access segment represents approximately 41% of first quarter revenue having generated $5.1 million.

That's up 8% sequentially from $4.8 million in the fourth quarter of 2015 and also up 9% from the $4.7 million recorded in the comparable quarter of 2015. The increase sequentially and year-over-year is primarily a result of higher sales of physical access control solutions, including an increase in professional services engagements in the U.S., primarily related to end customers in the U.S.

federal government sector. As mentioned in previous releases and by Steve already today, we'll continue to focus on our strong and valued Hirsch customer base and branded products continue to grow revenue in this segment in 2016.

Revenue from our Identity products, including smart card readers and reader modules was $2.5 million in the first quarter of 2016, a sequential decrease of 16% from the $3 million revenue in the fourth quarter of 2015, and a slight decrease of 3% compared to the first quarter 2015 revenues of $2.6 million. Increases in smart card reader sales in the U.S.

were more than offset by relatively weaker sales of reader products in some of the international markets. But overall, this business was above plan in the first quarter, and has good backlog in the current quarter.

Approximately 36% of our first quarter 2016 revenue or $4.4 million was derived from sales in our Credentials segment, which comprises both our access control credentials and our broader Internet of Things transponder products. This weak revenue performance represents a sequential decrease of approximately 11% from the $5 million revenue achieved in the fourth quarter of 2015, and a 38% decline from the $7.2 million delivered in the first quarter of 2015.

The changes are primarily due to lower sales of transponder products used in electronic game toy applications and other Internet of Secure Things applications, certain large customers in the U.S. that were not repeated in the first quarter of 2016, but partially offset by an increase of sales of access cards in the U.S.

Revenue in the quarter for our All Other segment, which has historically represented sales of our digital media and chip drive products, was $0.4 million. Not significantly different from either fourth quarter revenues of $0.3 million or the $0.5 million generated in the comparable quarter of 2015.

As noted on our last call, the restructuring of our European operations in Q4 2015 included notice that we would cease the sale of our chip drive product line, and that we have had some last five [ph] revenue in Q1. This is expected to be negligible going forward.

As we also continue to fade out our digital media product lines we should have very little revenue in our All Other segments going forward. Now turning to gross margins, our non-GAAP gross profit margin, which excludes certain non-cash items, was 45% in the first quarter of 2016, compared to 25% in the fourth quarter, and 43% in the first quarter of 2015.

The increase in the quarter sequentially is primarily a result of inventory reserves recorded in Q4 of 2015 associated with excess inventory, particularly in the transponder area. There's a positive product mix impact, both sequentially and comparatively due to the higher proportion of Physical Access Control Systems and access card sales with higher margins, and less sales of the lower margin transponder products.

Moving on to our operating expenses, our non-GAAP operating expenses in the first quarter were $9.4 million, as compared with $9.9 million in the prior quarter and $8.4 million in the comparable quarter of 2015; the increase of a million in Q1 2016 to the comparable period of the prior year is primarily due to the legal and other professional fees related to non-core business activities incurred in the quarter, which amounted to $1.8 million. A slight increase in the quarter comprise of the previous quarter, again is due to the increase of those non-core professional fees.

Excluding those expenses, our operating expenses would have been down sequentially and comparably by approximately 13% and 10%. Our R&D expenses were down 12% from $2 million in the fourth quarter to $1.8 million in the first quarter of 2016, and that's in line with the comparable period of the prior year.

The sequential decrease of approximately $0.2 million is primarily due to the shift in our strategic direction and reduction of R&D resources under the restructuring plan to focus on the activities anticipated to generate near-term revenue opportunities. Sales and marketing expenses were $3.7 million, or 30% of revenue in the first quarter.

That's a decrease of $0.3 million sequentially and $0.5 million from the first quarter of 2015. The changes came from the reduction of headcount due to our restructuring and the positive impact of other cost saving initiatives taken in the recent periods.

G&A expenses include the previously mentioned legal and professional fees related to non-core business activities, and including them with $3.9 million in the first quarter compared to $3.7 in the fourth quarter of 2015, and $2.1 in the first quarter of 2015. Excluding those, our non-core professional costs G&A would have been $2.1 million in the current quarter, compared to $2.5 million in the prior quarter, approximately 17% and 19% respectively of revenues.

The non-GAAP operating expenses, I just discussed, exclude charges for restructuring activities in addition to other items normally excluded from our non-GAAP results, as a stock-based compensation, depreciation, amortization, and interest expense. I will touch on those in a moment, but do note that our earnings release, as always, includes the full reconciliation of GAAP to non-GAAP information.

