Q4 2021 Impinj Inc Earnings Call

Speaker 1: Good day and welcome to the M-PEN's fourth quarter and four year 2021 earnings conference call and webcast. All participants will be in a listen only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. To today's presentation there will be an opportunity to ask questions.

Good day and welcome to the impending fourth quarter and full year 2021 earnings conference call and webcast. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.

Speaker 1: To ask a question, you may press star then one on your touch tone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Andy Cobb, Vice President in Strategic Finance. Please go ahead, sir.

To ask a question you May press Star then one on your Touchtone phone and to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Mr. Andy Cobb, Vice President and strategic Finance. Please go ahead Sir.

Speaker 2: Thank you, Chuck good afternoon and thank you all for joining us to discuss the 4th quarter and full year 2021 results.

Thank you Chuck good afternoon, and thank you all for joining us to discuss <unk> fourth quarter and full year 2021 result.

Speaker 2: On today's call, Chris DiOrio, Npinge's co-founder and CEO , will provide a brief overview of our market opportunity and performance.

On today's call Kristi Oreo.

<unk> co founder and CEO will provide a brief overview of our market opportunity and performance.

Speaker 2: Terry Baker, Impingent's CFO , will follow with a detailed review of our fourth quarter and full year 2021 financial results and first quarter 2022 outlook. We will then open the call for questions.

Baker <unk> CFO will follow with a detailed review of our fourth quarter and full year 2021 financial results and first quarter 2022 outlook. We will then open the call for questions.

Speaker 2: Jeff Doffit and Pinchas CRO will join us in the Q&A session.

First off it impinges CRO will join us in the Q&A session.

Speaker 2: You can find management prepared remarks plus trended financial data on the investor relations section of the company's website.

You can find management's prepared remarks, plus trend in financial data on the Investor Relations section of the company's website.

Speaker 2: We will make statements in this call about future expectations in financial performance that are based on our outlook as of today.

We will make statements in this call about future expectations and financial performance that are based on our outlook as of today.

Speaker 2: Any such statements are forward looking under the private securities litigation reform act of 1995.

Any such statements are forward looking under the private Securities Litigation Reform Act of 1995, while.

Speaker 2: While we believe we have a reasonable basis for making these forward looking statements. Our actual results could differ materially. Because any statements we make today are subject to risks and uncertainty.

While we believe we have a reasonable basis for making these forward looking statements. Our actual results could differ materially okay. Any statements. We make today are subject to risks and uncertainties.

Speaker 2: We describe these risks and uncertainties in the annual and quarterly reports we file with the.

We describe these risks and uncertainties in the annual and quarterly reports, we file with the SEC, we do not undertake and expressly disclaim any obligation to update or alter our forward looking statements, except as required by applicable law.

Speaker 2: We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements except as required by applicable law. On today's call, all financial metrics except for revenue or where we explicitly state otherwise are non-gapped. Balance sheet and cash flow metrics

On today's call all financial metrics, except for revenue or where we explicitly state otherwise are non-GAAP Bal.

Balance sheet and cash flow metrics are on a GAAP basis. Please refer to our earnings release for a reconciliation of our non-GAAP financial metrics to the most comparable GAAP metrics.

Speaker 2: please refer to our earnings release for a reconciliation of our non-GAAP financial metrics to the most comparable GAAP.

Speaker 2: Before turning to our results and outlook, note that we will participate in the Morgan-Stanley Technology, Media, and Telecom Conference on March 9th and the 34th Annual ROC Conference on March 15th. We look forward to connecting with many of you at those events. I will now turn the call over to...

Before turning to our results and outlook note that we will participate in the Morgan Stanley Technology Media and Telecom conference on March 9th in the 34th annual Roth Conference on March 15, we look forward to connecting with many of you at those events I will now turn the call over to Chris.

Speaker 3: Thank you, Andy, and thank you all for joining the call.

Thank you Andy and thank you all for joining joining the call.

Speaker 3: In Hinge Cap 2021 with record fourth quarter and full year revenue and booking.

<unk> 2021 with record fourth quarter and full year revenue and bookings despite the disruptive impact of COVID-19, and wafer supply shortfalls on our supply chain.

Speaker 3: despite the disruptive impact of COVID-19 and wafer supply shortfalls on our supply chain.

Speaker 3: We ended the year with three consecutive quarters of double digit revenue growth as well as record bookings in three out of four quarters culminating with record backlog entering 2022.

We ended the year with three consecutive quarters of double digit revenue growth as well as record bookings in three out of four quarters, culminating with record backlog entering 2022.

Speaker 3: Our results were driven by strong impinge execution and enterprises accelerating their investments in supply chain visibility, omni-channel fulfillment and operational efficiency.

Our results were driven by strong impinge execution and enterprises accelerating their investments in supply chain visibility omnichannel fulfillment and operational efficiencies.

Speaker 3: We delivered our 60 billionth endpoint IC, another milestone on our journey to connect every item in our everyday world.

We delivered our 60 billion endpoint IC another milestone on our journey to connect every item in our everyday world.

Speaker 3: If not for the wafer supply shortfalls, we would have delivered even more.

If not for the wafer supply shortfalls would have delivered even more.

Despite that constraint, we orchestrated a strong quarter and a strong year and that strength continues into 2022.

Speaker 3: Despite that constraint, we orchestrated a strong quarter and a strong year, and that strength continues into 2022.

Speaker 3: Fourth quarter endpoint IC revenue exceeded our expectations with record bookings despite us instituting cost pass through starting in October .

Fourth quarter endpoint IC revenue exceeded our expectations with record bookings despite us instituting cost pass throughs starting in October .

Speaker 3: Retail demand remains strong, with retailers large and small turning to RAIN RFID to improve both in-store and supply chain inventory visibility and to accelerate omnichannel fulfillment.

Retail demand remained strong with retailers large and small turning to rain RFID to improve both in store and supply chain inventory visibility and to accelerate omnichannel fulfillment.

Speaker 3: We also saw a growing adoption for mainstream supply chain and logistics providers, with the key adoption drivers being productivity gains, shipment tracking accuracy, and capacity expansion.

We also saw a growing adoption for mainstream supply chain and logistics providers with the key adoption drivers being productivity gains shipment tracking accuracy and capacity expansion.

Speaker 3: Full year endpoint IC revenue set an annual record with year over year percentage growth and at its highest pace since 2016.

Full year endpoint IC revenue set an annual record with year over year percentage growth at its highest pace since 2016.

Speaker 3: Looking forward, we see bellwether enterprises broadening their use cases and driving our endpoint IC demand.

Looking forward, we see bellwether enterprises broadening their use cases and driving our endpoint IC demand.

Speaker 3: Like for the second and third quarters, fourth quarter endpoint IC demand exceeded shipments by more than 50%.

Like for the second and third quarters fourth quarter endpoint, IC demand exceeded shipments by more than 50%.

Speaker 3: And with our inlay partners periodically lines down at both their and our inventory levels measured in mere days, we continue to believe they would increase their bookings if we had more supply. Fortunately, as.

And with our inlay partners periodically mines down in both their and our inventory levels, Michigan near days.

We continue to believe they would increase their bookings if we had more supply.

Fortunately as of today, we don't.

Speaker 3: Our first half 2022 wafer supply remains relatively unchanged.

Our first half 2020, do wafer supply remains relatively unchanged to.

Speaker 3: 200 and 300 millimeter wait for supply commitments that should allow us to equal or exceed fourth quarter 2021 shipment levels through mid 2022

203 hundred millimeter wafer supply commitments that should allow us to equal or exceed fourth quarter 2021 shipment levels through mid 2022.

Speaker 3: But those shipment levels fall far short of our rapidly growing demand.

But those shipment levels falls far short of our rapidly growing demand.

Speaker 3: And although our Foundry partner continues to prioritize us for upside-down weeks.

And although our foundry partner continues to prioritize us for upside wafers.

Speaker 3: with both we and they, hopeful for relief and the process notes we use to date, that relief has not come, at least not sized to our needs.

With both we and they are hopeful for a relief in the process nodes. We use to date that really has not come at least not sized our need rigs.

Speaker 3: Regardless, we continue expanding our 300-millimeter post-processing capacity to stay ahead of our opportunity, even after successfully quintupling that capacity in 2021. We will be ready when the waiters finally do come. Fourth quarter systems, wherever you also exceed our direct-

Hardness, we continue expanding our 300 millimeter post processing capacity to stay ahead of our opportunity.

Even after successfully when coupling that capacity in 2021.

We will be ready when the wafers finally do come.

Fourth quarter systems revenue also exceeded our expectations.

Reader IC revenue was a bright spot continuing its recovery from the first half 2021 supply shortfall.

Speaker 3: Continuing its recovery from the first half 2021 supply shortfall.

Speaker 3: We still expect supply of our prior generation Indie Reader ICs to catch up to demand at 1st quarter 2022.

We still expect supply of our prior generation Indy reader Ics to catch up to demand in first quarter 2022.

Speaker 3: and supply of our new E family reader ICs to catch up to growing demand in 2nd half 2022.

And supply of our new <unk> family reader Ics to catch up to growing demand in second half 2022.

Speaker 3: We have high expectations for the letter. Now it's more than 100 design wins.

We have high expectations for the ladder now with more than 100 design wins.

Speaker 3: Fourth quarter reader and gateway supply was better than we expected, contributing to our strong systems performance.

Fourth quarter reader and gateway supply was better than we expected contributing to our strong systems performance.

Speaker 3: That said, we continue navigating difficult components shortfalls that increase schedule variability in costs while we wait for key components to complete our product bill.

That said, we continue navigating difficult components shortfalls reschedule variability in costs, while we wait for key components to complete our product bills.

Speaker 3: We currently do not see supply normalizing, or necessarily even improving in the first or second quarter.

We currently do not see supply normalizing or necessarily even improving in the first or second quarters.

Speaker 3: Like for fourth quarter, we entered first quarter with significant reader backlog that we must fulfill in a constrained supply environment, even a demand remains strong.

For fourth quarter, we entered the first quarter with significant reader backlog that we must fulfill and a constrained supply environment, even as demand remains strong.

On the project front.

Speaker 3: Follow on orders for our rain, lost prevention product for the visionary European retailer contributed nicely to Ford Corridor revenue.

So on orders for our reign loss prevention product for the visionary European retailer contributed nicely to fourth quarter revenue.

Speaker 3: customer is happy with the product performance and what it means for their story of the future and we hope we'll deploy more of

The customer is happy with the product performance and what it means for their store of the future and we hope we'll deploy more broadly.

Speaker 3: The second large North American supply team, and logistics customer, continued deploying, contributing modest fourth quarter revenues.

The second large north American supply chain and logistics customer continued deploying contributing modest fourth quarter revenue.

Speaker 3: and a broadening of partner-led revenue in both retail and supply-chain logistics, our two target markets, with some bright...

And a broadening of partner led revenue in both retail and supply chain and logistics, our two target markets.

Well, it's a bright spot in our fourth quarter.

Speaker 3: We are very pleased to see growing leverage from these partner led deals.

We are very pleased to see growing leverage from these partner led deals.

Speaker 3: Beyond our strong results, 2021 was a fantastic year for rain.

Beyond our strong results 2021 was a fantastic year for rate.

Speaker 3: And perhaps most excited by a Merisourceberg and launching its RFID tagging.

And perhaps most excited by Amerisourcebergen launching its RFID tagging service.

Speaker 3: My knowledge, their launch marks first time a major corporation to share information about their brain-tagged items with people, you and me.

