Q1 2020 Earnings Call

Thursday

Good afternoon, and welcome to the impinge first quarter 2020 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions. Do you ask a question? You may press * then 1 6 Ella phone keypad to withdraw your question, please press store then to please note this event is being recorded. I would now like to turn the conference over to Alan Hayes Ross investor relations, please go ahead.

Thank you operator. Good afternoon. And thank you all for joining us to discuss impinges first quarter 2020 results founder and CEO will provide a brief overview of our Market opportunity and performance. Carrie Baker impinges CFO will follow with a detailed review of our first quarter 2020 Financial results and second quarter 20, 20 commentary. We will then open the call for discussions and pinches Executive Vice President of sales and marketing is also on the call and we'll join Chris and Carrie is a Q&A session Management's prepared remarks along ended financial data are available on the investor relations section of the Stooges website before we start please note that we will make certain statements during this call that are not historical facts including those regarding our plan a objectives or expected performance the expected or potential impact of covid-19 on our business operating results Financial condition or prospects and the expected or potential responses wage.

German authorities customers partners and the company to covid-19 to the extent we make such statements. They are forward-looking within the meaning of the private Securities litigation Reform Act of 1995. Any such forward-looking statements represent our Outlook only as of the date of this conference call while we believe any forward-looking statements. We make including concerning covid-19 are reasonable our actual results could differ materially because any statements based on current expectations are subject to risks and uncertainties. Please see the risk factors in the annual and quarterly reports. We file with the SEC and the covid-19 related disco disclosures and risk factors in the form 10-q. We filed today for more information about these risks. We do not Undertake and expressly disclaim any obligation wage update or alter our forward-looking statements, whether as a result of new information future information or otherwise except as required by applicable law during today's call all Financial numbers we do age.

Except for revenue or where we explicit.

Explicitly stated otherwise our non-gaap financial measures balance sheet and cash flow metrics are on a gaap. Basis free cash flow is a non-gaap measure before turning to our results and thought I'd like to note that the company will virtually attend oppenheimer's 5th annual emerging growth conference on May 12th and barrage 2020 Global consumer technology and services conference on June 2nd. We look forward to connecting with many of you at these upcoming events. I will now turn the call over to Christian and to just co-founder and chief executive officer Chris.

Thank you Ellen. Thank you all for joining our call. I hope you and your loved ones are and remain on what have been among the most tumultuous many of us home. No cover 19th and packed is all around us in discriminately impacting people families communities and companies impinge is no stranger to that impact.

Covid-19 has negatively affected our supply chain Channel partners and end-users and the coming months pretend no less uncertainty.

However, while the prevailing sentiment is negative particularly in retail Aviation and Automotive, there are bright spots as well, which is an omni-channel retail and supply chain and Logistics off and while we see uncertainty in the second quarter. We're first quarter results were strong constantly. I will focus today on updating you on the steps. We are taking to navigate through life crisis the long-term opportunities. We see for our business and the outcome. We are driving with a dedicated team strong balance sheet game-changing new products ranging leadership and end-users who are especially today experiencing the competitive Advantage our products enabled we intend to emerge from this crisis a stronger company in a stronger more efficient than when we entered it impinges employees have shown amazing resiliency in the face of covid-19.

Even with more than 95% working from home. They not only met our first quarter delivery commitments, but also ship 6.2 million dollars of unanticipated customer expedite requests latter part of March.

Meet those delivery commitments our operations team definitely balanced production among suppliers staged finished goods to maximize Geographic diversity and navigated shipping cost increases visibility.

Or team is well aware that hospitals and Healthcare facilities around the world are using our products in the fight against covid-19 to track equipment and consumables and a streamlined Hospital organizations because our end users use our products worldwide not only in hospitals, but also in other essential use cases understand the importance of continuing to meet our commitments only strive to keep our employees safe.