Our adjusted EBITDA loss for the quarter was approximately $3.8 million, compared to an adjusted EBITDA loss of $6.6 million in the first quarter of 2015. That adjusted EBITDA loss, excluding legal and other professional fees related to non-core business activities would have been $2 million in the first quarter.

That's driven predominantly by the seasonally lower revenue in the first quarter, and the effect of the cost base does not yet fully reflect the benefits of the restructuring previously announced. Those restructuring charges recorded in the first quarter of 2016 were $2.7 million, primarily comprising severance costs, but also including $0.4 million in non-cash costs.

And charges relates, as we've noted, to implementation of a worldwide restructuring plan designed to refocus resources on core business segments and consolidate operations in several worldwide locations, reducing our cost structure in line with current revenue levels. In the comparative period, we record a $0.9 million in restructuring in our European operations.

And just to give you a note on headcounts, at the end of the year we had 305 employees, at the end of March we have 251. Touching on a few other items in the income statement, the interest expense was approximately $770,000 for the quarter.

That increased from $541,000 in the first quarter of 2015, primarily due to the write-down of unamortized debt issuance costs relating to the modification of our revolving loan facility in Q1. Non-cash stock-based compensation of $0.9 million in the quarter was comparable to the fourth quarter of 2015, and no new brands being made during the quarter.

Now turning to the balance sheet, I'll be comparing our position at March 2016 to December 2015. Firstly, we will focus on the cash.

Our reported cash at March 31 was $9 million, as compared to $16.7 million at December 31. That's a decrease of approximately $7.7 million, going in line with our expectations for the quarter.

A cash outflow is driven by our operating loss with changes in operating assets and liabilities absorbing almost a further million. Within that, a decrease in our accrued expenses and other liabilities of $2.1 million was largely offset by an increase of $1.1 million and accounts payable.

We define working capital as accounts receivable plus inventory less accounts payable, and that was $18.6 million at March 31, as compared to $16.4 million at December 31. We also had $0.2 million in capital expenditure in the quarter, no cash flow from financing activities.

Just to address a couple of notable balance sheet asset metrics, in regards to our accounts receivable, our day sales outstanding increased in the first quarter from 54 days at the end of 2015 to 61 days, due to slower collections. We're very much focused on improving that in the current quarter.

Inventories net of reserves, as noted previously, increased slightly 15.2 million at March 31, from 14.7 million at December 31. Our adjusted stock turnover was approximately 2.3 for the first quarter of 2016, as compared to 2.8 for the quarter ended December 31.

As been disclosed previously, we've built up significant inventory, particularly transponder in our credential segment to satisfy both current backlog and in anticipation of customer orders later in the year and early 2017. Some of the other noteworthy line items in the balance sheet; other accrued expenses and liabilities increased from $5.8 million at December 31 to $8 million at March 31 2016, primarily related to an increase on our restructuring accruals and accruals related to legal and other professional fees associated with non-core business activities.

Our long-term payment obligation decreased from $4.9 million to $4.7 million, reflecting the continuing quarterly payments made, partially offset by the accretion of interests. And our long-term financial liabilities decreased from $17.7 million to $8.2 million, as a result of re-classifying the term loan with Opus, and the related debt issuance costs to short-term in quarter one 2016.

The $10 million term loan matures on March 31, 2017, and amounts due on the revolver mature in November, 2017. Steve has already noted the company's confirming revenue guidance for fiscal year 2016 that was given in our earnings release a couple of months ago of between $56 million and $60 million, reflecting the trends in the business we've experienced last year and the year to-date as adjusted for revenue decline associated with the restructuring activities.

That concludes the financial discussions. I will pass the call back to, CEO, Steve.

Thanks, Steve. So picking up where we left off in the business introduction, so far this year we've made solid progress, while managing our challenges.

On the progress front, revenues, especially in the physical access control systems, smart card readers, and cards have been very strong. The sales organization in particular has delivered very well, and proven itself as a core competitive advantage for us to build on.

Our PACS positive also strengthened with the federal government, which is a core leverage point for us, and we had significant PACS product progress. Also, as Steve mentioned, and I mentioned earlier, our smart card reader sales have been performing above plan, which is in area we expect to continue to invest in and to grow.

We have had our challenges as well though, in the U.S. transponder business, we've been dealing with a large customer, potentially announcing or repositioning an out-boarding of one of their product lines, which we've sold into.

