Q1 2022 Impinj Inc Earnings Call
Welcome to the impinge first quarter 2022 earnings conference call and webcast.
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I'd now like to turn the conference over to Mr. Andy Cop wife's precedent strategic finance. Please go ahead.
Thank you operator, good afternoon, and thank you all for joining us to discuss the first quarter 2022 results.
On today's call Kristi, Oreo Impinges co founder and CEO will provide a brief overview of our market opportunity and performance Cary Baker Impinges CFO will follow with a detailed review of our first quarter 2022 financial results and second quarter 2022.
We will then open the call for questions, Jeff Dossett, Impinges see Aro will join us in the Q&A session.
You can find management's prepared remarks, plus trended financial data on the Investor Relations section of the company's website.
We will make statements in this call about future expectations and financial performance based on our outlook as of today.
Any such statements are forward looking under the private Securities Litigation Reform Act of 1995.
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 uncertainties.
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.
On today's call all financial metrics, except for revenue or where we explicitly state otherwise are non-GAAP balance sheet and cash flow metrics are on a GAAP basis.
Please refer to our earnings release for a reconciliation of non-GAAP financial metrics to the most comparable GAAP metrics.
Before turning to our results and outlook note that we will participate in the Oppenheimer seventh annual emerging growth conference on May 10th and Baird's Global consumer Technology and services Conference in New York on June seven.
We look forward to connecting with many of you at those events.
I will now turn the call over to Chris.
Thank you Andy and thank you all for joining the call.
Our first quarter results were strong.
Revenue and profitability exceeded our guidance with revenue setting a new quarterly record.
Bookings were also strong further increasing our record backlog that now extends into 2023.
Demand for our endpoint Ics reader Ics readers and gateways all showed extraordinary strength.
At the same time, we remain supply constrained lemonade, both first quarter revenue and our ability to satisfy that extraordinary demand.
As challenging as these constraints are today.
Our industry is broad based secular adoption.
Strong long term unit volume CAGR and sustained demand from enterprises need for process, Digitization physicians and pinch to benefit significantly when upside wafers become available.
First quarter endpoint IC revenue exceeded our expectations setting a new quarterly record.
For retailers the adoption drivers continue to be in store inventory visibility and omnichannel fulfillment.
And for both retailers and supply chain and logistics providers.
Supply chain visibility and process Digitization.
Retailers increased their apparel tagging, while also expanding into new categories like home goods.
Driving growth in our endpoint IC demand and backlog.
For at least the next several quarters, we see retail expansion centered on apparel home goods and general merchandise.
In supply chain expansion.
Centered on parcel shipment traceability as key business drivers.
Overall, we see multiyear growth tailwind for our endpoint Ics.
First quarter endpoint IC unit volume demand exceeded shipments by more than 50%.
It has for the past three quarters.
Yet again, we believe our inlay partners would have layered on additional bookings if we had more wafers.
Although we didn't secure modest upside waivers from our foundry partner.
Allowing us to come in second and third quarter shipment volumes that equal or exceed first quarter.
Our supply is still far short of demand.
So our foundry partner can deliver significant upside wafers in the process nodes, we use we.
We will continue focusing on maturing our post processing capacity.
To be ready to quickly turn those wafers when they do become available.
First quarter systems revenue also exceeded our expectations reader.
<unk> revenue was a bright spot with.
With supply chain and logistics demand driving record shipments.
Reader IC revenue fell short of expectations due to a COVID-19 outbreak at the post processing supplier for our prior generation, India, Ice's and testing delays for our new <unk> family Ics.
Total first quarter systems demand exceeded our supply.
Like for the past two quarters, we entered second quarter with significant reader and reader IC backlog and strong demand.
Looking to second quarter, we anticipate component shortfalls, continuing to limit our reader supply.
We also anticipate strong reader IC volumes and revenue growth as shipments begin catching up to demand.
Looking further out we expect overall system supply to mostly catch up to demand by year end.
Okay.
On the project front, the second large north American supply chain and logistics customer advanced their reader deployment and contributed to our largest quarterly revenue to date.
Looking into 2023, we expect this customer to drive a large end point IC opportunity.