First-quarter Revenue at forty seven point eight million dollars sent another quarterly record, exceeding our prior record that last quarter by seven billion dollars. It did so despite tibco seasonality in which Revenue usually declines in the first quarter and point. I see Revenue was strong bullied by the 6.2 million dollars in customer expedite requests Market birth New Opportunities, and we believe a modest share game systems. Revenue was also strong that both by reader Icees and by Gateway sales to the large North American supply chain and Logistics provider you discussed previously looking forward to the second quarter see pressure on both endpoints ICS and systems the impacts of covid-19 ripples off customer base.

We enter the corridor with healthy and point. I see backlog. We are seeing push out requests as we and our in life Partners work together to align their inventory with rapidly changing demand retail apparel which consumes more than half the endpoint ICS worldwide been hit particularly hard by store closures.

The ancient Automotive endpoint. I see demand so much smaller than retail apparel has also declined significantly on the positive side retailers who are using brain are better position to sell online and their competitors who are not we expect to drive in point. I see demand in the long term.

RAM usage and supply chain and Logistics is also growing and although its endpoint. I see volumes at least in the second quarter our small shipments today are running at holiday volume and those heightened volumes, maybe The New Normal Roi from deploying rain track and optimize those shipments and our consequent long-term endpoint. I see opportunities are off March.

Our systems business already facing second-quarter headwinds from the North American project transitioning from deployment to operations how also faces tight second-quarter customer Capital expense budging covid-19.

Consumer-facing use cases such as race timing and Airline baggage tracking have paused for the most part so pilots and loss prevention in self-checkout have also paused.

Here again, supply chain and Logistics is a bright spot and although the opportunities at least in the second quarter a wait end-user Capital allocation potential deployments and a consequent long-term systems opportunities as evidenced by that large North American project. We delivered over the last six quarters are both large.

To round out our second quarter perspective delays in our impinge m700. I see production ramped now exceed two months impacted by shelter-in-place orders at our supplier partners that delay and genders a further impact to our second quarter Revenue.

Covid-19 impacts on our end point systems opportunities and new products combined with headlines from the North American project the 6.2 million dollars first quarter expedites significant order push-ups from second-quarter 2/3 all conspire to a second-quarter challenge.

Counterbalancing those headwinds is our first quarter momentum and strong rain adoption pre covid-19 confidence our partners and end-users have in our Market leadership and strong balance sheet and a game-changing new products. We have already announced with others in development.

Into the future you believe our opportunity continuing organic growth and big Roi driven use cases remains huge. I will highlight that opportunity with a few months recent examples.

Or partner plexus implemented and impinge Gateway solution and they're Malaysia manufacturing facility that drove a 92% decrease in the time to re pelletize. Hi mix products.

Finland's largest manufacturer of kitchen Furniture over toy deployed our expand gateways and our 420 readers our partner and ID to automate a month, you will order pick and dispatch process saving them hundreds of thousands of Euros per year.

I'm on I'm China's largest fashion retailers support from our partners. Shindig o i o t and some point deployed in a pinch based solution across their garment factories logistic centers and retail stores automating items sorting and tracking and saving tens of millions of dollars per year.

Today covid-19 in the span of weeks shut physical stores and driven demand to retailers and brands with online fulfillment.

Visionary retailers and brands that have deployed rain systems are well-situated match online orders to product anywhere in their supply chain and then ship-from-store.

We expect those Visionary retailers and Brands to leverage rain strategically during this crisis.

We likewise expect leading supply chain and Logistics providers with demands searching and needing to improve package tracking and operational efficiencies to advance rain adoption. Thursdays are focused on both and on the long-term opportunities they offer us.

The Steady Hand on the tiller we are focused on emerging from this crisis a stronger company in a stronger Market position know the second quarter will be difficult being not lost sight of the big picture then if it's we bring to retailers and suppliers of the improvements. We drive an item level of visibility and Logistics management.

Enterprises will emerge from covid-19 with a fierce determination to strengthen their businesses for the future.

So we will.

