Identive Group has a market cap of $106 million; its shares were traded at around $2.07 with and P/S ratio of 1.
Highlight of Business Operations:We determine the fair value of the reporting units using the income, or discounted cash flows, approach (DCF model) and verify the reasonableness of such fair value calculations of the reporting units using the market approach, which utilizes comparable companies data. The completion of the DCF model requires that we make a number of significant assumptions to produce an estimate of future cash flows. These assumptions include, but are not limited to, projections of future revenue, gross profit rates, working capital requirements, and discount rates. In determining an appropriate discount rate for each reporting unit we make assumptions about the estimated cost of capital and relevant risks, as appropriate. The projections that we use in our DCF model are updated annually and will change over time based on the historical performance and changing business conditions for each of our reporting units. The determination of whether goodwill is impaired involves a significant level of judgment in these assumptions, and changes in our business strategy, government regulations, or economic or market conditions could significantly impact these judgments. The Company´s annual impairment test as of December 1, 2011 indicated that for the Hirsch, ID Infrastructure, and IdOnDemand reporting units the estimated fair value substantially exceeded the carrying value. The estimated fair value of the Multicard and Transponder reporting units exceeded their carrying value by approximately 14% and 12% respectively. The Company performed a sensitivity analysis on the DCF models used for the Mulitcard and Transponder reporting units which indicated that the discount rates used could be increased by 200 basis and not result in an estimated fair value that was less than the carrying value. Additionally, as part of the annual goodwill impairment test we compared our total market capitalization with the aggregate estimated fair value of our reporting units to ensure significant differences are understood. As of the December 1, 2011 annual impairment test the aggregate fair value of the reporting units as determined by management exceeded the Company´s market capitalization by an amount that in the management´s judgment reflects a reasonable control premium.
On May 2, 2011, we acquired 95.8% of the shares of idOnDemand, Inc., a privately-held provider of identity management services based in Pleasanton, California (idOnDemand). The acquisition was pursuant to the Stock Purchase Agreement dated April 29, 2011, under which we paid the selling shareholders of idOnDemand initial consideration at closing of approximately $2.4 million in cash and 995,675 shares of our common stock. In addition, the selling shareholders may receive aggregate potential earn-out payments payable in shares of our common stock subject to achievement of specific financial and sales performance targets over a period of three years and eight months from the closing date of the acquisition. Any shares issued in connection with the earn-out will be subject to a 12-month lock-up from date of issuance. Shares issued as consideration to the selling shareholders at closing are subject to a three-year lock-up from the closing date of the acquisition. Of the total initial share consideration paid to the selling shareholders, 407,289 shares were released from lock-up six months after the closing date. Beginning on the second anniversary of the closing date, the remaining shares will be released from the lock-up in equal amounts on a monthly basis until the expiration of the lock-up period. idOnDemands operating results have been included in our consolidated results since the date of acquisition. On December 22, 2011, we entered into an agreement to purchase the remaining outstanding shares of idOnDemand from ActivIdentity Corporation for the sum of $500,000, pursuant to an agreement among Identive, ActivIdentity Corporation and idOnDemand. Following the completion of this share purchase on January 9, 2012, idOnDemand became a wholly-owned subsidiary of Identive.
Sales in Europe and the Middle East. Sales in Europe and the Middle East were $42.2 million in 2011, accounting for 41% of total revenue and up 41% compared with $29.8 million in 2010. The main drivers of this increase were sales of secure smart card readers and software related to the German national ID program; sales of eHealth terminals for the German electronic healthcard program; increased sales of core RFID components; and in the second half of the year, incremental revenue from our acquired polyright business (now part of Multicard). During 2010, our ID Infrastructure business unit and Multicard were each selected to supply secure card readers, and in the case of Multicard, application software, for the German governments implementation of a new electronic citizen ID card, and received customer orders to be fulfilled over several quarters. In 2011, shipments for the German electronic ID program accounted for approximately $7.6 million of revenue. In the fourth quarter of 2011, we fulfilled the final orders for this program, which generated approximately $14.5 million in aggregated revenue over the past 16 months. Sales demand for our Transponder products in Europe has remained strong and stable in each of the last several quarters, driven by demand for RFID inlays and other products for a variety of consumer ID applications, including ticketing for transit systems, ski resorts and theme parks, and secure media tracking for libraries.
Revenue in the Identity Management segment was $56.5 million in 2011, an increase of 19% from $47.5 million in 2010. The increase primarily was the result of $6.2 million of incremental revenue from our acquisitions, more than half of which came from nearly two quarters of sales recognized for polyright (now part of Multicard). The remaining incremental revenue included four months of sales from RockWest (now doing business as Multicard U.S.) and seven months of sales from idOnDemand. We also recorded organic growth of 6% in the Identity Management segment in 2011, which resulted from higher sales from Multicard, partially offset by a significant reduction in sales of Hirsch Identive security systems to the U.S. Government sector. Higher Multicard revenues in 2011 primarily resulted from significant orders for secure card readers and software for the German electronic ID program, strong sales in Australia related to a government credential management program and a cashless payment card solution for a large fuel retailer, and the inclusion of four months of incremental revenue from the acquisition of RockWest (now doing business as Multicard U.S.). Organic growth of our non-U.S. government-related sales in the Identity Management segment was 17% in 2011.
Revenue in the Identity Management segment was $47.5 million in 2010, an increase of 173% from $17.4 million in 2009. The increase primarily resulted from $26.9 million of incremental revenue from our acquisitions, which included four months of Hirsch revenue in 2010 (January through April) and all revenue recorded in 2010 from our Multicard business unit. The increase in Identity Management revenue also resulted from organic growth of 15%, which was related to an increase in Hirschs sales for the eight-month period May through December 2010, as compared with the same eight-month period of 2009. Hirsch sales in both 2010 and 2009 were driven by orders for access control products, systems and services for U.S. government agency deployments. Sales in our Multicard business unit in 2010 were related to various RFID-based identity management projects, which included cashless payment and contactless transport programs in the Netherlands, readers for the electronic national ID program in Germany, employee ID and event management applications in Australia, and campus-ID and emergency management programs in the U.S.
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