To my knowledge Air launch marks the first time, a major corporation sharing information about their rain tagged items with people.

You and me unconstrained.

Speaker 3: I think back to the many years I've championed a vision of digital twins for physical items. What it means for the Internet of Things.

I think back to the many years have championed a vision of digital twins for physical items, what it means for the internet of things.

Speaker 3: Power of rain, item visibility, and every person's hand. A available information about every connected item, a massive inflection opportunity, and I can see it materializing. I am absolutely thrilled.

Our brain item visibility and every person's hand available.

Information about every connected item and massive inflection opportunity.

And I can see it materializing.

I am absolutely thrilled.

2021 was marked by other big stories as well.

Speaker 3: For example, the CEO of the world's largest package delivery company announced a plan to add rain tags to all their packages.

For example, the CEO of the worlds largest package delivery company announced a plan to add rain tags to all their packages to drive efficiencies and eliminate 20 million manual scans a day.

Speaker 3: To drive efficiencies and eliminate 20 million manual scans a day.

Speaker 3: An Accenture report stated that 93% of North American retotes are piloting or deploying rain.

And Accenture report stated that 93% of North American retailers are piloting or deploying rain.

Speaker 3: And we know that few of those regalers are fully deployed, signaling you job opportunities ahead.

And we know that few of those retailers are fully deployed signaling huge opportunities ahead.

Speaker 3: by COVID-19 and the operational challenges and the stress we all feel, I do believe someday.

Despite COVID-19, and the operational challenges and the stress we all feel.

Do believe someday, we will look back and say.

Speaker 3: 2021 was a big year for a pinch and for the rain market overall.

<unk> 21 was a big year for a pinch and for the rain market overall.

Speaker 3: On the organizational side, we make two major announcements last week.

On the organizational side, we made two major announcements last week.

Speaker 3: First, I would like to congratulate you, San Mecheli, on his promotion from Executive Vice President of Engineering to Chief Operating Officer with engineering and operations now reporting to him.

First I would like to congratulate Hussein megawatt on his promotion from executive Vice President of Engineering to Chief operating officer, with engineering and operations now reporting to him.

Speaker 3: for the past three years, the same champion in the development of the impinged plot.

For the past three years, the same champion the development of the pinch platform delivering groundbreaking endpoint Ics reader Ics readers and gateways.

Speaker 3: Delivering ground breaking and punch ICUs, reader ICUs, readers and gates.

Speaker 3: most recently, he spearheaded growing our operations capacity across our product lines.

Most recently he spearheaded growing our operations capacity across our product lines congratulations.

Congratulations Hussein.

Speaker 3: Second, I'd like to thank current director Steve Sangue, who has agreed to serve as the pinches next board share, effective at our upcoming general meeting.

Second I'd like to thank current director, Steve Sandy who has agreed to serve as Impinges next board chair.

Effective at our upcoming general meeting.

Speaker 3: Steve's experience as microchips long-term CEO and current executive chair brings an extraordinary level of knowledge and insight to intent.

Steve's experience at Microchips long term CEO and current executive chair brings an extraordinary level of knowledge and insight to impinge.

Speaker 3: Also, I'd like to welcome Mira Rao, who just joined our board.

Also I'd like to welcome Meera Rao, who just joined our board.

Speaker 3: Nora was previously CFO at Monolithic Power Systems and she brings significant executives and board level experience to impinge. Steve, thank you. And Mira, well...

Mirror was previously CFO of monolithic power systems, and she brings significant executive and board level experience to impinge, Steve Thank you and mirror well.

Welcome.

Speaker 3: Finally, long-term board members Peter Van Aup van and Teresa Weiss have decided not to stand for re-election this year.

Finally long term board members Peter gone up in a Theresa wise have decided not to stand for reelection this year.

Speaker 3: We will continue benefiting from their guns for the remainder of their turn.

We will continue benefiting from their guidance for the remainder of their terms.

Speaker 3: I want to express my heartfelt appreciation to both Peter and Theresa for their support and guidance to me personally.

I want to express my heartfelt appreciation to both Peter and Teresa for their support and guidance to be personally.

Speaker 3: as well as for their many contributions to entange over the years.

As well as for their many contributions to <unk> over the years.

Speaker 3: I will miss them on our board, and I wish them both the very best.

I will miss them on our board and I wish them, both the very best.

Speaker 3: Before I close, I'd like to thank every member of the Pinch team for their incredible effort every day of 2021.

Before I close I'd like to thank every member of the pinch team for their incredible effort everyday F 2021.

Speaker 3: Your spirit and dedication in the face of COVID-19, the unparalleled supply chain disruptions and inadequate product supply, amazing.

Your spirit and dedication in the face of COVID-19, the unparalleled supply chain disruptions and inadequate product supply it Amazes me.

Speaker 3: Our record results are testament to your grace under pressure.

Our record results are a testament to your grace under pressure.

Speaker 3: So to each and every opinion team member, I'd like to give my heartfelt thanks.

So.

To each and every impinge team member I'd like to give my heartfelt. Thank you.

Speaker 3: In closing, 2021 with a solid year driving our bold vision, we delivered record bookings, revenue and adjusted EBITDA while launching key new products, investing in our team, building our 300-millimeter post-processing capacity and accelerating our M-1,100 series RAM.

In closing 2021 was a solid year driving our bold vision, we delivered record bookings revenue and adjusted EBITDA, while launching key new products investing in our team building, our 300 millimeter post processing capacity and accelerating our M 700 series ramp.

Speaker 3: As we continue working side by side with our ecosystem partners to navigate both growing demand and ongoing supply chain disruption, I remain confident in our market position and energized by the opportunities ahead.

As we continue working side by side with our ecosystem partners and navigate both growing demand and ongoing supply chain disruption I remain confident in our market position and energized by the opportunities ahead.

Speaker 3: I will now turn the call over to Carrie for our detailed financial review and first quarter outlook. Carrie?

I will now turn the call over to Kerry for our detailed financial review and first quarter outlook Gary.

Speaker 2: Thank you, Chris, and good afternoon, everyone. I want to start by taking a moment to reflect on 2021. On the surface, it was a fantastic, herefully in pinch. We delivered record revenue, adjusted e-bidot, and bookings with revenue and profitability significantly exceeding our expectations.

Thank you, Chris and good afternoon, everyone I want to start by taking a moment to reflect on 2021 on the surface. It was a fantastic year for change we delivered record revenue adjusted EBITDA and bookings with revenue and profitability significantly exceeding our expectations.

Speaker 2: We saw strong voting's momentum throughout the year capped by our records fourth quarter. Below the surface however, our team wrestled with COVID-19, supply chain challenges, and wafer shortfalls, constraining our ability to fully capitalize on record demand. I can only imagine how much stronger 2021 would have been with more supply.

We saw strong bookings momentum throughout the year capped by a record fourth quarter.

Below the surface. However, our team rustled with COVID-19 supply chain challenges and wafer shortfalls constrained our ability to fully capitalize on record.

Can only imagine how much stronger 2021 would've been with more supply.

Speaker 2: Today, more than ever, I am energized by our massive opportunity. And with the strength of our team, I am optimistic we will capitalize on our record backlog with a supply constraint.

They want than ever I'm energized by our massive opportunities and with the strength of our team I am optimistic we will capitalize on our record backlog when the supply constraints ease.

Speaker 2: Fourth quarter revenue was 52.6 million. Up to 16% sequentially compared with 45.2 million in third quarter 2021, and up 44% year over year from 36.4 million in fourth quarter 2020.

Fourth quarter revenue was $52 6 million up 16% sequentially compared with $45 2 million in third quarter, 2021, and up 44% year over year from $36 4 million in fourth quarter 2020.

Speaker 2: Fourth quarter and point IC revenue was 38.4 million, up 20% sequentially compared with 32 million in third quarter 2021, and up 35% year-over-year from 28.5 million in fourth quarter 2021.

Fourth quarter endpoint IC revenue was $38 4 million up 20% sequentially compared with $32 million in third quarter, 2021, and up 35% year over year from $28 5 million in fourth quarter of 2020.

Speaker 2: Quarter-require and point-on-the-revenue grow significantly outpaced typical seasonal declines. Our specialty and industrial product makes food richer than our original assumptions driving revenue above our expectations.

Quarter over quarter endpoint IC revenue growth significantly outpaced typical seasonal declines are specialty and industrial product mix richer than our original assumptions driving revenue above our expectations.

Speaker 2: Looking forward, we expect first quarter 2022 and point-IZ revenue to decline slightly sequentially during my smaller percentage of specialty industrial crises.

Looking forward, we expect first quarter 2022 endpoint IC revenue declined slightly sequentially driven by a smaller percentage of specialty industrial bases.

Speaker 2: Fourth quarter systems revenue was 14.2 million up 7% sequentially compared with 13.2 million in third quarter 2021 and up 79% year over year from 7.9 million in fourth quarter 2020.

Fourth quarter systems revenue was $14 2 billion up 7% sequentially compared with $13 2 million in third quarter of 2021, and up 17, 9% year over year from $7 9 billion and fourth quarter 2020.

Speaker 2: Systems revenue exceeded our expectations due to our contract, nine facts were delivering readers earlier than we expected.

Systems revenue exceeded our expectations due to our contract manufacturer delivering readers earlier than we expected on.

Speaker 2: On a quarter of a quarter basis, reader IC and gateway revenue increase while reader revenue decline. On a year over year basis, reader IC, reader and gateway revenue all increase.

On a quarter over quarter basis reader, IC and gateway revenue increase while reader revenue decline.

On a year over year basis reader, IC reader and gateway revenue all of the increase.

Speaker 2: We expect first quarter 2022 systems revenue to follow seasonal trends declining slightly sequentially.

We expect first quarter 2022 systems revenue to follow seasonal trends declined slightly sequentially.

Speaker 2: 2021 revenue was 190.3 million, up 37% year over year compared with 138.9 million in 2020.

2021 revenue was $190 3 million up 37% year over year, compared with $108 9 million in 2020.

Speaker 2: Endpoint IC revenue proves 36% year over year during my strength and obvious channel fulfillment, new deployments, expansion of existing deployments, and COVID-19 recovery.

Endpoint IC revenue grew 36% year over year, driven by strength in Omnichannel fulfillment, new deployments and expansion of existing deployment and COVID-19 recovery.

Speaker 2: Systems revenue goes 39% year over year driven by loss prevention and broad-based demands for readers in gateway

Systems revenue grew 39% year over year, driven by loss prevention and broad based demand for our readers and gateways.

Speaker 2: Fourth quarter gross margin was 58.2%, compared with 53.3% in third quarter 2021 and 50.4% in fourth quarter 2020. The quarter over quarter increase was driven by underlying product margins, partially offset by a smaller contribution from sales of fully reserved inventory.

Fourth quarter gross margin was 58, 2% compared with 53, 3% in third quarter, 2021, and 54% in fourth quarter 2020.

The quarter over quarter increase was driven by underlying product margins, partially offset by a smaller contribution from sales were fully reserved inventory.

Speaker 2: The Europeer increase was driven by underlined product margins and product mix.

The year over year increase was driven by underlying product margins and product mix.

Speaker 2: Beyond the margin rich industrial and specialty products, the M-700 series became our volume runner, providing a gross margin tailwind in the fourth quarter.

Beyond the margin rich industrial and specialty products. The M. 700 series became more volume runner, providing a gross margin tailwind in the fourth quarter.

Speaker 2: The PhotoCore 2021 Benefit from Selling Fully Reserved Inventory was 130 basis points.

The fourth quarter 2021 benefit from selling fully reserved inventory was 130 basis points.