We also secured an order from the visionary European retailer to deploy our rain based loss prevention product broadly starting second quarter 2022.
This deployment will cover far more stores than last year's deployment.
We expect roughly three times as much revenue from it recognized over several quarters.
We began stage of key components for this deployment in the first quarter.
This loss prevention. When is the result of focused impinge engineering and close teamwork with our go to market partners.
It also represents a defining opportunity for our platform.
Moving us one step closer to unlocking the range self checkout opportunity that retailers identify as the most important after inventory visibility.
And as key to their vision of the store of the future.
We continue focusing on inventing solutions to hard but compelling end user problems.
Having new platform based growth vectors for the years to come.
Yeah.
Looking to 2023.
We expect secular trends to continue driving endpoint IC unit volume growth in a market that is still less than 1% penetrated.
That expectation is built on the use case expansion, we see at existing enterprise end users.
Healthy growth at new enterprises looking to deploy.
And new verticals ramping.
Rain deliveries visibility and insights that no other technology can directly match.
On the organizational side, Christina Balaam joined our executive team as Vice President of Human resources Chris.
Cristina was most recently at Netmotion software and brings deep HR strength and experience to a pinch.
I'm delighted to partner with Christina.
Enriching our team and culture.
Welcome Christina.
We also formalized impinges sustainability commitments and partnership with our suppliers and customers.
Driving multiple initiatives focused on how our products can improve item recyclability.
Impinge takes its responsibility to lead the world a better place for our children and grandchildren seriously.
And we are investing to deliver on our sustainability commitments.
Yeah.
Before I close I want to say that all of us at and pinch are shocked and saddened by the Russian government Senseless War in Ukraine.
Impinges employees matched by the company donated $200000 or roughly six.
$600 per employee.
To humanitarian aid for the Ukrainian people.
We also suspended all business in and with Russia and Belarus.
And expect our partners to comply with all sanctions and restrictions related to this unprovoked and brutal aggression.
We pray for peace.
And for human rights and dignity.
And Ah Russia at a halt this horror they have created.
Yeah.
In closing I'd like to thank every member of the <unk> team for their incredible effort this quarter.
We delivered record revenue and solid profitability, while investing in our team company and platform.
As we continue working side by side with our ecosystem partners to navigate the ongoing supply chain challenges I.
I remain confident in our market position and energized by our growing demand.
I will now turn the call over to Kerry for our detailed financial review and second quarter outlook Gary.
Thank you, Chris and good afternoon, everyone on today's call I will review, our first quarter financial results and second quarter financial outlook.
First quarter revenue was $53 1 billion up 1% sequentially compared with $52 6 million in fourth quarter, 2021, and up 17% year over year from $45 2 million in first quarter 2021.
First quarter endpoint IC revenue was $38 8 million up 1% sequentially compared with $38 4 million in fourth quarter 2021 and.
2% year over year from $38 1 million in first quarter 2021.
Endpoint IC revenue exceeded our expectations driven by higher volumes and a slightly more favorable mix of specialty and industrial end point IC than we had anticipated.
Looking forward, we expect a slight sequential increase in second quarter 2022 endpoint IC revenue.
First quarter systems revenue was $14 3 million up 1% sequentially compared with $14 2 million in the fourth quarter of 2021, and 100% year over year from $7 2 million in first quarter 2021.
Systems revenue exceeded our expectations driven by stronger reader revenue than we had anticipated.
Quench all basins reader revenue increased while gateway and reader IC revenue decline on a year over year basis reader IC reader and gateway revenue all increased.
We expect a modest sequential increase in second quarter 2022 systems revenue driven by reader IC revenue and initial gateway shipments into the new loss prevention deployment from a visionary European retailer.
First quarter gross margin was 57% compared with 58, 2% in fourth quarter, 2021, and 53% in first quarter 2021.
The sequential decrease was driven by a smaller contribution from both sales are fully reserved inventory and underlying product margins, partially offset by lower indirect costs. The year over year increase was driven by underlying product margins and product mix.