Continue focusing on leading apparel retailers. We expect will emerge from this crisis with less competition A Renewed focus on on omni-channel fulfillment and they hunger for the item visibility and similar experience our platform offers.

We'll also continue focusing on supply chain and Logistics which we believe will see sustained growth will be on covid-19 and for which our platform offers compelling operational improvements.

We will do so and we tighten our belts and use our balance sheet to increase our competitiveness starting a path to adjusted ebitda break even on the other side of covid-19.

one certainty that this crisis will pass

That happens we want our suppliers corners and end-users there with us and no small part because of how we acted that we stood by them.

We invested in there and our future.

And that we did our part in this time of need as one example of the latter. We set a company goal of raising roughly $750 per employee via an employee contribution and then impinge match or $200,000 overall or local and Global efforts to support those in need.

And I wrote in a recent blog post want to be proud of how we acted. We want you see that Pride out of hubris because we did our part that then in the smallest of actions we responded with care and empathy in the face of adversity.

Be safe and be well now turn the call over to carry for our detailed financial review and second-quarter commentary Gary. Thank you, Chris and good afternoon. Everyone seemed to Echo Chris's comments. We are living through a period of unprecedented economic upheaval with uncertainty about when businesses will return to a more normal operating environment in that life today. I will cover both the metrics. We typically discuss on each earnings call as well as additional more detailed metrics that we do not plan to share on an ongoing basis, but which we believe are appropriate for this call given the market uncertainties first-quarter Revenue was 47.8 Million new company record Revenue grew 44.6% year-over-year and 17.2% quarter-over-quarter compared with thirty three point 1 million in first quarter, 2019 and 40.8 million in fourth quarter 2018.

First quarter in point I see Revenue was a record thirty three point seven million growing 54.2% year-over-year and 30.8% quarter-over-quarter prepared 21.8 million in first quarter, 2019 and 25.7 million in fourth quarter 2019. We entered first quarter 2020 with a 25.1 million and a m i c backlog bookings remained strong through mid-march driven by new end-user deployments and then declined in the last few weeks of March as Chris already noted. We also offer 6.2 million of unanticipated customer expedite requests in the latter part of March as some customers secured Supply in a period of uncertainty despite those expedite requests. We still entered the second quarter with a strong 29.5 million backlog more than double our eleven point seven million backlog entering second quarter 2019.

today we

Covid-19 having dramatically reduced end-user demand second quarter and point. I see bookings are down significantly all sequentially and year-over-year. We are also actively supporting our in life Partners to reschedule backlog and manage both there and our inventory in this new demand environment.

Reporter systems Revenue was 14.1 million growing 26.1% year-over-year compared with 11.2 million in first quarter 2019 led by Gateway shipments of North American project and strong reader i c and Reuters sales on a quarter-over-quarter basis systems Revenue declined 6.2% compared with 15.1 million in a quarter 2019 primarily due to typical seasonality partially offset by reader. I see Revenue growth in the second quarter systems. Revenue was declined due to the lack of North American project transitioning to an operational phase and generally tighter capital expenditure budgets in the face of covid-19.

First quarter gross margin was 46.1% compared with 50% a year ago and 50.6% last quarter. We took a significant inventory XM and obsolescence charge related primarily to covid-19 reducing demand for endpoint ICS optimized for European retail applications and gateways that operate in the same frequency band. We expect the demand when it returns to be met by rm700 and I see and buy gateways that operate in the new EU frequency band wage, you know charge reduced our gross margin by 560 basis points normalizing for the charge gross margin increased 110 basis points year-over-year primarily by leverage from higher revenue. And this time we do not expect a material Eno charge in the second quarter 2020.

Total first quarter operating expense was Nineteen million compared with 18.8 million in first quarter, 2019 and 19.6 million in fourth quarter 2015 research and development expense. Would they point five million sales and marketing expense was six million General and administrative expenses was 4.5 million.