Speaker 2: Fully year 2021 gross margin set an annual record at 54.2% compared with 49% in 2020. When the increase due primarily to lower E&O charges, sales of fully reserved inventory and higher underlying product margins.

Full year 2021 gross margin set an annual record of 54, 2% compared with 49% in 2020 with the increase due primarily to lower charges sales are fully reserved inventory at higher underlying product margins for.

Speaker 2: The 2021 benefit from Stelby's fully reserved inventory was 150 basis points.

For 2021 benefit from selling fully reserved inventory was 150 basis points.

Speaker 2: Total fourth quarter operating expense was $25.3 million, compared with $24.4 million in third quarter 2021 and $21.5 million in fourth quarter 2020.

Total fourth quarter operating expense was $25 3 million compared with $24 4 million in third quarter, 2021, and $21 5 billion in the fourth quarter 2020.

Speaker 2: Research and the Malaman expense was $12.3 million. Sales and marketing expense was $6.8 million. General and administrative expense was $6.2 million.

Research and development expense was $12 3 million sales and marketing expense was $6 8 million general and administrative expense was $6 2 million.

Speaker 2: 2021 operating expense total 94.1 million compared with $79.6 million in 2020.

2021 operating expense totaled $94 1 million compared with $79 6 million in 2020.

Speaker 2: Fourth quarter adjusted even out was a profit of $5.3 million compared with the loss of 400,000 in third quarter 2021 and the loss of $3.1 million in fourth quarter 2020.

Fourth quarter adjusted EBITDA was a profit of $5 3 million compared with a loss of 400000 in third quarter 2021, and a loss of $3 1 million in the fourth quarter 2022.

Speaker 2: 2021 Adjusted EBITDA was a cost of 9.1 million compared to the loss of 11.5 million in 2020.

2021 adjusted EBITDA was a profit of $9 1 million compared with a loss of $11 5 billion in 2020.

Speaker 2: Fourth quarter gap net loss was 20 million. Fourth quarter non-gap net profit was $4.3 million. Or a 16-pense per share using a weighted average deluded share count of 26.8 million shares. 2021 gap net loss was 51.3 million. 2021 non-gap net profit was $6.4 million or 25 cents per share using a weighted average deluded share count of 25.9 million shares.

Fourth quarter GAAP net loss was $20 million fourth quarter non-GAAP net profit was $4 3 million.

Or <unk> 16 per share using a weighted average diluted share count of $26 8 million shares 2021, GAAP net loss was $51 3 million 21, non-GAAP net profit was $6 4 million or 25 cents per share using a weighted average diluted share count of $25 9 million shares.

Speaker 2: Turning to the balance sheet, we ended the fourth quarter with cash, cash equivalent and investments of 207.6 million compared with 113.3 million in third quarter 2021 and 106.1 million in fourth quarter 2020.

We ended the fourth quarter with cash cash equivalents and investments of $207 6 million compared with $113 3 million in third quarter, 2021, and $106 1 billion and fourth quarter of 2020.

Speaker 2: In 4th quarter 2021, we issued 1.125% convertible notes due November 2027, generate 287.5 million in gross proceeds, and 94.2 million in net proceeds after fees and retiring almost 90% of our 2% convertible notes due to February 2026.

In fourth quarter of 2021, we issued 112, 5% convertible notes due November 2027 generated $287 5 million in gross proceeds and $94 2 billion and net proceeds after fees and retiring almost 90% of our 2% convertible notes due December 2012.

Sales.

Speaker 2: Inventory told 22 million, about 3.5 million from the prior quarter, with the increased primarily from systems.

Inventory totaled $22 million of $3 5 million from the prior quarter with the increase primarily from systems.

Speaker 2: Fourth quarter net cash used in operating activities was 3.9. Property and equipment purchases totaled 2.1 million. Free cash flow was negative 6 million. For the full year net cash provided by operating activities was 6.5 million. Property and equipment purchases totaled 16.2 million. Free cash flow was negative 9.8 million.

Fourth quarter net cash used in operating activities was $3 nine property and equipment purchases totaled $2 1 billion free cash flow was negative $6 million for the full year net cash provided by operating activities was $6 5 billion property and equipment purchases totaled $16 2 million free cash flow was negative nine.

$1 8 million.

Speaker 2: Before I return to our first quarter guidance, I want to highlight items you need to fourth quarter and give it an update on a few of our strategic initiatives.

Before I turn to our first quarter guidance I want to highlight items unique to fourth quarter and give an update on a few of our strategic initiatives.

Speaker 2: First, a margin rich mix of industrial and specialty endpoint ICs combined with the benefits from selling fully reserved inventory and M700 volume nearly doubling. Draw a record 4½ gross margin.

And margin rich mix of industrial and specialty end point IC combined with the benefit from selling fully reserved inventory and M 700 volume nearly doubling drove our record fourth quarter gross margin.

Speaker 2: We expect a slightly less favorable mix of industrial and specialty endpoint ICs in first quarter, driving margins down to country. In second quarter 2022, we expect that makes to normalize.

We expect a slightly less favorable mix of industrial and specialty end point Ics in the first quarter driving margins down sequentially second quarter 2022, we expect that mix to go otherwise.

Speaker 2: Second, back in 2019, to conserve cash, we pivoted our incentive compensation to 100% stock. Since then, we strengthened our balance sheet and in 2021, delivered record adjusted even done. In 2022, we will pivot our incentive compensation back to a mix of cash and stock.

Second back in 2019 to conserve cash, we pivoted, our incentive compensation to 100% stock.

Since then we strengthened our balance sheet and in 2021 delivered record adjusted EBITDA.

In 2022, we will pivot our incentive compensation back to a mix of cash and stock.

Speaker 2: We have reflected the increase in operating expense in our first quarter of 2022 guidance.

We have reflected the increase in operating expense in our first quarter 2022 guidance.

Speaker 2: Third, we delivered business model leverage in an environment where revenue was supplied and streamed, setting adjusted EBITDAW records in fourth quarter and fourth year 2021. Even as we continue investing in our business in 2022, we remain focused on delivering adjusted EBITDAW break even a better.

Third we delivered business model leverage in an environment, where revenue was supply constrained setting adjusted EBITDA records in fourth quarter and full year 2021.

But as we continue investing in our business in 2022, we remain focused on delivering adjusted EBITDA breakeven or better.

Speaker 2: Finally, we expect first and second quarter revenue to be supplied in streams. With those constraints likely continuing throughout 2022, from today's vantage point, the man's far outstrips are supplied.

Finally, we expect first and second quarter revenue to be supply constrained with those constraints likely continuing throughout 2022 from today's vantage point demand far outstrips our supply.

Speaker 2: Turning to our outlook, we expect first quarter revenue to be between 50 and 52 million, a 13% year-over-year increase at the mid-point of the range compared with 45.2 million in first quarter 2021.

Turning to our outlook, we expect first quarter revenue to be between 50, and 52 million a 13% year over year increase at the midpoint of the range compared with $45 2 million in first quarter 2021, we.

Speaker 2: We expect an adjunct an evil dot profit between 100,000 and 1.6 million.

We expect an adjusted EBITDA profit between $100001 6 billion.

Speaker 2: On the bottom line, we expect non-gap net income between a loss of 1.1 million and a profit of 400,000. We're slightly non-gap earnings for share between a loss of 5 cents and a profit of 1 cents on a weighted average deluded share count between 24.9 million and 27.2 million shares.

On the bottom line, we expect non-GAAP net income between a loss of $1 1 million and a profit of 400000, reflecting non-GAAP earnings per share between a loss of five.

And a profitable one on a weighted average diluted share count between $24 9 million and $27 2 million shares.

Speaker 2: In closing, I want to thank our impinged team, our customers, our suppliers, and you are investors for your ongoing support. I will now turn the call to the operator to open the question and answer session.

In closing I want to thank our impinge team our customers our suppliers and you our investors for your ongoing support.

I will now turn the call to the operator to open the question and answer session Chuck.

Speaker 1: Thank you. We will now begin the question and answer session. To ask a question, you may press star than one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star than two.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys if at anytime Youre question has been addressed and you would like to withdraw your question. Please press Star then two.

Speaker 1: As a courtesy to others, we ask that you please limit yourself to one question and one follow-up. If you have additional questions, please re-cute and we will take as many questions as time allows. At this time, we'll pause momentarily to assemble our roster.

As a courtesy to others. We ask that you. Please limit yourself to one question and one follow up if you have additional questions. Please re queue and we will get we will take as many questions. As time allows at this time, we'll pause momentarily to assemble our roster.

Speaker 1: And the next question, the first question excuse me will come from Toshiyah Pari with Goldman Sachs. Please go ahead.

And the next question. The first question excuse me will come from Toshi Hari with Goldman Sachs. Please go ahead.

Speaker 2: Hi guys, congratulations on a very strong year and thank you for taking the question. I guess to start off, I had two questions. Chris, I was hoping you could elaborate a little bit more on how you're thinking about supply in 22. Based on your comments, it's pretty clear you're gonna be supply gated for at least the first half and potentially the second half as well. But as we think about how to model 22 on a sequential basis.

Hi, guys.

Gratulation is on a very strong year and thank you for taking taking the question.

I guess to start off I had two questions. Chris I was hoping you could elaborate a little bit more on how you are thinking about supply in 'twenty two.

Base based on your comments, it's pretty clear you're going to be supply gated for at least the first half and potentially the second half as well, but as we think about how to model 22 on a sequential basis.

Speaker 2: both for the endpoint IC business as well as the systems business. How should we think about the cadence at which you sort of gain additional supply throughout the year?

Both for the end point IC business as well as the systems business, how should we think about the cadence.

What's your sort of gain additional supply throughout the year.

Speaker 3: Okay, thank you, Jitshiya, and thanks for your comments. So I'm gonna preface the comments about supply by saying that our demand entering 2022 is very strong.

Okay. Thank you Toshi, Dan Thanks for that thanks for your comments so.

I'm going to preface the comments specified by saying that our demand entering 2022 is very strong.

Speaker 3: We have, as I said in the prepared remarks, visibility to our wait for supply that allows us to maintain constant or slightly increasing end-point-of-see volumes at the first and second quarters of this year.

We have as I said in our prepared remarks and visibility to our wafer supply that allows us to maintain.

Constant or slightly increasing endpoint IC volumes for the first and second quarters of this year.

Speaker 3: We are working closely with our Foundry partner to get upside-down.

We are working closely with our foundry partner.

You get upside wafers.

Speaker 3: The process notes we are in are very tight.

The process nodes, we are in are very tight.

Speaker 3: There, for example, shared by automotive and others. And to date, that supply has been short in coming at least relative to the outsized magnitude of our demand. And I think you want to make that point that our demand is...

There for example share by automotive and others and to date that supply has been short and coming at least relative to the outsized magnitude of our demand and I wanted to make that point that our demand is as large or opportunity is growing rapidly.

Speaker 3: is large, our opportunity is growing rapidly.

Speaker 3: And with that record backlog, entering 2022, and the strength of the man we're seeing, we and our poundery partner are working closely together to deliver into that opportunity, but to date.

And with that record backlog entering 2022, and the strengthened demand. We're seeing we enter a foundry partner are working closely together to deliver into that opportunity but to date.

Speaker 3: We don't have the supply that allows us to meet that opportunity for the year. So we continue working.

We don't have the supply that allows us to meet that opportunity for the year. So we continue working with them they are prioritized as for upside.

Speaker 3: They have prioritized us for upside. We will work hand in hand with them to try to deliver into our opportunity and kind of capture everything that we see in front of us.