But we've managed the revenues in the first quarter despite some of the pressures in the transponder sales in the U.S., and we believe we will continue to do so. Now, of course, the business refocus and organizational changes, while accelerating our product and market execution is a challenge with the team that meets everyday, and it takes a toll.

So we have to keep our team building and thriving for the long run, but we also have to recognize that we're putting a lot of pressure on the organization to perform, while also realigning the direction of that organization. So taking a closer look at our progress; the government customers in particular are really embracing re-dedication to Hirsch and our physical access control systems.

I already mentioned the strong showing at ISC West, where we shared a 40by40 booth path with Cisco, and we had a great Hirsch presence warmly received by many in the industry, our partners, our customers, our channel, and thankfully even some of our competitors. The smart card reader business is performing above-plan in the U.S.

and Europe with solid margins, broadening OEM presence in printers and keyboards, and other pivot points in access infrastructure. In the news, we've been active, launching our comprehensive UHF tag products and services for the IoT markets, announcing an industry-leading tag on metal label for libraries in the U.S.

and internationally, showcasing our smart card readers and IoT solutions at the Smart card Alliance Payment Summit. We also announced an India regional channel integration partnership with IDCUBE, and quite a few more and many more to come.

Also as mentioned, we released our secure network interface board, which supports the government federal IT ICAM program deployment, and this is the combination of nearly a two-year development process. So we're taking things we've been working on for a long time bringing to fruition and bringing to market, which is really important for organization and our industry to see us moving forward at an accelerated pace.

Similarly, we released our Identiv Connected Physical Access Manager Version 2.2 on schedule with very high stability and very high quality. Also, Cisco announced the end of life of the Cisco PACS gateway, and this is the hardware platform that Cisco had been delivering for its physical access services, which we're now fulfilling.

So this now drives all of Cisco's PACS pipeline to Identiv ICPAM, and it also accelerates the natural migration from the gateway platform to our ISC platform. So really solidifying, strengthening, and broadening, and accelerating the Cisco partnership.

Now before going into our core strategy for 2016 and beyond, which I'm going to be building up in a fair amount of detail at the product line level, I would like to take a minute to out our business specifics in a market context. We often focus on the world and the activities of one company, but our goal is to build a platform to grab increasing share of our market.

And just to calibrate, this is a $30 billion equipment market, a $120 billion total equipment and services market, and the very focused access control market segment that were directly in is over $4 billion and growing at 10% a year. So it's a very rich, robust, and strong market which we can grow with as well as grabbing share in.

Additionally, it's highly fragmented. Even the major players are less than 5% shareholders.

For example, HID, which is a well-known player, and it's showing here under its parent company ABLOY, has about 2.5% of the market. So the fragmented market opportunity really represents a chance for us to take share with our complete solutions and establish a truly leading platform for physical IoT.

Sometimes when you hear a small company saying, we are doing accomplished leadership, you have to question how credible that claim is. In a fragmented market like this, when leaders have 2.5% share, we have an opportunity truly to establish leadership with our differentiated position.

So this represents a growth opportunity for the Identiv access platform, which is supported by a sizable market, a growing market, and a structure in the market that creates an opportunity for company like ours to go after it. So, as we go into more detail discussions of our platform and products, I just wanted to clarify that it's a much larger share with this market, and expanding the market overall, which is the price we're determined to win, and that's what we're restructuring to go after.

So how do we win? We win with the most complete product portfolio, and with best-in-class in each component of that product portfolio, and as we go through some details here, hopefully I can demonstrate to you why we think we have a claim to that assertion.

We do have a complete solution set across platform software, panels, access readers, credentials, and OEM-ready modules. Our velocity Hirsch product and MX panels of course are best-in-class.

Our ICPAM Cisco-related platform, as I've talked about, is already gaining great traction and demonstrating an ability to keep delivering additional versions and additional capabilities on a rapid basis. Our Federal ICAM Solution, which is our Hirsch Federal High Security Platform is also been demonstrated multiple times, and we think it's going to have a leading position across the federal government.

Our Touch Secure Readers and our third-party readers are part of an integrated solution, which I'll go into in a little detail, a little bit later; our credentials and our smart card readers, of course. With this complete product portfolio and strength across each segment of the product portfolio, we're then using our sales organization, I mentioned, to drive a wedge and widen the customers served, the integrators dealers, as far as the federal customers, distribution, partners like Cisco and Johnson Control and other channel and platform partners, and of course international growth, where we think there is huge opportunity in addition to our core strength in the domestic market.