In addition to the margin rich specialty industrial endpoint Ics, a higher mix of impinge them 700 also provided a first quarter gross margin tailwind.
First quarter benefited from some fully reserved inventory was immaterial.
Total first quarter operating expense was $26 8 million compared with $25 3 million in the fourth quarter of 2021, and $21 9 million in first quarter 2021.
Research and development expense was $12 8 million sales and marketing expense was $6 4 million general and administrative expense was $7 six months.
We expect second quarter operating expense to increase sequentially.
First quarter adjusted EBITDA was a profit of $3 5 million compared with a profit of $5 3 million in fourth quarter 2021.
<unk> had a profit of 900000 in first quarter 2021.
First quarter GAAP net loss was $10 5 million first quarter non-GAAP net profit was $2 4 million or <unk> <unk> per share using a weighted average diluted share count of 27 million shares.
Turning to the balance sheet.
We ended the first quarter with cash cash equivalents and investments of $193 4 million compared with $207 6 million in fourth quarter, 2021, and $119 3 million in first quarter of 2021, the sequential cash decline was due primarily to increased width and raw materials inventory.
Other working capital changes the ladder, including some inventory prepayments to improve our chance of securing oxide supplier.
Inventory totaled $31 6 million up $9 6 million from the prior quarter with roughly half of the increase and have quite nicely and the other half from systems.
First quarter net cash used in operating activities was $14 8 billion driven by net cash changes in operating assets and liabilities.
Property and equipment purchases totaled $3 1 million free cash flow was negative $17 9 million.
Before I turn to our second quarter guidance I want to highlight a few items unique to first quarter and also give an update on a few of our strategic initiatives.
First a stronger than expected mix of margin rich specialty industrial end point Ics drove first quarter gross margin strength.
Given the nuance in our recent gross margins I want to give a more specific gross margin outlook today, what I plan to give going forward.
Our second quarter 2022 guidance assumes a non-GAAP gross margin range between 53% and 54%.
We expect third quarter 2022 gross margins in a similar range looks.
Looking further out we anticipate the future 300 millimeter endpoint IC innovations to create opportunities for additional gross margin accretion.
Second first quarter inventory increased sequentially across both endpoint Ics and systems, driven primarily by a $3 billion increase in raw material and a $4 8 million increase in web.
Endpoint IC inventory increased for two reasons first wafer production timing drove an increase in raw materials. However that timing will not change the number of endpoint Ics, we have to sell in second or third quarters, which as Chris noted should equal or exceed first quarter shipments second higher cost wafers.
Are now flowing through our inventory.
Systems inventory increased primarily due to a sourcing key redirect gateway components ahead of the new loss per vessel deployment for the visionary European retailer and to a lesser extent delivery timing.
Third we expect our second quarter operating expenses to increase sequentially, driven by annual merit and cost of living salary increases.
Full quarter of accrual for a cash bonus the timing of non wage expenses and us continuing to invest in our platform.
Finally, we expect second and third quarter revenue to remain supply constrained partner inventories inventory levels remain very low, especially for endpoint Ics with our wafer deliveries pacing our partner's production cadence from today's vantage point demand continues to outstrip supply for at least the.
The remainder of 2022.
Turning to our outlook.
We expect second quarter revenue to be between 54% and 56 million a 16% year over year increase at the midpoint of our range compared with $47 3 million in second quarter 2021, we.
We expect an adjusted EBITDA profit between $101 6 million.
On the bottom line, we expect non-GAAP net income between a loss of $1 1 billion and a profit of 400000, reflecting non-GAAP earnings per share between a loss of five and a profit of <unk> on.
On a weighted average diluted share count between $25 3 million and $27 2 million shares.
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 operator.
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 you are using a speakerphone. Please pick up your handset before pressing the keys is that anytime. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
As a courtesy to others, we ask that you limit yourself to one question and one follow up.
You have additional questions. Please re queue and we will take as many questions as time allows.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Toshi Hari with Goldman Sachs. Please go ahead.
Hi, everyone. Good afternoon, and thank you so much for taking the question.
And congrats on a very strong set of results.
Chris I wanted I had two questions first of all on kind of a supply demand environment, particularly in your end point IC business.