We will work hand in hand with them to try and deliver into our opportunity and kind of capture everything that we see in front of us.

Did I answer your question adequately just yet.

Speaker 2: Yes, on the system side, Chris, were there any other dynamic, dynamics that'll play?

Yeah. So on the system side, Chris were there any other dynamics at play.

Speaker 3: Yeah, on the system side, as I mentioned in the prepared remarks, for example, for our readers specifically, we do have supply shortfalls in some critical components. We are kidding ahead in order to basically have our kids build as those components come in. And we do see supply constraints in first and second quarters. We are optimistic that those constraints will alleviate in the latter part of the year, but it's still too early to tell.

Yeah on the systems side.

As I mentioned in the prepared remarks on for example for our readers specifically.

We do have supply shortfalls in some critical components, we are kidding.

Kitting ahead in order to basically have our kids felt as though those components come in.

And.

We do see supply constraints and first and second quarters. We are optimistic that those constraints will alleviate in that in the latter part of the year, but it's still too early to tell.

Speaker 3: Our indie reader I see is we expect to catch up to our supply to catch up to demand in first quarter in this quarter. Our E family, the new reader I see is for which we have more than a hundred design wins. We expect supply to catch up to growing demand in the second half of the year.

Our Indy reader Ics, we expect to catch up to our supply to catch up to demand in first quarter and this quarter, our <unk> family, the new reader Ics for which we have more than 100 design wins, we expect supply to catch up to a growing demand in the second half of the year. So overall, even also on the system side, just like the endpoint IC side strong demand really strong demand.

Speaker 3: So overall, even, it also on the system side, just like the M20C side, strong demand, really strong demand, growing opportunities out in the market, driven by enterprises.

Opportunities out in the market driven by enterprises kind of reinventing themselves omnichannel fulfillment broadening their use cases.

Speaker 3: kind of reinventing themselves on the channel fulfillment, broadening their use cases, supply chain and logistics, increasing their operational efficiency and driving capacity improvements, all those enterprises are driving rapid demand growth.

In supply chain and logistics, increasing thereafter operational efficiencies and driving capacity improvements, although some all those enterprises are driving rapid demand growth.

Speaker 3: and causing us to strain to meet the needs of the market. And we're doing our best from an operational side, operational perspective, and with our Foundry partner and with our other suppliers on the market to meet that demand.

And causing us to strained to meet the needs of the market and we're doing our best from an operational side.

Operational perspective, and with our foundry partner and with our other suppliers out in the market to meet that demand.

Speaker 2: got it and then I guess Chris based on those comments would it be fair to assume sort of a low 50 million dollar revenue number for obviously for Q1 giving your guidance but also for Q2 and then a potential step change to the upside in Q3 and Q4 at a high level is that kind of the right way to think about the year.

Got it and then.

Chris based on those comments would it be fair to assume sort of a low 50 million dollar revenue number for obviously for Q1, given your guidance, but also for Q2, and then a potential step change to the upside in Q3 and Q4 at a high level is that kind of the right way to think about the year.

Speaker 2: Yeah, hi, just here. This is Carrie. Thanks for the question. I think I'll take that one from Chris. So yes, we've obviously guided mid-point of 51 million in first quarter. And as I look through into second quarter, the end-point IC situation hasn't changed that much. Yes, we've continued to receive modest upside wafers, but we're still in the pocket of shipping kind of 4Q level units through 1Q and into 2Q or mid-2022.

Yeah I hate to say this is kerry. Thanks for the question I think I'll take that one from Chris. So so yes, we've obviously guided.

The midpoint of $51 million and in first quarter.

As I look through into the second quarter, the endpoint IC situation Hasnt changed that much. Yes, we've continued to receive modest upside wafers, but we're still in the pocket.

Shipping kind of <unk> level units through <unk> and into <unk> or a mid 2022.

Speaker 2: There will be a little bit of an impact from a reducing mix industrial and specialty project.

There will be a little bit of an impact from reducing mix.

Industrial and specialty projects, so that drove high revenue high gross margin in Q4 that makes will tail off a little bit in Q1, and then it'll normalize in Q2.

Speaker 2: So that drove high revenue high gross margin in Q4. That mix will tail off a little bit in Q1 and then I'll normalize in Q2. From the system side, Chris really highlighted it. We're navigating an ever changing list of component shortfalls.

From the from the systems side.

This really highlighted it where we're navigating a never changing list of components components shortfalls.

Speaker 2: And we do our best to solve those and then the next quarter we're out solving another list of challenging the project.

And we do our best to to solve those and then the next quarter. We're all solving another list of challenging projects. So that I think that kind of sets us up for fairly consistent.

Speaker 3: So that, I think that kind of sets us up for fairly consistent, for consistent performance on the systems. Obviously, however, anytime we're talking about our systems or revenue line, the timing and size of large projects can play a factor in it, but we'll keep you up to speed on how that's progressing. And, just see, I guess I'm just gonna add that our, the environment we're in, we are supplied limited, not demand limited. So the demand's far as scripts are supplied.

Consistent performance on the systems, obviously however.

Any time, we're talking about our systems revenue line, the timing and size of large projects can play a factor in it but we'll keep you up to speed on how that's progressing and interesting I guess I'm just going to add that.

The environment. We're in we are supply limited not demand I mean it.

The demand has far outstripped our supply.

Speaker 3: So to the extent we can get upside supply, we will deliver into that demand. If supply remains constrained, then we'll be tied. So it's just, we only guide one quarter at a time, and it's especially difficult right now for us to talk beyond the current, the quarter we're in and what we're guiding, because we are strictly supply constrained. Demand is very significant right now, and we're doing our best across the company, and everywhere we can to deliver into that supply, and we'll be able to provide it.

So to the extent, we can get upside supply.

We will deliver into that demand and supply remains constrained then well we types. So it's just.

You know, we only guide one quarter at a time and it's especially difficult right now for us to talk beyond the current quarter, we're in and what we're guiding because we are strictly supply supply constraint demand is very significant right now and we're doing our best across the company in every way, we can to deliver into that supply, but it requires a lot of it.

Speaker 3: It requires a lot of things, it requires support from our partners, it requires incredible execution by our team, and it requires visibility, kind of where this fly in the market is going to go. So we'll keep talking about supply, supply of proofs, things, we'll deliver it.

Thanks requires support from our partners.

<unk> execution by our team.

And it requires visibility kind of where the supply and mark is going to go so we'll keep talking about supply supply improves things.

We'll deliver it.

Speaker 2: Got it. And then, sorry, as my second question, just on gross margins, I guess this one's probably for you, Carrie. You know, great job in Q4. You talked about a slight decline in Q1 and then further normalization and in mix and Q2. If you can kind of speak to how you're thinking about, you know, some of the swing factors, if you will, the M700, you know, cost inflation, you talked about passing through some of the cost increases to your customer, starting in October . But if you can walk us through the puts and takes and how we should think about normal gross margins for your business going forward, that would be great.

Got it and then sorry, Yeah. That's my second question just on gross margins I guess this one's probably for you Kerry.

Good job and in Q4, you talked about a slight decline in Q1, and then further normalization in and mix in Q2.

If you can kind of speak to how youre thinking about you know some of the swing factors. If you will the M 700.

You know cost inflation, you talked about passing through some of the cost increases to your customers starting in October but if you. If you can walk us through the puts and takes and how we should think about normal gross margins for your business going forward that would be great. Thank you.

Speaker 4: Thank you.

Speaker 3: Thanks to you, that's a great question and one filled with a lot of new ones.

Thanks to say, that's a great question and one one filled with a lot of new ones.

Speaker 3: So, you know, Q4 risk margins were obviously very strong. The driver of that strength was a particularly strong mix of industrial and specialty products.

So.

Q4 gross margins were obviously very strong, but the driver of that strength was a particularly strong mix.

The industrial and specialty products.

Speaker 3: This is the second time in my tenure that we've seen a similar strong mix of industrial and specialty skews. The last time was about 18 months ago in 2Q of 20.

This is the second time.

My tenure that we've seen a similar strong mix of industrial and specialty Skus. The last time was about 18 months ago in to Q1.

Speaker 3: And in that quarter, 2K of 20, we delivered 51.4% gross margin. And we had also benefited by about 220 basis points.

And in that quarter to June 'twenty, we delivered 51, 4% gross margin and we had also benefited by about 200 basis 220 basis points from.

Speaker 3: from fully resur... A failure fully... Excuse me, we had a negative impact of 220 basis points from an ENO lineup. So in that quarter, Q2 of 20, we had about a 53.5% normal gross margin. All of that lift above our then typical 50% average is really attributed to the strong mix of specialty industrial skews.

Fully reserve sale of fully or excuse me, we had a negative impact of 220 basis points from an eni lineup. So when that quarter Q3, Q2 of 'twenty, we had about a 53, 5% normal gross margin all of that lift above our than typical 50% average is really attributed to.

The strong mix of specialty industrial Skus as I looked at Q4 results that mix was even a little bit stronger than it was 18 months ago and into Q1 'twenty.

Speaker 3: As I looked at two four results, that mix was even a little bit stronger than it was 18 months ago in two two in 20.

Speaker 3: It's also worth noting that 4Q benefited from the reverse of those ENO write-offs from 2020, where we sold some of that fully reserved inventory and benefited by 130 basis points. So, normalize those two factors out and you can start to understand what the benefit of the M700 is.

It's worth it's also worth noting that <unk> benefited from the reversal of those.

Write offs from 2020, where we sold some of that fully reserved inventory and benefited by 130 basis points. So normalize those two factors out and you can start to understand what the benefit of the 700 is as I look into one Q R 22.

Speaker 3: as I look into one cube past 22

Speaker 3: I expect a weakening mix of industrial specialty skews, but still stronger than normal. So we'll get a little bit of a lift and one tube from that, but nowhere near the side of the list we got in 4Q21. And then by the time we get into Q2, I expect us to be kind of our normalized run rate with our strong mix of M700 support unit.

I expect a a weakening mix of industrial specialty skus, but still stronger than normal. So we will get a little bit of a lift in <unk> from that but nowhere near the size of the lift we got in <unk> 'twenty, one and then by the time, we get into Q2, I expect us to be kind of a norm.

<unk> run rate with.

With our strong mix of them 700 support unit.

Thank you.

And the next question.

Speaker 1: The next question will come from Mike Walkley with Canacor Genuity. Please go ahead.

The next question will come from Mike Walkley with Canaccord Genuity. Please go ahead.

Speaker 5: Great, thanks for taking my questions and congrats on the strong 2021 execution despite the year.

Great. Thanks for taking my questions and congrats on the strong 21 execution. Despite yeah.

Speaker 5: Challenging a year. I guess the first question, Chris, just on a high level, with a tight labor market, and all the efficiencies, so many industries could benefit from adopting rain. What do you see as potential for some new industries that are interesting long-term and could potentially cross the chasm as you put it in terms of broad adoption, like we've seen with retail and now the logistics markets?

Challenging a year.

I guess the first question, Chris just on a high level.

A tight labor market and all the efficiencies. So many industries can benefit from adopting rain.

Do you see as potential for some new industries that are interesting long term and it could potentially cross the chasm as you put it in terms of broad adoption like we've seen with the retailer and other logistics markets.

Yes. Thank you Mike for the question.

Speaker 3: I guess I'm going to start my answer to the question by saying you're seeing broad-based adoption in very many versions.

I guess I'm going to start by answering the question by saying Youre seeing broad based adoption in theory any verticals, we're seeing it in of course retail and supply chain logistics, we're seeing opportunities in automotive, we're seeing opportunities to to seeing industrial and manufacturing electronics I mean, just.