First quarter adjusted ebitda was three million compared with a loss of two point three million in first quarter 2019 and a profit of 1 million in fourth quarter 2019. First quarter gaap. Net loss was 4.3 million first quarter non-gaap net income was 2.9 Million or 13 cents per share using a weighted average diluted share count of 23 million shares.

Turning to the balance sheet. We ended the first quarter with cash cash equivalents and short-term Investments of 119.2 million compared with 116.5 million in the prior quarter and 56.7 million in first quarter 2019 inventory total 31.8 million and two point four million from the prior quarter and down 9.5 million first quarter 2019.

and

The first quarter net cash provided by operating activities was 1.8 million and property and Equipment purchases totaled 1.1 million free cash flow was $700,000.

I will now highlight a few items impacting our business first government-mandated shelter-in-place orders have caused several other suppliers to operate at reduced capacity and off to temporarily closed and Malaysia suppliers producing our readers and gateways and post-processing some of our end point ICS were shut down for roughly three weeks current month. Those suppliers have returned to between fifty and eighty per-cent capacity second. We are experiencing challenges shipping products due to reduced transport capacity and an increased costs as a result of covid-19 related disruptions, although we were able to fulfill all orders in first quarter 2020 and we believe we have sufficient inventory and supply of flexibility to satisfy endpoint. I see demand in the second quarter the uncertainties related to covid-19 affect our supply and demand picture near-daily.

Third in the near-term. We are modulating discretionary spending while continuing to invest in research and development and make Roi driven Capital Investments, although covid-19 impacts our near-term profitability. We have charted a course to return to adjust it even. Break even on the other side of covid-19 and we will course correct as necessary. We believe in a strong first-quarter adjusted ebitda, of course the strength of our business model and of our opportunity when the covid-19 disruption clears the economy reopens and demand returns off our strong balance sheet gives us the flexibility to weather the storm and invest in our future the Investments. We are making today will be the foundation of a stronger company in a stronger Market position tomorrow.

Turning to our Outlook considering all the issues. We have outlined and perhaps most importantly that there is no modern precedent for overcoming a pandemic we feel it is prudent to not give quantitative guidance for the second quarter instead. We will share additional metrics about our business. We do not plan to share these metrics on an ongoing basis.

As of April first second quarter backlog scheduled to ship in quarter was 32.3 Million as of Friday last week. We had already received rescheduled five million of them a clock to Future quarters, and we expect additional rescheduling request in the remaining two months of the quarter also, as of Friday second quarter booking scheduled to ship in quarters with 5.8 million down 40% quarter-over-quarter and down 21% year-over-year at similar quarterly dates.

In the near term, we expect end-user demand for endpoint ICS and systems to further declined and we are taking appropriate steps to mitigate the impact that that decline will have on our business office in the longer term. We know that the covid-19 prices will pass disruption will clear the economy will reopen and the demand will come back. We remain focused on emerging other side of covid-19 a stronger and more competitive company delivering against the new opportunities than covid-19 has created in closing. I want to thank our impinge team. Our customers are suppliers and you are investors for your ongoing support in these uncertain times.

I will now turn the call to

The operator to open the question and answer session.

We will now begin the question-and-answer session to ask a question. You may press * then one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the key to withdraw your question, please press star at this time. We will pause momentarily to assemble the roster.

And our first question comes from Mike Walkley of canaccord. Genuity, please go ahead.

Great. Thanks for taking my questions and hope everybody is doing well on the call with the very strong order result. Yeah, thanks Chris with the very strong results in it off point two million pulled in. Can you just give us some color on maybe the end markets it was pulled in for or is this just your kind of your Enmark? Just trying to build the inventory buffer. Just expecting some supply of issues.

Mike this is Jeff. I'll answer that question. We worked with a number proactively with the number of our inlaid partners long as they elected to adjust shipment dates according to their and our latest understanding of the evolving demand environment. So I would say that it relates to broad base of change in the End customer demand in particular in retail Aviation and Automotive as Chris outlined in his initial comments.