All of these are things we're going to leverage as we bring out the most powerful proven access platform in the industry. So when we say platform, we're leading the industry's progress towards total access, where you can get ubiquitous access to all the resources in the organization you are trying to reach with one form of control platform.

There are 2 million pass to total access, from today's infrastructure. On the top right is a Greenfield infrastructure, where you're starting fairly fresh and green all new technology, we serve very well with our full range of solutions, everything from our Hirsch platforms to ICPAM, to our TS readers and our advanced credentials.

On the bottom right is the predominant part of the market, the real world, very complex, but a huge opportunity. We have advantages in both these areas.

I'm going to focus for a moment on the bottom right as the larger market opportunities that we're really focusing on, even as we leverage Cisco channel and others to go after more of those Greenfield opportunities. So when you look at empowering and extending the existing access systems, if you look on the right, you have a very complex environment of cards, fabs, credentials, different protocols, different interfaces; moving a little bit -- sorry, that was on the left, moving a little bit over the readers with varying interfaces, biometrics, pins, protocols, all of those connected into the simple technology called the door.

Then on the other side of that, you've got the whole power structure, the control panels, the network, and the infrastructure and the software platforms. All of this of course is what comes into play when you walk up to the door and expect it to open, and on the other side, when your organization with all of its security protocols expect that you're the right person getting through the right door in the right time for the right purpose.

We solve all of these solutions. Identiv platform provides the most complete, flexible, cost-effective, and open path.

Now you can see the problems and the opportunity here, and it's easy to make statements like complete flexible and cost-effective, but I would like to take you quickly through each major component of our solution to demonstrate the real advantages we have in each, and so when we talk about grabbing market share and actually solving this problem, positioning a platform for the Internet of Things, you can see that we have a basis for that claim. So, going portion-by-portion through our platform, of course, our flagship is our Hirsch velocity, and the advantage there is very well-known, it's recognized as best-in-class in terms of reliability and lifetime endurance across commercial and government installations.

Our professional services organizations that bring it to market with our partners have -- bring advice and equipment integration, so that we can solve whatever needs the customer has. We have subject matter expertise that know exactly in the industry, and the type of technology that you already have implemented, we can make our systems work with you, and our platform is a platform of very complete solutions, integrating everything of visitor control, to door management, to gates, to other forms of surveillance, and managing infrastructure.

We also have very wide feature set. This is the platform that's been evolving for almost two decades.

So if you need it, we've probably already implemented it. And then our customer support is really what has kept our customers with this throughout the years, where we have a leave-no-customer-behind approach.

We will take every call that comes in, and we will reply to it. Now, we have a commercial imperative, and so we try to drive our customers towards the dealer channel towards getting certified, in fact towards buying more training and information flow from us, but we won't leave a customer stranded, and that's paying dividends as the complicated situations that customers are facing are solved by Hirsch Velocity.

Then on the Identiv Connected Physical Access Manager, again the advantages are very clear. We go to market with a bundled solution that has a complete set, with readers, cards, panels, and software.

And this enables the Cisco channel, in particular, to do rapid deployments, rapid integrations, and rapid installations. We also leverage the fact that Cisco brings with it a broad range of integrations on the video side, but also on the IP Interoperability and Collaboration Systems platform that Cisco has, which enables integration of virtually every digital device, and digital information, and sensor flow that you can imagine.

So we're getting the best of both worlds of physical access control, and broad integration with the digital infrastructure across the whole organization. We then bring our professional services, as we do with our Hirsch platforms, our subject matter experts, and then as I said earlier, with 2.2 we've now really demonstrated with three substantial releases in a very short period of time across this platform.

And we're driving toward 3.0 already, that the Java platform we've built on and the team we've built has proven rapid development, very high quality responsiveness to customer expectations as soon as they arrive. Then turning to the readers, this is something many of you are familiar with, our Touch Secure reader family.

The value proposition here is very straightforward, bring whatever credential you have, and our readers will deal with that complexity for you. So could be basic prox and HF capabilities, could be smart cards, could be very high-end identify cards, could be some of the very complex encryption cards that the government and other high security entities are deploying.