Speaker 3: We're seeing it in, of course, retail and supply chain and logistics, we're seeing opportunities in automotive, we're seeing opportunities in food, we're seeing industrial and manufacturing electronics. I mean, just very broad-based adoption. And with the Mercerer's Burgon announcement in pharmaceuticals and health.

Very broad based adoption and you know what the Amerisourcebergen announcement in pharmaceuticals and health care.

Speaker 3: We as a company are significantly focused on retail because with the early adopter and there's so much opportunity here and supply chain logistics with some of our very significant design wins. It doesn't mean that we're ignoring those other opportunities in other spaces but we are significantly counting our partners to deliver it again.

As a company are significantly focused on retail just because it was the early adopter and theres, so much opportunity here and supply chain and logistics with some of our very significant design wins. It doesn't mean, we're ignoring this other opportunities in other spaces, but we are significantly accounting on our partners to deliver against.

Speaker 3: As I think about the tried waiver market and where we could see

As we think about the tight labor market and where we could see.

Speaker 3: further significant adoption and next industry costs crossing the chasm. Not really going to be able to hazard a guess right now because there's so much movement happening and so many, so many verticals.

Further significant adoption in Mexican industry cost of crossing the chasm, not really going to be able to hazard a guess right now because there's so much movement happening in so many so many verticals you hear some of our partners talking about significant opportunities in food and.

Speaker 3: You hear some of our partners talking about significant opportunities in food and food, of course, it's a huge opportunity. And you hear others, for example, talking about automotive and if aviation comes back, there's still the aviation opportunity. I think that the key point I want to make is that, look about what rain really does. It allows companies to.

And food of course, it's a huge opportunity.

And you hear other separate for example, talking about automotive and if aviation comes back there.

The aviation opportunity I think the key point I want to make is that if you look about at what rain really does.

It allows companies to.

Track every item they manufacture transport and sell.

Speaker 3: gives them visibility to where those items are as a function of time, to increase their efficiencies, reduce their operational costs, reduce mistakes, track items that are delivered more efficiently. It really allows enterprises to transform how they run the business.

Gives them visibility to where those items are.

As a function of time.

To increase their efficiencies.

<unk> operational cost reduce mistakes track items better deliver more efficiently.

It really allows enterprises to transform how they run their businesses.

Speaker 3: And fundamentally, I don't see any other technology today or on the horizon that does.

And fundamentally I don't see any other technology today are on the horizon that does that.

Speaker 3: So our feature is incredibly bright. We'll focus on our target verticals for now. And as we make more progress, we'll open up to a third. The thirds are definitely out there.

So our future is incredibly bright well focus on our targeted verticals for now and as we make more progress we'll open up to a third two thirds are definitely out there.

Great. Thanks, and I guess my follow up question, just how is the large project pipeline and as the industry shortage of rain.

Speaker 5: Just how is the large project pipeline and as the industry shortage of rain, I see that causing any pause in terms of timing of large product rollout, because we're worried about getting the end points. Eventually, whereas the pipeline's still strong, just given all the use cases you just laid out.

I see it is that causing a pause in terms of timing of large project rollouts because they're worried about getting the endpoints eventually or is the pipeline still strong just given all the use cases, you just laid out.

Mike This is Jeff I'll take that one.

Speaker 5: First of all, in terms of the pipeline, I think as reflected in our prepared remarks and Chris's earlier answers, the demand environment is strong. Our pipeline is strong and to build on what Chris has commented on.

First of all in terms of the pipeline I think is reflected in our prepared remarks, and chris's earlier answers that the demand environment is strong our pipeline is strong and to build on what Chris has commented on.

Speaker 5: The diversification of that demand both geographically and across different industry sectors is exciting. And it includes a range of size of projects, of course. And it includes a range of size of projects, of course.

The diversification of that demand.

Both geographically and across different industry sectors.

Yes.

It's exciting.

And.

It includes a range of size of projects of course, but the component which is large project.

Speaker 3: But the component which is large project is growing and it reflects the digital transformation projects and initiatives of lead and industry leading enterprises. And so the pipeline is strong.

Is it growing and it reflects the digital transformation projects and initiatives of lead and industry leading.

Enterprises and so the pipeline is strong now.

Speaker 3: Now to the second part of your question, which relates to how is the supply environment impacting and customer projects?

Now to the second part of your question, which relates to how is the supply environment impacting and customer projects.

Speaker 3: We work in close collaboration with our partners and then customers in the planning of either the expansion of existing projects or the introduction of new projects with a view of trying to ensure we optimize the timing and case of those expansions or new projects according to the supply visibility.

We work in close collaboration with our partners and end customers.

In.

In the planning of either the expansion of existing projects or the introduction of new projects.

With a view of trying to.

In short, we optimized the timing and pace of those expansions or new projects. According to the supply visibility.

Speaker 5: So I think we and our partners are seeing continued growth in demand and a need to thoughtfully plan supply needing that growing demand.

So I think we and our partners are seeing continued growth in demand.

And I need to thoughtfully plan supply meeting that growing demand.

Speaker 5: Next slide, since that's helpful, thanks for taking my questions. I'll jump back in the queue.

Makes a lot of sense. That's helpful. Thanks for taking my questions and I'll jump back in the queue.

Thank you Mike.

Speaker 6: The next question will come from Harsh Kumar with Piper Sandler. Please go ahead. Yeah, hey guys, first of all, congratulations to Shane and you know, great job getting Steve and Mira. We know Steve Sangu from Microship covering that company and both of these guys, you know, both of them are amazing gaps as board members.

The next question will come from harsh Kumar with Piper Sandler. Please go ahead, Yeah, Hey, guys first of all congratulations are saying and you know great job getting Stephen Mirror, Steve Sanjiv from Microchip covering that company in both of these guys. You know both of them both of them are amazing get says as board members.

Speaker 6: But the first question, Carrie, I wanna go back to the Toshia's question earlier and try and, for lack of a better word, pin you down a little bit on what the margins can be normalizing to cues. So I think what you told us is 130 Bips is reserved inventory that was written off. And maybe you, you know, I'm assuming you got maybe a hundred Bips of mix. So is it fair for us to think that we take 58% and we sort of take off 250 Bips?

But the first question Kerry I want to go back to the <unk> question earlier and try and for lack of a better word pin you down a little bit on what the margins can be a normalize into Q. So I I think what you told US is 130 bips as reserved inventory that was written off and maybe you you know I'm, assuming you've got maybe 100 bps.

Mix. So is it fair for us to think that we take 58% and where you sort of take off $2 50, bips and that would be a good number for us to think about for margins going forward and the benefits you're getting in and starting call. It to Q3, two and onwards.

Speaker 6: And that would be a good number for us to think about from margins going forward in the benefits you're getting and starting call it 2Q3Q and onward.

Speaker 3: So, Arisa, this is Gary. Thanks for the question, and I appreciate the opportunity to follow up because Gross Margin is incredibly nuanced in Q4, less so in Q1, but will still be nuanced in Q1. So, of the 58.2% that we reported for Q4, you're absolutely right. 130 basis points were related to sale of fully reserved items. That won't repeat again in Q2. So, take that off.

So this is Gary thanks for the question and I appreciate the opportunity to follow up because gross margin is incredibly nuanced in Q4.

Less so in Q1, but will still be nuanced there in Q1. So the 58, 2% that we reported for Q4, you're absolutely right a 130 basis points were related to sale of fully reserved.

That that wont repeat again in Q2, so take that off.

Speaker 3: The piece where I think a little bit under is on the mixed benefit from the specialty and industrial skills. When I was pointing back to Q220, the last time we had that strong mix.

The piece, where I think a little bit under is on the the mix benefits from the specialty and industrial schemes. When I was pointing back to Q2 of 'twenty. The last time, we had that strong mix, we were able to back into the strength of that mix being about 350 basis points in Q2 of 'twenty This quarter I think.

Speaker 3: We were able to back into the strength of that mix being about 350 basis points in due to a 20. This quarter, I think that benefit is even strong for the specialty and cluster clinics.

That benefit is even stronger for the specialty.

Speaker 3: So that's how I would back out to what I think of as a normalized gross margin. And in that normalized gross margin is our M700 doubling from Q.

So that's how I would back out to what I think is a normalized gross margin and in that normalized gross margin is R. M 700, doubling from Q3.

Speaker 6: okay very helpful and and takes a lot of question i'm sure that investors had and christ maybe i'll ask you a question you know on the last call you test upon the supply chain guys on this call you test upon a little bit more you're increasingly talking about this topic i know that you know from from talking to you guys were in doubt at the implementation the airline guys that the large airline company did their implementation it took them

Okay very helpful and it takes a lot of question I'm sure that investors had and Chris maybe I'll ask you. A question you know on the last call you touched upon the supply chain guys. On this call you touched upon a little bit more your increasingly talking about this topic I know that.

You know from from talking to you guys from Delta that the implementation.

The airline guys that are the larger land company did their implementation it took them called.

Speaker 6: It's called a three and a half to four years. What do you think we are in that cycle when you get one of these wins and you're able to talk about?

Call it three and a half to four years, where do you think we are in that cycle. When I'm. You know you get one of these wins and and and you were able to talk about it.

Speaker 3: So, I first correct me if I'm wrong, but I think you get two questions. One is just kind of the supply and the impact is supply. And the second one is our ability to talk about specific deployments. Yes. On supply chains, I think. All right. Thanks, Chris. Oh, and supply chains, besides specifically. Yeah. So.

So.

Harsh correct me, if I'm wrong, but I think you've got two questions. One is just kind of the supply and the impact of supply in the second one is our ability to talk about specific deployments yes.

On the supply chain side, alright, thanks, Chris.

Oh and supply chain side, specifically, yeah. So.

You know as I think we've kind of pointed out at least from the vantage point. We have today 2022 is going to be significantly supply chain dominated our demand is very strong if.

Speaker 3: You know, I think we've kind of pointed out, at least from the vantage point we have today, 2022 is going to be significantly supply chain dominated. Our demand is very strong.

Speaker 3: If we get more supply and we are working, as they said before, we're working really closely with our partners to really highlight our need, the opportunity in the market, and the criticality of our ask for supply. So as we get supply and optimistic, we get more, we can't count on it until it comes, as we get supply, we'll be able to deliver into that demand. And we will continue trying to get there. For you and all of our investors, we don't have his ability to it today, primarily because...

If we get more supply and we are working as I said before we're working really closely with our partners to kind of really highlight on need the opportunity in the market and the criticality of our Astro supply. So as we get supply and are optimistic we get more but you can't count on it until it comes as we get spot will be able to deliver into that demand and and we will.

Are you trying to get there.

Are.

You and all of our investors, we don't have visibility to today, primarily because in nodes that we operate in for our endpoint Ics are still significantly impacted by very strong demand and very strong demand coming from.

Speaker 3: the nodes that we operate in for our N-PONICs are still significantly impacted by a very strong demand. A very strong demand coming from a bunch of articles and of course there's limited supply out there in the environment. So we will continue talking about supply. We'll give you and our investors an update on the next call and keep you reprised to the situation as we see it, but just no demands for a strong. In terms of supply channel, it just makes us vertical.

Oh, so a bunch of articles and of course, there is limited supply out there in environment. So we will be we will continue talking about supply well give you our investors and update you on the next call and keep your apprised of the situation as we see it but just know demand is very strong in terms of supply chain logistics is a vertical.