I think you're supply constrained in your systems business as well, but if I caught your commentary correctly I think you noted that by the end of the year, you would expect supply to somewhat catch up to demand I was hoping.
To get some color on the end point IC side, I realize it's hard to predict but.
How significant is the delta between supply demand today and more importantly, when would you expect your foundry partner to be in a position to address some what you need.
Okay. Thank you Toshi I. Thank you for your kind words.
As I noted in our prepared remarks demand exceeds our ability to supply the more than 50%.
You have four quarters in that domain.
This being the fourth quarter.
Everything we can to increase supply.
And we know that our foundry partners prioritizing for upside wafers, it just isn't enough and.
We said on the in our prepared remarks that we can deliver consistent wafer volumes into second and third quarter.
These situations.
<unk> the supply demand imbalances always ease as we know because the semiconductor industry goes through these cycles occasionally.
Never been in one as severe as this that they go through these cycles. It's just very difficult for me to speculate when.
So I prefer not to speculate out to fourth quarter or beyond just to say that we're working very closely with our foundry partner to get upside wafer supply.
And we are preparing ourselves as best we can so that when those upside wafers become available our post processing is primed and ready to be able to handle them and to get Ics into our partners' hands as quickly as possible.
Got it.
Thank you for that and then quick follow up on gross margins maybe for Kerry.
So the well first of all thank you for providing guidance.
Guidance on gross margin Super helpful. So the sequential decline that you're guiding to in Q2, I guess down from 57% in Q1 to 53 and a half at the midpoint for.
For Q2.
Is that primarily specialty and industrial Skus.
Normalizing lower or did I, miss something else that could potentially drive.
Gross margins down on a sequential basis, and then I guess part two on gross margins you mentioned medium to long term you would expect.
You know opportunity associated with 300 millimeter, becoming a bigger percentage of your business can you help us quantify what that upside could look like relative to the 53, 5% guide for Q2 and Q3. Thank you.
Yes, thanks to <unk> and I appreciate the question.
Yes, as you said gross margin for Q2, we're expecting in a range of 53% to 54% that is a step down from where we've been in recent quarters, which benefited from strong mix of specialty and industrial Skus.
The other item that's impacting Q2 is were really starting to see higher cost wafers flow through our inventory and through our Cogs right. Now so we're starting to get close to where we expect to normalize based on our current supply mix.
Yes.
Two years ago, when we started talking about the 700 and the benefits. It would have to gross margin we were in roughly the 50% gross margin range. So this these first two chips on the 700 family has really what's provided us with this 300 or so basis point improvement from what.
As a previous.
Gross margin run rate.
And that doesn't get innovating on the 700 platform and we expect to launch more chips that will drive more opportunity for us to drive gross margin accretion in the future.
Very helpful. Thank you so much.
Thank you Chad.
The next question comes from Scott Searle with Roth Capital. Please go ahead.
Hey, good afternoon. Thanks for taking my questions. It's it's like a positive groundhog day, good results, but constrained by the the.
The wafer environment.
Yes.
Hey, maybe just.
Just quickly to make sure you get a clarification I want to make sure I heard the numbers correctly again that 50% plus upside with limited again on the endpoint IC front and from a gross margin standpoint, Terry I wanted to make sure I understood. This is the level that youre expecting to normalize as we go out further on to the time horizon as well.
And I think you indicated on the wafer front still wafer constrained in the third quarter I'm wondering if that is your given your current visibility if that Intel's a step up in the third quarter from the second quarter.
So I'll say a few words just about the wafer demand. So as we've said in our prepared remarks that demand exceeds supply by more than 50% and our partners would have layered on additional bookings that we had more supply.
And I used the word extraordinary extraordinarily strong in my intro because the demand is very strong today we.
We see enterprises deploying in multiple verticals expanding their deployments new enterprises coming online. The demand is there supply is short Carrie would you like to take the second one yeah. So Scott thanks for the question.
Sure.
As we noted gross gross margin in Q2 will be in the 53% to 54% range.