Great. Thanks. And Chris. Well, you clearly the near-term challenging friends have to say I was thinking of your company a lot every time I've been waiting in the long check-out line a grocery stores. I thought about how nice it would be to have cashier list check out and in fact the way to move through the stores, you know during this time is you and me both suck everybody on the call, but you know during this these tough times is it led to any kind of longer-term discussions with customers to really position you guys better on the other side of that level of discussion happening or is it more just everyone's just trying to, you know, figure out businesses in the short-term.

The answer to the question is yes, I will say that it's a little too early to tell how things are going to emerge on the other side of covid-19. But we you know, we've spoken previously about enabling self-checkout and and and needing to have loss prevention in order to enable that retail self-checkout. So so the desire for self checkout actually reduces exposure reduces life exposure to salesman another things and actually could potentially Drive the ability for retailers to come back online more quickly. And of course that retail self-checkout is only in very limited deployments worldwide, but recent ones are seeing that if they had had self-checkout they could potentially have returned the stores to to more normal operating conditions more quickly. So we are seeing opportunities. Can we expect those opportunities to grow as as Thursday our end customers to learn more about how they're going to be returning to normal?

so and

And we see Visionary retailers with opportunities around shipping from store as I mentioned in in in the prepared remarks and omni-channel fulfillment will become more and more important in the future. You just know it and so what you see how many channels wage as well as driving incremental opportunities. So in both of those instances, we see a long-term shift and along a long-term shift in how our end customers go to market and a long time opportunity for us.

Great. Thanks last question for me and I'll pass line carry. Thanks for you know, sharing some metrics that you don't you won't plan going forward just to get a maybe a little more clarity on the 13th two million scheduled to ship entering the quarter. Can you give us any idea of maybe the the split between endpoints and the systems and and just just kind of overall how we should think about, you know friends of those two businesses and the intermediate-term things.

Yeah, so I think we did provide that information a little bit earlier in my comments o of that backlog 29.5 million of it was related to endpoint ICS.

Okay, thank you. Then on the scheduling comment was a total comment. So we've received $5 million as of last Friday that have with requests to schedule in the future quarters. And we expect more of that. In fact, we were we saw request this morning to the same line. So there will be more coming. We know it.

Okay, great. Thank you very much and good luck this year.

Thank you be well.

Our next question comes from Troy Jensen of Piper. Jaffray, please go ahead. Hey, I can grab some nice results. I'm glad to hear everybody's well, maybe a quick follow-up on Thursday and the additional information the 40% downtown meant was that like a bookings month-over-month? Could you just go over that data point work down? Yeah, that was

Yeah, there was a bookings comment year-over-year at the same point in this quarter.

So 40% quarter-over-quarter 21% year-over-year at the same point as of last Friday. I got you. All right. How about like maybe also can you just remind me vertical exposure Chris? I think you said that retail consumers about half of the ICS, but if you guys had to rank-order, you know, how much money is your exposure retail and then drink order what follows it?

So yes, Troy. What I said is that the retail Market consumes more than half of the input I see is is this you said it's more than half and typically said it could be around two-thirds our since we sell so probably to the market our end point. I see volumes roughly follow those market trends so it led by region Carol and then a long tail after that just everything from Aviation to Automotive to Industrial to raise timing to consumer-facing use cases and just took a long tail. I would say that and I'm looking at Jeff as I'm as I'm saying this I don't know that there's another one that really pokes up above out of that long tail after you if you account for retail and and following month, this is Jeff following retail Troy. I think there's growing opportunity as it relates to the shipment and movement of boxes.

is pallets and cases and so supply chain and Logistics broadly as it applies not only to the

Retail industry but virtually every other industry is a very broad-based Global opportunity for the train platform under said last one for Chris just you know historical you guys have talked a lot about health care, you know be in a very, you know, big opportunity for a for an seems to been, you know, kind of cool lately, but I just wondering, you know, it's just the Catalyst that down the street needed to you just understand something of the benefits that in this technology and it's probably still too early to tell but just thoughts would be helpful.