Speaker 3: Some of the, we believe, or what we feel is that some of the recent announcements you have seen, you and others have seen, you know, and the one we cited just in that prepared remarks about world's largest supply chain and logistics company highlighting putting rain tags and all our packages and saving 20 million manual scans a day. It's those kind of announcements that can really galvanize an industry and pull an industry across the chasm. I'm not gonna say we're there yet.

Some of them, we believe in what we feel is that some of the recent announcements.

You have seen you and others have seen.

When we decided just in the prepared remarks about.

Orange largest supply chain and logistics company highlighting putting.

Rain tags in all of our packages and say 20 million manual scans a day, it's those kinds of announcements that can really galvanized and industry in Poland industry across the chasm.

I'm not going to say, we're there yet, but the excitement that we feel from some of these announcements some of these projects some of them, which would have taken years to kind of build and grow.

Speaker 3: But the excitement that we feel from some of these announcements, some of these projects, some of which have taken years to kind of build and grow, I feel very good about the splich and the logistics vertical, which is why we've talked about it for a while and why we've been investing in helping our end customers deploy in that vertical and why we keep focusing very significantly on it. I don't know why, that I can answer your question any more detail than that, you know, until we actually start talking about actual deployments. Totally understood. Chris, thank you and congratulations.

I feel I feel very good about the supply chain logistics vertical which is why we've talked about it for a while and why do we keep investing in helping our end customers deploy in that vertical and why we keep focusing very significantly on it I don't know like that I can answer your question any more detail than that until we actually start talking about actual deployments totally understood Chris Thank you and congratulations.

Thank you harsh thanks harsh.

Speaker 1: The next question will come from Troy Jensen with Lake Street Capital. Please go ahead.

The next question will come from Troy Jensen with Lake Street Capital. Please go ahead.

Hey, Congrats gentlemen, maybe two quick questions here for Kerry.

Speaker 5: Hey, I can grab gentlemen, maybe two quick questions here for Kerry. You mentioned a cost pass throughs. I was wondering if you can't quantify that. And then also, was there any 10% test nursing?

You mentioned a cost pass throughs I was wondering if you could kind of quantify that and then also was there any 10% customers in Q4.

Speaker 3: That so from a cost pass through so in October last October and as a response to our cost or our cogs increasing, we began the process of passing through those costs on to our cost.

So from a cost pass through so.

October last last October .

And as a response to our cost or Cogs, increasing we began the process of passing through those costs onto our customer we did in a way to maintain the integrity of our margin model. So think of that as preserving everything that was in place in our margin model prior to it so not only the the kind of the.

Speaker 3: We did it in a way to maintain the integrity of our margin model. So think of that as preserving everything that was in place in our margin model prior to it. So not only the kind of the 50% corporate average gross margin that we had, but also the ambitions of the M700 driving margin accretion to the business. All of those tenants of that margin model were maintained in our cost-cost through the loss.

50% corporate average gross margin that we have but also the ambitions of the M 700, driving margin accretion to the business all of those tenants of that margin model were maintained in our and our cost pass throughs philosophy.

Speaker 3: And then in terms of 10% customers on an annual basis, that will be included in our 10K, which will be filed early next.

And then in terms of 10% customers on an annual basis that will be included in our 10-K, which will be filed early next week.

Speaker 7: Okay, understood. And maybe just a quick follow up or maybe one for Chris here. You know, other industries that I followed when you product cycle start or when capacity gets tight, customers have been double ordered to try to get more allocation of what you're currently.

Okay understood and maybe just a quick follow up maybe one for Chris here you know other industries that I, followed when new product cycle start or when capacity gets tight customers. It's been double order to try to get more allocation of what you're currently getting so just curious to know what kind of your confidence that this massive bookings that you guys have had throughout the year really reflects a demand versus customer.

Speaker 7: So just curious to know kind of your confidence that this massive bookings that you guys have had throughout the year really reflects into man versus customers just trying to get more of the current capacity coming.

Just trying to get more of the current capacity coming on line.

Speaker 3: Yeah, thanks Troy. So, you know, there's always a risk of double ordering in the two step distribution model that we've got, but our team is pretty seasoned on it now. Our purchase orders are non-cancellable, and we've contacted directly with a lot of end users, so our visibility into both our partners inventory levels are end users, sectorally inventory levels, and their need, and the fact that our direct partners are frequently lined down, he is just good confidence that the demand we're seeing is true demand. And yet, real.

Yes, Thanks, Troy so.

You know, there's always a risk of double ordering in the two step distribution model that we've got but our team is pretty seasoned on it now our purchase orders are noncancelable and we've contact directly with a lot of end users. So our visibility into both our partners' inventory levels are end users effectively inventory levels and their need and the fact that that are direct park.

A frequently lines down.

It gives us good confidence that the demand we're seeing is true demand.

Yeah, it's real.

Alright, well good luck to inland keep up the good work.

Speaker 8: Thanks for your attention.

Thanks, Thanks, Troy Troy.

Speaker 1: The next question will come from Derek Sotterberg with Collier's, please go ahead.

The next question will come from Derek Soderberg with Colliers. Please go ahead.

Speaker 9: Hey guys, thanks for taking my questions. Carrie, just going back to Real Smargens again. You know, I know it's gonna take some time to sort of fully realize the...

Hey, guys. Thanks for taking my questions Kerry just going back to gross margins again.

I know, it's going to take some time to sort of fully realized the.

Speaker 9: benefit of the M700. I guess, when can we expect the M700 to achieve this, this sort of long-term target gross model that you guys have said internally, which in and are you guys in around achieving that, gross margin benefit fully? How long are we gonna take to get a target?

Benefit of the M 700.

I guess when can we expect the 700 to achieve this this sort of long term target gross model that you guys have set internally.

Are you guys in around achieving that gross margin benefit fully how long is it going to take.

To sort of get a.

Target.

Speaker 2: Yeah, thanks there. It's a good question. First off, think of M7100 as a platform. And the chip that we're selling today is the first chip in our TikTok strategy. And there's going to be more innovation that the team's working on to both increase productivity, add new features to it, or capabilities to it, as well as drive costs out.

Yes. Thanks, Derik. It's a good question first off think of them 700, as a as a platform and the ship that we're selling today is the first ship in in our Tictoc strategy and theres going to be more innovation.

He is working on so both increased productivity add new features to it our capabilities to it as well as drive cost out so as I'm looking at the 700 today in Q3, we reached the crossover point think of that as during late in the quarter. We began shipping more M 700 <unk>.

Speaker 10: So as I'm looking at the M700 today in Q3

Speaker 10: We reached the crossover point. Think of that as during late in the quarter, we began shipping more M700 product or 300 millimeter product.

For 300 millimeter products than we did our prior generation Monza <unk> and <unk> <unk> on 200 millimeter in Q4 700 became the volume runner in Q4, the volume nearly doubled relative to two Q3, we're getting that a very strong mix in Q4.

Speaker 10: Then we did our prior generation, Maunza R6 and R6P on two in the rear.

Speaker 10: In Q4 M700 became the volume runner, in Q4 the volume nearly doubled relative to Q3. We're getting at a very strong mix in Q4 of the M700 as a percentage of our sales. And you're seeing that benefit in our strong gross margin.

Four of the 700 is a percentage of our sales and you're seeing that benefit in our strong gross margin, yes gross margin benefited from industrial specialty Skus, we've assigned that impact.

Speaker 10: Yes, gross margin benefited from industrial specialty skews. We've assigned that impact. Yes, we benefited from the sale of fully reserved inventory, but underlying both of those are continued increase in gross margin directly driven by the M700.

Yes.

<unk> from the sale of fully reserved inventory, but underlying both of those are continued increase in.

Gross margin directly driven by the 700.

Speaker 10: And, you know, as I look forward to next year, I mean, the overarching comment is, you know, supplies can have an impact on our M700 mix. We're ready and waiting for any wafer we can get, whether that be 203 or 300 millimeter products, and we will, whatever one we get, we'll turn it into product and sell it to our customers.

And as I look forward to next year I mean, the overarching comment is supply is going to have an impact on our M 700 mix.

We are ready and waiting for any wafer we can get whether that'd be 203 of our 300 millimeter products.

And we will whatever when we get we will turn it into product and sell it to our customers.

Speaker 9: Got it, got it, that's helpful. And then Chris, you know, high level, you guys talked about accelerating demand, you know, in the past, you've talked about where that demand is a relationship fly, was wondering if you could.

Got it got it that's helpful. And then Chris you know a high level you guys talked about accelerating demand you know in the past you've talked about where that demand is in relation to supply I was wondering if you could.

Speaker 9: update on that and besides that, I'm wondering if once this wafer supply does come online, given the dynamics of the M700 performance size and coming up a larger wafer, you got you know, do you expect to gain market share from your largest competitor? I mean, is that sort of you're thinking there?

Update on that and you know besides that I'm wondering if once this wafer supply does come online you know given the dynamics of the 700 performance size and coming off of a larger weight wafer.

Do you expect to gain market share from your largest competitor I mean.

Does that sort of your thinking there.

Speaker 3: Yeah, thanks, Derek. So as I said in our prepared remarks yet again in four-quarter demand exceeded supply by more than 50%.

Yeah. Thanks, Derrick so as I said in our prepared remarks, yet again in fourth quarter demand exceeded supply back more than 50%.

Speaker 3: And so that's just reiterating again the points that are making about the strong and indebting.

So that's just reiterating again, my second making about the strong demand environment and.

Speaker 3: And, you know, as I just answered the question from Troy in terms of, you know, how we feel about the demand, how real is it? Is it double booking or is it real demand? If we look into both our partners and our end customers, the opportunities that they're driving, the end customer needs, especially around on a general fulfillment, on some of the other use cases I mentioned, we truly believe that that demand is real, that we're seeing just a significant pull for the products we deliver. And I'm going to say it's actually for our platform.

And as I just answered the question from Troy in terms of it.

How we feel about the demand how realistic is it double booking or is it real demand as we look into both our partners and our end customers the opportunities that they are driving the end customer needs, especially around omnichannel fulfillment and let somebody else use cases, I mentioned, we truly believe that that demand is real that we're seeing.

Just a significant pool for the products, we deliver and I'm going to say, it's actually for our platform.

Speaker 3: Because what we're delivering now, more and more is platform solutions. Solutions built on the entirety of our platform. All right, and Poinises, I read our essays, Readers and Gagways, Delivering a Complete.

Because what we are delivering more and more as a platform solution solutions built on the entirety of our platform our endpoint Ics, our reader Ics readers and gateways delivering a complete.

Speaker 3: So, Lucien, that with our partner allows us to deliver a whole product to the market.

Solution that with our partner allows us to deliver a whole product to the market.

As we look forward.

Speaker 3: You know, in terms of the share opportunity, we have an opportunity to gain share. We also have an opportunity potentially to go for it to go the other way. It really depends on who gets to supply first, upstart our primary competitor. We are doing everything we can to try and get that supply first. I can't predict which way it's gonna go, but we're gonna do everything in our power to get supplies with we as we can and to work with our Foundry partner.

In terms of the share opportunity, we have an opportunity.

To gain share. We also have an opportunity potentially to go particularly the other way it really depends on who gets the supply first I'm sorry, our primary competitor. We are doing everything we can to try and get that supply first I can't predict which way it's going to go but we're going to do everything in our power to get supply as quickly as we can and to work with our foundry partner to win this huge opportunity and they know they.

Speaker 3: win this huge opportunity and they know they see the opportunity. They know it as well. So they're doing what they can to support us. But as I said before, they are very tightly constrained.