Based on our current supply mix I anticipate a somewhat similar range in Q3, and really near term movement from that dictated by first by supply and then second by mix of revenue between endpoint Ics and systems. So what I think we're getting to a normalized rate right now there will always be.
Movements in our gross margins and then looking forward think of think of the 700 platform as it relates to gross margin as a multiyear growth path.
What we're seeing right now is the first step.
The first two chips on the 700 platform.
Again, we will we're continuing to work on it. This was part of the place we're putting our engineering dollars. So as we have more innovation to announce on that we will we will do so and then I'll be able to talk more about our ambitions for our gross margin accretion from here perfect very helpful and if I could just to follow up on your post processing comments you guys have been investing in the Bakken.
But you made some comments in terms of outbreaks I'm wondering.
If you could provide a little bit more color or detail your comfort level in terms of where you are from a post processing standpoint, both as we look into the near term second third quarter and kind of how you are positioned as demand and supply equilibrium come back into balance.
Sure.
So yes.
I need to describe.
<unk> between the reader Ics and <unk> there was a post processing outbreak at the at the testing House, Sir I'm, sorry, Yes, there was a post processing outbreak at the supplier for our.
Prior generation, indeed reader Ics and so.
We were that that that Covid outbreak limited the number of in prior generation. Indeed redirect. These we were able to get in the quarter, if I turn to the endpoint Ics, we continue to build our post processing capacity I've said in prior calls straightening and widening the pipes. So that went upside wafers com and Alzheimer's it when you're when you're in these steep.
Cycles, they come rapidly on the other side.
Those wafers come we're ready to catch them and turn them quickly.
Did I answer your question Okay.
Yes, perfect. Thank you so much.
Okay. Thank you.
The next question comes from Mike Walkley with Canaccord Genuity. Please go ahead.
Alright, good afternoon Dara spent on for Mike. Thanks for taking my questions. So congrats on a strong Q1 execution, despite the our supply chain challenges.
Just wondering if you could provide us with some color on your large projects pipeline. I know you mentioned you were at a record backlog, but if you just think about how if you could just let us know how to think about this.
Well, maybe you can provide some extra details that'd be great.
This is Jeff our pipeline opportunity pipeline is and remains strong.
Within our pipeline.
Large potential opportunities are increasing as a proportion of the total pipeline.
We're encouraged by the interest of visionary end customers in retail and supply chain and logistics in particular as they look to optimize their operations to improve supply chain visibility and other process Digitization that lays the foundation for optimized.
<unk> business efficiencies and enabling them to better serve their customers.
So we're seeing growth broadly geographically and across key market segments, and the use cases or needs of those customers in those segments.
And then I guess I want to add this is Chris.
As you think about the visionary European retailer rolling out.
Our rain based.
Loss prevention product broadly I believe.
That's that deployment is a bellwether for opportunities to come because as we can deploy loss prevention and the real reason to do loss prevention and safety do self checkout.
Retailers are asking for self checkout for a long period of time to improve and streamline retail stores and E and.
And that self checkout, along with better inventory visibility as I said in the prepared remarks, it's really division for stores of the future. So very huge opportunities in retail starting with retail apparel, because because that's what the industry took off first but expanding to all kinds of other retail items.
<unk>.
General merchandise.
So we are in the.
Early days of a transition a transition and expansion.
From handheld driven inventory counting primarily in retail.
To fixed reading opportunities in retail.
Supply chain and logistics broadly.
Aviation and other opportunities and we believe that that expansion into those fixed trading opportunities positions and pinch very well as a consequence of our platform and the investments we've made in our platform.
Great. Thank you for that.
As a quick follow up could you just provide us with an update on some of the competitive dynamics there soon.
And it feel for market share gains given your 700 differentiation.
So this is Chris I'll take that in terms of market share gains.
We look at the end of every year at the rain Alliance data.
For 2021, the rain alliance.
Question number of roughly 29 billion units delivered in that year. It was just 30%, 36% I'm, sorry, 36% year over year growth.
We believe we gained a few points of share in 2021.
In terms of 2022, obviously, there is an ongoing competitive dynamic.
<unk>.
We do our best allocate our supply and work with our partners to be as competitive in the market as we possibly can be but we don't have good visibility in terms of.