Our readers at the front end that make it both relatively transparent for the user, and also because we have preprocessing intelligence in those readers, you get a faster and smoother user experience right at the front of the door with the reader. Then on the Credentials, we of course, as you know, have a very proven, robust, and high security issuance portal, so we can do everything from, again, basic prox cards because that remains 70% to 80% of the card market out there, all the way up to the very highest of high security identities, whether it's across cards, fobs, wristbands.

You name it, we can do it. So this has been a fairly quick run through, but nonetheless an important touching on each of the points here.

Because when we talk about the complete platform, what we're providing the customers is a seamless solution so they don't have to think about it. On the other hand, if they want any piece of this platform we're happy to let them adopt one step at a time.

We're competitive in each of these categories. If they simply want to take our readers or simply take our panels or even simply take our cards, we'll take that as a starting point.

And then we'll win their business with our technology, our integration, and our service going forward. And that's why we think that we've got a tactical advantage in execution, and then a strategic advantage in building the entire platform that we think we can build out on top.

So by leading the movement towards openness, we think we open it up to customers, because reduce their risk. But we also don't undermine our own advantage.

We don't have to lock customers in because we can give them a superior solution without having to get them stuck in order to get them to stick with us. So our vision is unchanged.

When you look at this platform and you look at how the products all add up, it was important for you to see the components. But the vision is really unchanged.

We are building this platform for the Internet of Physical Things, our physical access business, our transponder technology, built up with competitive advantages in each product line, and each component of the platform is really our core strategy. And where this all builds, of course, is something that any of you who've followed us in our investor presentation before have seen, the platform for the secure Internet of Everything.

I just wanted to take a few minutes in this conversation to build up what that platform means, and why we think we have an advantage in it. And then as the platform goes from the perimeter to total access, to access enablement, and ultimately access intelligence about who should be doing what where, and at what time, and in what mode.

That's when the opportunity really becomes substantial. And all of this is enabled by the platform we're deploying now.

So when you look at a vision like this it's important to have both tactical and strategic execution. And our business model, which you've seen demonstrated in our revenues this quarter is really built up on three components; our base growth, where we stabilize when we're driving our organic growth.

Then on top of that, growth initiatives, some of which I've talked about in some of the product releases today. And then beyond that, the base for true breakout, which as the Internet of Things and its total access becomes a reality, we're going to be positioned with the platform to deliver on that, meanwhile, being very conservative in terms of expectations and in terms of investment.

So we're always living based on our tactical deliverables, but being positioned for a strategic opportunity. But what's important is this isn't a grand vision that's simply pointing at something large.

This is execution, and it's execution-based, because execution is where the battle is won. We think we've got a clear market defined.

We have competitive products in each aspect of the solution. We have a platform that adds up to a position in the marketplace that we think is truly valuable.

When you break it down also in terms of execution, we have a balanced approach in terms of our markets and our geographic dispersion. Steve already talked about it in his numbers, but here, graphically, I think it's worth touching on.

Because, again, the vision is great, but the execution and the numbers are what really prove it. And as you can see, we've got our U.S.

strength, but we also have international holding a very strong part of that. And in international, a good balance across Europe and Asia.

And similarly with our markets, we have our physical access market, and our transponder market well balanced. But frankly, some more strength in the physical access market, which is where we know the margin and the ultimate vision is for the business, and the opportunity in the market.

So turning to our outlook and guidance, and again, apologies, this has been a slightly long exposition to get to this point. But I wanted to have that –- the guidance demonstrated on a lot of solid facts.

We are reiterating our guidance for the year. We expect to be in the $56 million to $60 million range, and we expect going into 2017 for that growth rate to in the 15% to 20% range over the year prior quarter, with positive EBITDA and accelerating growth.

I showed you, a couple of slides back, tactically how we built up that growth expectation, and where it comes from. There will always be news coming out, such as there was with one of our transponder customers recently.

But we think we're building a base, and have already built a base whereby we can manage those news as they come, and still build our business growth profile. So our guidance is unchanged.

The strategy, as I talked about earlier already, is built on our base, our base growth, and our growth initiatives, and ultimately IoT, so I won't go into that in more detail. But sometimes you'll see us repeating slides from prior presentations because continuity of both representations and of achievement is important to us.

So the bottom part of this slide is exactly unchanged from the last time you saw it on our last investor update. So in summary, our 2016 outlook has been substantiated in our first quarter.

We had a lot going on in that quarter, and certainly we had expenses associated with our restructuring and the activities deliver the business and build the business. We think those will accrue to efficient expense base going forward, both for the second half of 2016, and accelerating into 2017.