They see the opportunities they know it as well so they're doing what they tend to support us, but as I said before they are very tightly constrained.

Yeah.

Got it thanks guys.

Okay. Thank you Derrick.

Speaker 1: The next question will come from Jim Rachudi with Needham Inc. please go ahead.

The next question will come from Jim Ricchiuti with Needham <unk> Company. Please go ahead.

Speaker 11: Hi, thank you. Just a couple of questions. I joined a little late, Carrie, but I was wondering if you can comment on the sequential decline in GNA in the quarter. Just in light of everything we're hearing about wage inflation. I'm wondering how we think about that going forward. And then I have a follow up.

Hi, Thank you just a couple of questions I joined a little bit late but I was wondering if you can comment on the sequential decline in G&A.

In the quarter just in light of everything we're hearing about wage inflation I'm wondering how we think about that going forward and then I have a follow up.

Speaker 10: Hey Jim, thanks for the question. That sequential decline in GNA, it wasn't driven by attrition or anything like that. It was really in the non-wage line. It was more timing than anything else. You know, as a broader state.

Hey, Jim Thanks for the question the sequential decline in G&A it wasn't driven by.

Attrition or anything like that it was really in the non wage line it was more timing than anything else.

It was a broader statement.

Speaker 10: as it relates to a tradition, you know, we performed pretty well given the macro factors that had to work play in 2021. So we haven't seen it yet, we're obviously thinking very seriously and evaluating what we can, what we need to do for our employees, but so far we've been able to navigate the challenges pretty well.

As it relates to attrition, we performed pretty well given the macro factors that play in 2021.

So we haven't seen it yet we're obviously taking it very seriously.

And then Valerie evaluating what we can what we need to do for our employees, but so far we've been able to navigate the challenges pretty well.

Speaker 11: Okay, and just a question really relates to, I think the comment Chris you might have made about being prioritized for upside. I mean, I think that was true last year as well. And you found the apartment came back, I think in Q4 with additional wafer supply. So I'm wondering, you know, what?

Okay and just.

Question really relates to I think the comment Chris you might have made about being prioritized for upside I mean, I think that was true last year as well and that your foundry partner came back I think in Q4 with it with additional wafer supply.

So I'm wondering you know what.

Speaker 11: The UPS comments and other high profile reports, the ones we've seen relating to Walmart, and maybe, you know, use cases that are accelerating that we're not aware of. Isn't that, you know, help further your cause?

The Doobie U P S comments and other high profile reports like the ones, we've seen relating to Walmart and maybe you know.

Use cases that are accelerating that we're not aware of that you know help further your cause.

Simple answer Jim Yes.

Speaker 3: I mean, that's, and so when I speak to the fact that we're part, that our Foundry Partners prioritizing us for upside, we share information with our Foundry Partner. They do their own diligence. They see it as well. And yet they look internally and they see how tight they are. They see also demand like a mentor from Automotive and other industries in the process notes we use. And they come back and told us that we are prioritized for our upside and they're going to help us as they can. They also explain to us the constraints that they're facing. You know, um.

I mean, that's and and so when I speak to the fact that we're projecting that our foundry partners prioritizing us for upside.

We share information with our foundry partner, they do their own diligence they see it as well.

And yet they look internally and they see how tight they artificially also demand like I mentioned from automotive and other industries in the process nodes we use.

Come back and told US that we are prioritized for upside and they're gonna help as they can.

They've also explain to us the constraints that they're facing.

Speaker 3: Some of these, you know, obviously, foundries have many different nodes. In some of the nodes, some capacity has started to free up, for example, some of the more advanced nodes. Some of the nodes, for example, the ones we're in, remain tight, just do a very strong demand and other verticals that have very significant needs. It's my hope that with that prioritization that we're getting from our Foundry Corner. And...

Some of them some of them.

Obviously foundries have many different nodes in some of the notes some capacity.

<unk> started to free up for example, some of the more advanced some of the nodes for example that once we're in remains tight just due to very strong demand in other verticals that have very significant needs.

My hope that with that prioritization that we're getting from our foundry partner and the.

Speaker 3: the significant verticals and statements that large companies are making, we will be able to get that supply, but frankly, we're going to get it if either the market situation improves.

The significant verticals in statements that large companies are making we will be able to get that supply, but quite frankly, we're going to get it.

If either the market situation improves.

Speaker 3: other industry slow down a little bit or the founder is able to um you know for example on crester output it's it's not they're in a tough situation as well so i think you just have to think of a face value they prioritize us for supply

Other industry slow down a little bit or the foundries able to for example to increase their output its not they are in a tough situation as well. So I think you just have to take it at face value they prioritize restaurant supply.

Speaker 3: The opportunity out there in the Marcus Reel, we will continue trying to get that supplied if we are able to.

The opportunity out there in the market is real we will continue trying to get that supply if we are able to.

Got it thanks a lot.

Okay. Thank you Jim.

Speaker 1: The next question will come from Mark Lipisis with Jeffries. Please go ahead.

The next question will come from Mark <unk> with Jefferies. Please go ahead.

Speaker 12: Hi, thanks for taking my question. I guess I had one for Kristen, one for Carrie. Chris, I just wanted to make sure I understood the statements, if you could reconcile. I think you said that you had demand for the M700 platform product.

Hi, Thanks for taking my question.

I guess I had one for Christian one for carrier Chris.

I just wanted to make sure I understood that.

The statements. If you could reconcile I think you said that you had demand for the M 700 platform products.

Speaker 12: But you also said that, you know, there is a risk that if your competition comes up with supply earlier that you could, you could, that, you know, that demand could fall off. So I guess I wanted to make sure I understood. So, are you, are you of the view that your customers are ordering?

But you also said that you know.

There is a risk that if your.

Competition comes up with supply earlier that that you could you could that you know that demand could fall off so I guess I wanted to make sure I understood. So do.

Do you are you of the view that your customers are ordering specifically for her.

Speaker 12: specifically for For for NQNICs that are the M700 because they have a particular functionality that they need that maybe your competitor doesn't have or is this more You know kind of a first come first serve like if somebody produces a capacity then then there is certainly a real list that the the backlog that you have kind of

And when I see that the M 700, because they have a particular functionality that they need that maybe your competitor doesn't have or.

Is this more.

You know kind of a first come first serve like if somebody produces the capacity. Then then there there is certainly a real lift.

The backlog that you have.

Kind of disappears.

Speaker 3: And then I had a follow up. Thank you. Okay, great. Mark and this is Chris and I really appreciate the question. And it will be helped to clarify there.

And then I had a follow up thank you.

Great Mark and this is Chris and I really appreciate the question.

And it will be help to clarify there.

Speaker 3: When I speak to platform wins in those platform wins we're delivering a full platform.

When I speak to platform wins in those platform wins, where we're delivering a full platform in general we are optimizing the performance of the system to use our entire platform and as we get supply we're actually.

Speaker 3: In general, we are optimizing the performance of the system to use our entire platform. And as we get supply, we're actually, we're prioritizing delivering into those platform lines. Not all of the wins we have in the market are platform lines. If you think about the retail space going back, we're just hand-held to an inventory counting. We're just in a competitive dynamic with our primary competitor out there in the market. And there is an ability to substitute. So you should think of the market as being, essentially having two elements for us.

Prioritizing delivering into those platform wins.

Not all of the wins, we have in the market our platform. When you think about the retail space going backwards, just handheld driven inventory counting.

We're just in a competitive dynamic with art with our primary competitor out there in the market and there is an ability to substitute. So you should think of the market as being essentially.

Essentially having two elements for us.

Speaker 3: One is some use cases that can use both our and our competitors in point ICs for which we compete directly against the head-to-head.

One is one in some use cases that are that can use both our and our competitors' endpoint Ics and for which we compete directly against them head to head and other set of opportunities where we deliver our entire platform in the system either has unique capabilities or performs better because we deliver our entire platform of course.

Speaker 3: And other set of opportunities where we deliver our entire platform and the system either has unique capabilities or performs better because we deliver our entire platform. Of course, when we have those platform wins, we are prioritizing delivering our N20s into those opportunities. So we'll be fighting for share, and we'll be looking for upside-way first, is in the less differentiated opportunities that in the market, which gets to my point if our competitor comes up with share first, they'll take a greater portion of those undifferentiated opportunities.

When we have those platform wins, we are prioritizing delivering our endpoint Ics into those opportunities. So we're we'll be fighting for sure and we will be looking for outside wafers is in the less differentiated opportunities out in the market, which gets to my point of our competitor comes up with sure first I'll take a greater portion of those undifferentiated opportunities.

Speaker 12: Got you. That makes sense. That's very clear. Thank you. And then for Carrie, I appreciate your comments.

Got it got you that makes sense that makes sense.

Clear. Thank you and then for Gary I appreciate your comments.

Speaker 12: about shifting the incentive portion of the compensation expense to more of a mix of stock-based comp and cash, if I've heard correctly. Can you quantify that a little bit? How should we think about the op-ex?

About shifting the incentive portion of the compensation expense.

To more of a mix of stock based comp and in cash.

Heard correctly can you quantify that a little bit on how should we think about the opex through the year and like the mix of.

Speaker 12: through the year and like the mix of, how should we think about stock based compensation expense through the year and then kind of the total aggregate line of stock based comp and then regular operating expenses. Thank you.

How should we think about stock based compensation expense for the year and then and then kind of the total aggregate line of of.

Based comp and then and then regular.

Operating expenses. Thank you.

Yeah.

Speaker 10: Yeah, so thanks for the question, Mark. I think, as I look at the off-ex impact from making the shift to back to a mix of patch and stock for incentive compensation, I think that that impact is about 700 to 800 K per quarter in new off-ex that wasn't the last quarter, if you will. On the...

Yes so.

Thanks for the question Mark I think.

As I look at the Opex impact from making the shift to back to a mix of cash and stock for incentive compensation I think that that impact is about 700 to 800 K per quarter in new Opex that wasn't there last quarter. If you will.

On the.

Speaker 10: on the stock based compensation. We have included that in our one-q guide. It's a little bit hard to project for the full year. Yes, we will have fewer shares related to incentive compensation issued, but it really depends on what the stock price does.

On this on the stock based compensation, we have included that in our <unk> guide.

Hey, it's a little bit hard to project for the full year and yes, we will have fewer shares related to incentive compensation issued but it really depends on what the stock price does.

Sure sure got it but I guess I'm, so I guess the question.

Speaker 12: Sure, sure got it, but I guess the question would, like just say, all things being equal, would you have a full quarter of this new compensation, incentive compensation plan, or will we have, we only have a partial quarter of this quarter and then a full quarter next quarter. Thanks. Bye, I appreciate the conversation. Thanks, thanks. here with Bhoj no Thank you for having kindly said you're ausp cuando pel teooh a

Just say all things being equal.

Do you have a full quarter of this new.

Compensation.

Incentive compensation plan or what we have.

We only have a partial quarter this quarter and then a full quarter next quarter.

But the.

Compensation expense was around okay.

Speaker 10: Okay, I understand your question. So think of it as 700, 800K per quarter. So that 700K reflects this full impact in Q1, and assuming we'd have a similar full impact in Q2.

Okay I understand your question so think of it at 700 800 K per quarter. So that 700 K reflects a full impact in Q1 and assuming we'd have a similar full impact in Q2.

Speaker 10: Obviously there are performance attainment and accelerators in the bonus. So if we start overperforming our estimate for that accrual will increase, but you'll be able to tell you when that happens.

Obviously, there are performance attainment and accelerators of our bonus so if we start over performing our estimate for that accrual will increase but you'll be we'll be able to tell you when that happens.