The actual numbers of units until the end of the year with the rain Alliance and we don't actually speculate on terms of what those numbers are until we have not.
Hard numbers at the end of the year.
Great. Thank you very much.
Thank you.
The next question comes from harsh Kumar with Piper Sandler. Please go ahead.
Yeah, Hey, guys first of all congratulations.
Solid results solid died Chris.
Chris and Carrie I had a question on the logistics common customer comment that you made.
I believe you mentioned that you saw a ramp up in revenues associated with our second largest customer and expecting endpoint IC is to ramp up in 2023.
I was curious if you could provide us with some color or does this mean that that customer is going into implementation in 2023 or how should we look at that.
Yes, so harsh thank you for your kind words and I'll take I'll take a first cut at answering your question and then see if Gary or Jeff. If you want to jump in so we did say that that second large north American supply chain and logistics customer advanced the reader deployment.
And contributed the largest quarterly revenue to date, so yes, they have continued to deploy.
At.
Every stage in one of these fixed reading deployments after you've deployed enough readers in the customers.
Is ready and they begin to flip the switch over from getting the fixed infrastructure ready to consuming tag volumes, we expect.
This is our expectation based on where they are.
That switch.
Switch flipping will occur in 2023 and will generate significant endpoint IC opportunities, that's an expectation on our part.
Based on what we know about the deployment.
Endpoint IC opportunities with that customer can be quite large.
Prefer not to quantify anything here because.
There are certain timing in terms of the cutover at a pace of which they adopt.
I'm, sorry, the pace at which they really begin ramping that not adopt the pace at which they begin ramping but our expectation is given the scope of the deployment.
And the pace at which they are progressing we do expect a significant opportunity in 'twenty three.
Very helpful. Chris I'm going to leave this topic, but I'm going to ask you for one small clarification on that one.
Somebody like that goes live with the with the so-called implementation does that mean that they go 100% with all products that are that they are managing the logistics, Florida can they do it in stages I, certain geos and shouldn't types of products versus others.
Thank you for the clarification and it is an important point. Thank you.
In general, we do not see and customers going from zero to a 100% in one step.
It's just very difficult to happen. So we see some large enterprises going category by category.
Some scope some categories of items.
Some some categories of it supply chain and logistics special deliveries and start their use.
Use that smaller set of items to test their processes.
Proved our operational efficiencies basically.
Do the upfront work to prove that everything is working and then they expand from our first category into multiple categories and other types of deployments will see enterprises go geography by geography.
Right.
And I'll use as an example, H and have one of the retailers that has been expanding country by country. So they rollout one country and then they move on to the next one it is very rare to see large enterprise do a cutover all at once because the risks in doing so not just from the rain RFID perspective, but from their entire back end perspective, and being ready for risks are just too high.
Hi.
But to get back to the first part of your question, what we see and feel.
From the second large north American supply chain and logistics customer is.
As they are at the point, where we believe next year. They will have the opportunity to do a significant turn on.
The capacity they have already deployed.
Capacity they've already deployed.
Great. Thanks, guys as a courtesy I'll step back in line, let somebody else ask a question. Thank you.
Thank you Arthur.
The next question comes from Troy Jensen with Lake Street Capital. Please go ahead.
Hey, gentlemen, congrats on the great results.
I want to kind of piggyback on Hershey's comments here it is.
Second big logistics customer.
They reported in their 10-K that they transported six 4 billion packages in 2021, so assuming one cent per tag that equates to about a 64 million dollar opportunity annually when they're at 100 per cent is I.
I know you don't want to quote numbers, but I guess your comments on that and then is there any ratio on infrastructure spending that's needed to facilitate this I guess I feel like we can quantify the size of the tag opportunity, but I'm a little.
A little uncertain on how to quantify the infrastructure side.
So Troy this is quick I'm going to take a stab at your question first in regards to the overall endpoint IC opportunity.
We don't cite the name of any particular end customer.
And in fact, we've mentioned two two of the large north American supply chain logistics customers first and our second another significant retail opportunities.
What I will say is that the.
The size of the.