I'll say that it is too early as hell. We hope so we see amazing opportunities for rain in healthcare for a tracking Supply chains and shipments Pharmaceuticals Medical Products tend to have that right products in the right place at the right time in surgical crash kids in hospitals. Just just there's so many use cases so much benefit rain could bring it is a significant opportunity and I it's too early to predict whether that rather covid-19 will drive adoption forward and and and manifest that significant value that we believe is there.

All right. All right gentlemen asked they say if good luck.

Thank you. Trying. Are you to be safe be well.

Our next question comes from Charlie Anderson of Company, please go ahead. Yeah. Thanks for taking my questions and I thought those sentiments that everyone's safe. It's free. So on the thanks for all the color on the bookings number of the 21% year-over-year drop. I'm curious curious how that's been trending. You know, do you feel like we're at a trough Point yet. I know that was just a moment in time last Friday, but kind of curious what the trajectory of that has been. I've got a follow-up.

Charlie this is Jeff. I I think

the inside I would provide is that while we work closely and proactively with our inlay Partners. They're still in a period of assessing a changing demands of environment and as they were exiting first quarter into a period of uncertainty. We know that many of our in life Partners elected to accelerate or expedite the shipment of endpoint ICS.

They had concerns regarding the ongoing viability of shipping opportunities and wanting to be well-positioned with strategic inventory issue will to prepare them to meet the demand of their end customers. So they have been going through a period of reassessment month and during that period of time have been pausing on additional bookings. They assess the their particular position wage against the demand opportunity. They see ahead of them as time passes. They will get a clear idea of their customers demand and therefore will be able to assess the appropriate level of inventory and we stand ready to serve those requirements as they become clear.

Great, thank you for that. That would highlight on that is that our backlog was very strong exiting exiting the quarter. We had twenty nine point five million bucks. I see backlog. That's more than double approaching triple where we were a year ago.

That was actually my follow-up prior to

Charlie prior to the broader understanding of the emerging potential impact of covid-19. We had had a very strong bookings. Coming into one q and into two q and a very strong pipeline. So the mark-up was clearly evolving favorably until it became more clear that there would be a demand impact from covid-19. And so while we can't predict when this phase will pass it will pass and as I said, we we stand ready to tujhe closely with our inlaid partners to ensure that they have the inventory. They need to serve the demand for men customers as it builds birth.

Through and out of Too Cute.

Yes, I was going to ask you on the backlog. That was a really interesting statistic and I was kind of curious because you haven't given it before how volatile that number tends to be, you know, in terms of the read through on it more than doubling potentially tripling and then if you could also maybe walk us through the factors that led to that if it's a, you know, true nice clean home of the business accelerating to that degree.

Yeah, so so Charlie, I think it's not as as volatile certainly timing plays into it and we can see anything if you look at a point in quarter. So we're looking at the first 25 days of a course. Yes timing can impact it but generally speaking is going to follow are the new trends and then beyond that the 29th is not our total backlog. That is just the endpoint. I see the 32.3 million was our total backlog for the quarter.

For sure, but I guess the question is what what factors would you ascribe to leading to that large increase in the backlog on what I see?

Charlie this is Jeff. I think it's a reflection of prior to covid-19. Very strong Outlook in terms of demand for jobs and the opportunities that were emerging all around the globe and it's our expectation that as Supply chains and a half hour in labor Partners assess the changing demand environment. They will return to organic growth that we've experienced prior to covid-19 trying to guess. The only thing that will add is set as I said on the call. We also believe we had modest share gains. So when you combine the organic growth model sure gains new deployments and just total opportunities ran was growing.

Yeah.

Excellent. Great to hear. Okay. Thank you guys so much.

Thank you very well.

Our next question is from Craig heading back of Morgan Stanley, please go ahead.

Yes, thank you. Just wanted to ask on the success of the systems program you talked about that the big six quarter kind of ramp and that business in terms of thinking about the pipeline and Thursday opportunities and they might not be the same but just wanted to kind of gauge using that as a proof point in terms of some of the opportunities you might see on a go-forward basis.