Okay.

Yeah.

Yeah.

Okay. Thank you.

Thanks, Mark Thanks, Mark.

Speaker 2: The next question will come from Scott Therall with Roth Capital. Please go ahead. Hey, good afternoon. Thanks for taking my questions. Hey, Kerry, just quickly I wanted to clarify on the gross margin comments. In the current quarter, there is no benefit from an inventory that was previously written off. And then the comment about the 300 basis plumage plus benefit included both specialty and M700 is that correct?

The next question will come from Scott Searle with Roth Capital. Please go ahead, hey, good.

Afternoon. Thanks for taking my questions, Hey, Kary, just quickly I wanted to clarify on the gross margin comment in.

In the current quarter. There is no benefit from inventory that was previously written off and then the comment about the 300 basis point plus benefit included both specialty and M 700 is that correct.

Speaker 10: So let me correct you on both of those. So there was 130 basis points benefit from selling fully reserved inventory, not expected to repeat.

So let me correct you on both of those so there was 130 basis point benefit from selling fully reserved inventory not expected to repeat.

Speaker 10: And then the highlight is, you know, using the last time we had a strong industrial specialty mix, which was 2Q of 20, that impact was about 350 basis points to the quarter.

And then the I highlight is using the last time, we had a strong industrial specialty mix, which was two two of 'twenty that impact was about 350 basis points to the quarter.

Speaker 10: The impact to Q4 was larger than that. This was a stronger, even stronger industrial specialty mix in Q4. The remaining of that benefit is, you can think, the remaining gross margin lit over our normal 50% is what you can think of as the cumulative impact or the current impact of the M700. We've been ramping up M700 as a percentage of our mix.

But the impact to Q4 was larger than that this was a stronger even stronger industrial specialty mix in Q4.

The remaining of that benefit is you can think of the remaining gross margin lift over our normal 50% is what you can think of as the cumulative impact of the current impact of the 700, we've been ramping up 700 as a percentage of our mix.

Speaker 10: for five quarters now and really heavily in the last two quarters. It became, we reached the crossover point in Q3 and it became the volume runner in Q4. In Q4 we nearly doubled our volume of M700 chips.

For five quarters, now and really heavily in the last two quarters, it became and crop reach the crossover point in Q3 and it became the volume runner in Q4 and in Q4, we nearly doubled our volume of them 700 chips.

Speaker 2: Okay, Carrie, just to follow up on those, the gross margin outlook then for the rest of the year, is there an expectation in terms of what the mix will look like exiting this year? I know it's subject to a lot of factors, but I guess at this point in time, and given the price increases I've gone through, are they expected to be permanent through the year or do you have a give back at some point?

Okay Kerry just a follow up on those.

The gross margin outlook for the rest of the year.

Is there an expectation in terms of what the mix will look like exiting this year I know, it's subject to a lot of factors, but our best guess at this point in time and given the price increases have gone through are they expected to be permanent through the year or do you have a give back at some point.

Speaker 10: So let me answer the last one first.

So let me answer the last one first we made the decision to pass through costs. When we received cost increases on our part so that's that was the driving factor behind it.

Speaker 10: We made the decision to pass through cost when we received cost increases on our parts of that. That was the driving factor behind it. It's hard for me to speculate what we would do in the future if the costing environment changed, how that would impact our pricing.

It's hard for me to speculate what we would do in the future if the if the costing environment changed how that would impact our pricing.

Speaker 10: But I just don't see that happening right now. I expect elevated costs.

But I don't.

I, just don't see that happening right now I expect elevated costs dropped talking 'twenty given the short wave. This is Christian just giving a short wafer supply and the need that the market.

Speaker 3: Drop 20. Given the short way, this is just given the short way for supply and the need to market. And, you know, I personally will be surprised that the founders actually dropped their way for pricing. Some material change on the market, and that would be disruptive in much broader ways.

I personally will be surprised that the foundry is actually dropped their wafer pricing it would be.

Some material change on the market.

That would be disruptive kind of in a much broader ways.

Speaker 4: and Chris and then oh sorry go ahead no no please guys no I was I was gonna ask him to follow

And Chris and then I'm sorry go ahead.

No no. Please go ahead no I was I was going to ask them to follow up on on just the outlook in terms of supply demand coming back into balance you're under shipping by about 50% now on the endpoint IC front.

Speaker 4: the outlook in terms of supply demand coming back into balance you know you're under shipping by about fifty percent now on the uh... and point i see front

Speaker 4: As it stands today, Chris, do you have visibility through your wafer supplier that you would...

As it stands today, Chris do you have visibility through your wafer supplier that you would ever be able to get to a number that would satisfy the demand that you saw in the current quarter I know, it's a moving target that you would expect demand to continue to increase throughout the year, but as it stands today that incremental $20 million or so is that on the table to be able to service or <unk>.

Speaker 4: ever be able to get to a number that would satisfy the demand that you saw in the current quarter. I know it's a moving target that you expect demand to continue to increase throughout the year, but as it stands today, that incremental 20 million or so, is that on the table to be able to service or have visibility to that at the current time, you know, third quarter, fourth quarter this year, or is it sometime in 2023?

Have visibility to that at the current time.

Third quarter fourth quarter of this year or is it sometime in 2023.

And so.

Speaker 3: Unfortunately, Scott, I don't, I can't really answer the question in terms of the detail that sort of like, you know, how much upside-by supplier are we going to get and is it on the table. I want to say two things.

Unfortunately, Scott.

I can't really answer the question in terms of the detailed sort of like how much upside supplier. We can again and is it on the table.

I want to say two things.

Speaker 3: kind of indirect or side of my posted directs and kind of indirect answer to your question.

He kind of indirect or sentiment my points of direct and kind of an indirect answer to your question.

Speaker 3: Number one is we've shared the information about the market opportunity with our Foundry Partner and they know what it is. And they know they have other set of constraints. And they're working with us. And if supply comes free, we've been prioritized to get some upside-down supply. It doesn't come free.

One is we've shared the information about the market opportunity with our fabric partner they know what it is.

The other set of constraints.

And they're working with us and if supply comes free we've been prioritized against them up satisfy doesn't come free.

Speaker 3: you know, we're not going to get the upside because it didn't come free. So it's really that simple of an environment. They know the need and so I hope for the future. But as I said in the prepared remarks, you know, in terms of upside supply has today, we don't have it. Gotcha.

We're not going to get the upside because it didn't come free so it's really that simple of an environment. They know they need and and so on.

I have hope for the future, but as I said in the prepared remarks in terms of upside of supply as of today, We don't have it got you in Florida.

Speaker 3: I just want to add one more thing, just longer term. We've emphasized to our Foundry partner.

I just want to add one more thing just longer term, we've emphasized to our foundry partner.

Speaker 3: that our products need to be as available as paper.

Fact that our products need to be as available as paper.

Speaker 3: because our end customers are using our products to track the items they manufacture transport itself.

Our end customers are using our products to track the items, they manufacture transport and sell.

Speaker 3: So longer term, we actually need to have good availability. You can't be in these supply environments because it has such a great impact on supply chain and logistics across the globe.

So longer term, we actually need to have good availability, we cant be any supply environments. Because it has such a great impact on supply chain and logistics across the globe.

Speaker 3: So there's another way of thinking about things going forward is that the demand we have in the market actually

So there is another way of thinking about things going forward is that.

The demand we have in the market actually in order to get the end customers to deploy we actually need to be able to deliver today and for the long term, it's really focusing on that topic for the next many years without it.

Speaker 3: In order to get the end customers to deploy, we actually need to be able to deliver today and for the long-term. We focusing on that kind of topic for the next many years without, you know, because it's so critically important. Go ahead, I cut you off. Oh, no, not at all. But Chris, just following up on that point, and I guess coupling it with Mike's question earlier.

Because it's so critically important go ahead I cut you off Oh, no not at all but Chris just following up on that point and I guess coupling it with Mike's question earlier.

Speaker 4: you know has that you know some some new verticals are certain to come to play more through some of your your partners particularly things when you mention uh... and markets like food so it's that the pandemic

You know some some new verticals are starting to come into play more through some of your partners, particularly things. When you mentioned end markets like food. So it was the the pandemic.

Speaker 4: you know change the price points for adoption here particularly i think in the past you talked about self-check out food you know the all-in cost of a tag being one and a half cents now is that a higher number that drives the adoption earlier subject to available supply in the next couple years or is it still looking at those kind of price points whether it's three years out or five years out or hasn't moved everything forward by a couple years

Change the price points for adoption here, particularly I think in the past you've talked about self checkout food you know the all in cost of a tag being one and a half since now is that a higher number that drives the adoption earlier subject to available supply in the next couple of years or is it still looking at those kinds of price points, whether it's three years out or five years out or has it moved.

Everything forward by a couple of years. Thanks.

Speaker 3: Yeah. I'm going to answer from my gut, which is that a pandemic has amplified the value of end-to-end supply chain visibility and amplified the value of omnichannel fulfillment and amplified the value in triving efficiencies to increase capacity in the economic supply chain and logistics. And with those amplified values,

Yeah.

I am going to answer from my gut, which is that the pandemic has amplified the value of end to end supply chain visibility and amplify the value of omni channel fulfillment and amplify the value and driving efficiencies.

And to increase capacity, you think you can think of supply chain and logistics and with those amplified values.

Speaker 3: find it difficult to believe that the prior price points still hold. The value is higher, the price points go up. I can't quantify.

Find it difficult to believe that the prior price points still sold the values higher in price points go up I can't quantify.

Speaker 3: How much those points have gone up across the different verticals? But my gut says they have, just because the value of RAN R by D is so much greater right now, and it's highlighted so much by the pandemic. I mean, if you just look at the Accenture Report, roughly, the number of retailers.

How much those points points have been have.

Have gone up as you know.

Across the different verticals, but my gut says they app just because the value of rain RFID is so much greater right now and it's highlighted so much by the pandemic I mean, if you just look at the Accenture report roughly the number of retailers.

Speaker 3: who are adopting rain, pre-pandemic, post-pandemic is double.

So we're adopting rain pre pandemic post pandemic.

Speaker 3: Rough numbers. 93% out of North American retailers are conducting or deploying RAN RFID. That's a huge growth in just two short. And we're seeing pull-ins in the other verticals as well.

Rough numbers, it's 93% out of North American retailers are adopting for deploying rain RFID. That's a huge growth in just two short.

And we're seeing pull on so many other verticals as well.

Speaker 4: That's about the best I can do to answer the question. Scott? That's perfect, very helpful. Thanks so much, a nice job on the quarter.

That's about the best I can do to answer the question Scott that's perfect very helpful. Thanks, So much and nice job on the quarter.

Okay. Thanks, Jeff.

Yeah.

Speaker 1: This concludes our question and answer session. I would like to turn the conference back over to Chris DiOrio, co-founder and CEO for any closing remarks. Please go ahead, sir.

This concludes our question and answer session I would like to turn the conference back over to Kristy Oreo co.

Co founder and CEO for any closing remarks. Please go ahead Sir.

Speaker 3: Thank you, Chuck. I'd like to thank all of you for joining the call today. I hope you and your loved ones are and remain safe and well. Thank you very much. I will talk again next quarter. Bye-bye.

Thank you Chuck I'd like to thank all of you for joining the call today I Hope you and your loved ones are and remain safe and well. Thank you very much and we'll talk again next quarter Goodbye.

Speaker 1: The conference has now concluded. Thank you for attending today's presentation. You may now discuss.

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

Speaker 13: The.

Yeah.

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