So we'll also continue to have our investor and industry updates on the mission. Today is of course quarterly results announcement.

We'll have our annual general meeting tomorrow. We'll be speaking at the B.

Riley Conference later this month. We'll also be out at one of the major industry events, out in September, and Imperial Capital later in the year, and adding more events to this as the year progresses, but just wanted to give you a quick snapshot of where we'll be out there.

So with that, I think we can open it to questions, and look forward to discussing all of this further with you.

Great, thank you. Hi, Steve.

Hi, Saliq.

Yes, Steve, it looks like you and your team has clearly been very, very busy over the last quarter or two. The one question I did have for you was, while your organizational and the restructuring efforts that you've put in place since you've been the CEO, and clearly the headcount reductions helped as well in reducing the overall OpEx, how are you preparing for the potential of your U.S.

[ph] responder customer that you talked about earlier, how are you preparing for that customer reducing the overall orders? And does this impact your overall full year guidance?

Yes, thanks for the questions, Saliq. And as I said, we are reiterating our guidance.

We don't believe in building a business built on individual customers, and so, as we built the plan, we did have some numbers in there for some substantial customers, but no numbers that we couldn't compensate for. It'll mean, obviously when you get pressure in one area, it gives you less flexibility; if you end up with pressure in a couple of other areas, so there certainly creates some more risk in the ability to execute with certainty, but currently, we think we can deliver around.

Thank you.

Sure.

Yes, thanks a lot. On the Physical Access opportunity, what do you see as maybe the top one or two drivers for that business this year?

Is it new federal government agency coming onboard or a major upgrade at a current customer or is it Cisco pulling through, pushing through? What are the –- what's the -- like, the one or two big drivers for Physical Access second half of year, I would say?

Okay. If you'll permit me, Mike, I'll give you three, because one is current federal government customers, I mentioned FICAM and SNIB-3 programs that they have mandated and budget for, and we have orders on the books for that are going to drive accelerated growth there.

The second is, because that solution, our FICAM solution is literally half the cost and almost twice the speed of the competitive solutions, we've been out talking to other agencies who are not currently Hirsch customers, and we think we're going to bring some of those on as well. And then in the commercial space, as I mentioned, the Cisco partnership, both for the ICPAM platform, and then later in the year we're doing an integration of our Hirsch MX panels into the ICPAM platform.

And so you're going to get a hybrid of some of the Hirsch capabilities with the ICPAM software going through the Cisco channel. And we think both the growth we're seeing already, and that capability added on top of it will accelerate it even further.

So there's at least three specific touchpoints that are driving growth. I could go into four or five others, but I'll stop at that unless you want more.

Okay. And then just here on the Cisco partnership, Cisco obviously has a broader Internet of Things strategy.

The opportunity that you're seeing through Cisco or with Cisco, do they typically -- are they typically, we just want the specific ICPAM product, or is it that's part of a broader Internet of Things deployment that Cisco is doing?

Yes, it's definitely part of a broader Internet of Things deployment. In fact, this is one of the validation points when we talk about the physical environment, and we talk about it in IoT.

Cisco completely agrees with that assessment. Their sales people, who are –- they're comped on IoT.

Sales of ICPAM is counted towards their IoT target comp. So they agree that this is part of the IoT strategy.

And then as I mentioned, they've got their video integration there, and they've got their whole IP infrastructure integration. So for farther down the line, we're actually looking at integrating some of our Physical Access capabilities into some of their industrial control IoT platforms, so you could have the best of both worlds.

That's roadmap stuff. That's 2017 stuff, but right now, they definitely see sales for ICPAM platform as part of their IoT strategy.

All right. And, I guess, just last question would be, you mentioned the first quarter was seasonally a weak quarter.

I mean, how would you characterize the second quarter or what would be the seasonally strongest quarter of the year given the current product mix?

Seasonal strongest quarter of the year is almost always third quarter, driven by a number of things. The government purchase cycle being one, and also product release cycles.

So typically you'll have a lower first and second quarter, fairly on par with one another, then third quarter has typically some sequential growth, and then the fourth quarter is comparable to third quarter.

Okay. Thanks a lot.

Good luck.

Thank you.

All right. Thank you very much, and thank you all for joining us today.

As I mentioned, we will be presenting at the B. Riley Conference little bit later this month, for anyone who cares to join us there, and otherwise we look forward to keeping you updated at our Investor Updates as we go forward, and certainly our next quarterly results as well.

Thanks again. Have a good day.