Yeah, so Craig continue to pursue opportunities, especially in supply chain and Logistics and in the retail space.

As we said before those opportunities tend to be project-based and even the existing deployment that we have with that large North American customer is wage. It's in the it's in the process of transitioning over to the operational phase and we continue to support them. So I think you're just going to have to think of what you continue to look for those opportunities pursue them there there are other other opportunities out there or the timing of those deployments the timing of when they come is really project significantly project-based and covid-19 also adds another wrinkle on other uncertainties into the timing of those deployments.

Got it. And then just a follow-up on the end 700 understanding the visibility is very difficult broadly for every company out there today. Just curious to get it in terms of some of this delay like what that ultimately means, you know, maybe towards the latter point of the year, you know, once once customers are in the position to kind of to ramp up and deploy off.

Yeah, so, this is Chris again. So we we continue with our production ramped. We are delighted for the factors of set on the call that said we still expect to be shipping production volumes in the second quarter and Thursday. We expect the impinge m700 to positively impact our business in 2020.

Got it. Thank you.

Thank you, Craig.

Our next question comes from Jim of Needham, please. Go ahead.

Hey guys, you have Mike Seacoast here in place that you were shooting. Thanks for taking the questions today. The first question I had was building on the the M 700 so understandably, you guys are now a little more than two months the weight curious as far as how your partners are currently ramping production there. I think last time we received an update. They had been prioritizing existing lines. I just wanted to get an update on on how they are progressing in their production of the m700 and they're ramping.

So I think that comment that I made last time would still hold their they were prioritizing existing production. And now as they're adjusting to the new demand environment, they're basically re-evaluating and try to understand what the opportunity that I'm going to be going forward at the same time. They've got to get their qualifications done at the end customers and those qualifications are either done by the end customers themselves or by independent bodies that do the the qualification and those qualifications potentially get delayed at the End customer at the at the bodies that are doing the qualification. So there are there are there are ongoing delays what what our expectation and hope is that we will see more off of our incident hundred. I see qualify dead-end customer opportunities such that as we exit the other side of covid-19 will see a significant ramp in demand and we are still in fact excited about that product as I've said before it's most significant Innovation we've done since we introduced the first Mazda. I see many many years ago and it also has some unique features for Thursday.

Prevention that would drive loss prevention and everybody enables self-checkout. So we're excited about the future for it and we continue pushing it forward.

Great, that's helpful. And then just one other question if I could I know coming into the year. There was the expectation that you guys would be increasing expenses to strengthen product leadership and more commission obviously in a in a much different world today versus where we had been and I think there was a common to as far as you guys trying to I guess moderate some of the the spending and just interested in money. Where where is it? You guys are looking to to remove or or curb some of those cost increases that we were initially looking for and then how that plays off again. Obviously, I have to assume that you're investing a r d behind the same 700 launch

So it's a great question. So we have not changed our R&D and capital investment plans what we have done though is we've looked at our discretionary spend and we are modulated or reducing that across-the-board. So think you know travel is almost non-existent right now discretionary marketing is it has been reduced there's a variety of other similar type expenses that we're just not incurring right now. So while we anticipate our overall spend profile increasing is not going to increase at the rate. We thought at the beginning of the year because of of of those factors and and as a result, we expect profitability to decline in the near-term, but we as as Chris mentioned we have charted our life path back to adjusted adjusted ebitda break even on the other side of covid-19.

Great. Thank you guys.

Thank you.

Again, if you'd like to ask a question, please press * then 1 and our next question will come from Scott's over off Capitol, please go ahead good afternoon. Thanks for taking my questions and thanks for the additional color and detail on the call. He focusing in on the the M 700 a little bit. Can you can you give us an idea? I just want to clarify the two-month delays at 2 months total from the beginning of his at two months incremental to I think the the last call when you talked about it slipping by about 30 days due to some of the initial issues and China and then is it relates to the m? 700. Can you talk a little bit more color in terms of how that was playing into that backlog and point. I see number of 29 and 1/2 million, you know, maybe give us some idea in terms of the number of designs the level of Engagement and there was a month a whole product roadmap that you guys had hinted at but not shared. Are you guys still on track to be able to continue to develop that?