Fortune 500 are in many cases fortune 100, and customers that are deploying rain RFID today.
Suggests that multibillion unit opportunities per enterprise.
Are not uncommon or said another way could actually be quite common.
There are many entities that move our sell billions of units per year, and so the numbers youre thinking about in terms of the endpoint Ics.
It can be quite large, especially.
Multiple of these enterprises move forward.
Then.
In terms of the ratio of endpoint Ics to systems opportunity.
The way, we think about it is the end point IC opportunity is the recurring opportunity. The systems is what we need to deploy in order to make that recurring opportunity happen.
So upfront we generate good systems revenue as we said for the visionary European retailer three times as much revenue in the second deployment.
As the one they did last year. This is for the loss prevention and self checkout and Thats important to us and it's valuable to us in it.
And we continue investing systems.
But.
Real value in those systems deployment is to drive.
And point I see volumes and.
For our entire platform preference for our intention endpoint Ics.
Perfect understood Oh, let's just one follow up for me and 700 as a percentage of tag sales I think you exceeded the halfway mark of a quarter or two ago.
Any other color you can give us there I'm just curious how much room you have here to expand.
The margin contribution from the 700.
Yes, sorry. This is Terry I'll take a shot at that one so as you noted we ramp M 700, as a percentage of our sales mix.
Quite significantly last year.
And third quarter, it became our volume runner in fourth quarter. It was the lion's share.
Our.
Our sales mix.
As I look to 2022.
Growth for kind of where we are right now is limited by supply.
And our supply and our mix of the supply between 203 hundred millimeter.
As you are doing that translation from M 700 mix to gross margin.
We provided some pretty good color this quarter on not only Q2, but where we think Q3 is going to be and I think that's the right range to think about us.
Until until the supply mix changes, which we will certainly make you aware of when that happens and then as I noted before as additional innovation on 300 millimeter endpoint Ics occurs and we can drive more opportunity for gross margin accretion.
Perfect. Okay. So keep up the good work.
Thanks Ray.
Again, if you have a question. Please press star then one can be joined into the queue.
The next question comes from Chris <unk> with Needham and company. Please go ahead.
Hi.
Hi, good afternoon, and thank you for taking the question.
Thanks, Curtis real quickly on the retailers expanding into new categories.
Is that.
Are you seeing new logos in specialty retail categories or is that existing retailer customers that are expanding into new categories within within the same customer.
Chris we were primarily referring to existing retailers expanding into new categories like beyond retail apparel.
And so we've seen some pretty significant expansion at existing enterprises into those new categories in multiple of those those enterprises, that's not to say that there isn't ongoing.
Acceleration in retail deployments and in fact, new enterprises continue to adopt but at least in the context of those comments were referring to expansion beyond retail apparel to other categories at retailers that were already deployed in retail apparel.
Terrific, Thanks, and just with respect to the systems supply catching catching up with demand what what.
What levers there do you have.
The two to ensure that or two.
To give you visibility into catching that demand by the end of the year.
So that's a little bit more nuanced question to answer.
For our readers and gateways, which are finished boxes.
We do have the ability to do redesign.
Circuit Board redesign if there is difficult to get components.
We do have the ability to kind.
Kind of flex in terms of purchasing those components and so.
Unlike and I see where your fabricated wafers with a foundry partner.
I'll quickly move and in many cases, you have a long term relationship that foundry partner when you're building the systems component.
You do have more flexibility in terms of component availability. So we look to that component availability.
Things, we can do from an engineering perspective to improve our supply again slight modifications and other things like that.
Buying parts in the open market.
As well as enhancing our test capacity for example for our reader Ics, having our older generation, Indeed reader Ics and on our new generation of <unk> family Ics and flexing there when you put all the pieces together, we feel that we will be able to significantly catch up to systems demand by the end of the year.
Okay.
Great. Thank you very much.
Thank you Chris.
This concludes our question and answer session I would like to turn the conference back over to Christina.
Co founder and CEO for any closing remarks.
Thank you operator.
And I'd like to thank you all for joining the call today.
I hope you and your loved ones are and remain safe and well.
Thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.