Okay, so, this is Chris. I'll start with some of the questions. So the the the the two months away is total it's not incremental on the list on the last last call although as we've said in the color is still a lot of uncertainties out of pocket both in our supply chain and you know partners and customers and qualifications. So we're doing our best to navigate the the invention of 700 production ramped through those uncertainties. And may I just said a minute ago. We we do expect to be shipping production volumes this quarter, although those those production volumes because of the plays will obviously be smaller than we had originally anticipated in terms of new products. We obviously continue developing new products. It's the lifeblood of our company. We haven't announced anything recently other than the the GM 702 and I see and they are $700 and at the right time and we have the products and it makes sense to announce new offerings. We will we will of course do so, but as as Kerry just said we continue investing in R&D and we see dead.

Covid-19 time as an opportunity to drive our future to drive our competitiveness and emerge on the other side of stronger company in a more competitive market position was the m62 speeded to be a big portion of that endpoint. I see backlog.

No, it wasn't it was it was it was a smaller portion of the overall endpoint. Is he back like because it's in production ramped. So, you know given the size of the numbers that Kerry was setting was it was a small portion of it. Got you and are you still able to engage with customers to look with the understanding that qualification and certification Still Remains an issue, but are you able to engage to try and get new design wins to to continue to push additional customers along that package or is everything kind of ground to a halt on that engagement front?

We are still able to engage but things are much slower. I'll just give one example to the extent we were going to be doing pilots in retail stores with the back doors shut down. You can't do pilots. So when we said that, you know, the retail stores are closed it basically delays delays systems Pilots it delays some of the endpoint I see pilots and those other things that we're going on. So just as you age or Industries, you know, we are we are equally impacted by the store closures and the other types of covid-19. And if I could on Gross margins, I just want to make sure I heard those numbers correctly. You said there was a number of charges that that translated to about a 510 basis-point impact in the quarter which which if that's the case in implies that your end point I see is actually pretty good shape from a Christian standpoint in the mid to low 40s, which is probably a little bit better given the seasonal pricing coming into the first quarter. Is that the correct way to think about it?

Yeah, well one correction on that. It was 560 basis points impact on gross margin. So without that would have been about fifty 1.7% but the logic everywhere else was exactly the boss. Got you, and then just lastly if I could you talked a little about your life partners and their process and and working with their customers. Do you have any sense of what the song in Les and endpoint? I see inventory looks like at the customers to have any idea what that looks like in terms of number of weeks or or lead times versus past history. Thanks.

This is Jeff Scott. I would say prior to the emergence of covid-19. We and our life Partners would assess that inventory levels were dead healthy and appropriate of course in facing the uncertainty of covid-19. Some of our in life Partners elected to Thursday night shipments so that they would have the security of on-hand inventory. We anticipate our inlaid partners for the most part will hold off those additional inventories through the second quarter and allow for the return to more normal demand in the latter half of the year to consume those inventories. So at any given point in time inventories and assessment of a future outlook Fordham, and we work proactively at Birth

Closely with their in life Partners on a near-daily basis to share data and insights into our understanding of the marketplace and then our inlaid partner assess that information and and insight and make decisions about inventory booking and shipment schedules. So we'll continue to work very closely with our partners and stand ready to help them as they navigate through this period of uncertainty and as they plan to to prepare themselves for a return to growth in demand that they hope to see in the latter half of the year.

Great. Thank you. Hope everyone stays healthy and safe.

He's got thanks very much Scott.

This concludes our question-and-answer session. I would like to turn the conference back over to Christy for any closing remarks.

I just like to say thank you all for joining the call today. I hope you and your loved ones are and remain safe and well, thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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