Q4 2022 Impinj Inc Earnings Call
Company intends fourth.
Fourth quarter and full year 2022 earnings conference call and webcast.
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This event is being recorded I would now like to turn the conference over to Mister Andy <unk>, Vice President Strategic Finance. Please go ahead.
Thank you J good afternoon, and thank you all for joining us to discuss impinges fourth quarter and full year 2022 results.
Today's call Crispy, Oreo Impinges co founder and CEO will provide a brief overview of our market opportunity and performance.
Kari Baker.
CFO will follow up with a detailed review of our fourth quarter and full year 2022 financial results and first quarter 20 twenty-three outlook.
We will then open the call for questions.
Jack Dawson and just C. R. A will join us for the <unk>.
You can find management's prepared remarks, but trended financial data on the Investor Relations section of the company's website.
We will make statements in this call about financial performance.
Expectations that are based on our outlook as of today.
Any such statements are forward looking under the private Securities Litigation Reform Act of 1995.
We believe we have a reasonable basis for making these forward looking statements are accurate results to differ materially because any such statements are subject to risks and uncertainties.
While we describe these risks and uncertainties in the annual and quarterly reports, we file with the F. C. C. We do not undertake and expressly disclaim any obligation to update or alter are forward looking statements, except as required by law.
On today's call all financial metrics, except for revenue or wherever we explicitly state otherwise are non-GAAP .
Balance sheet and cash flow metrics or gap.
He used to refer to our earnings release for a reconciliation of non-GAAP financial metrics to the most comparable GAAP metrics.
For turning to our results and outlook note that we will participate in Susquehanna 12th annual Technology Conference on March 2nd in New York and the 31st annual Rock Conference on March 13th and data points.
Also we will host an investor day on June 13th in Seattle, Please save the day.
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.
Fourth quarter 2022 kept a very strong year for intense.
He delivered record revenue in both the fourth quarter and for the full year.
We delivered sequential double digit revenue growth in second third and fourth quarters.
We delivered record adjusted EBITDA, and the third and fourth quarters.
We delivered our 75 billion to end point I see.
Another milestone on our journey to connect every item in our everyday world.
And we have record backlog entering 2023.
Our strong support for shipments to enterprise and users drug those results, despite persistent wafer and components shortfalls.
As we look into twenties twenty-three, we see significant and user opportunities for our platform.
And we expect those opportunities paid further dividends in the form of continued strong and point to I see volume gross.
Starting with emptiness, he's 20 twenty-two demand held strong.
This program expansions and new programs more than offsetting retail inventories headwinds.
Fourth quarter revenue exceeded our expectations setting a record for the fifth consecutive quarter.
We anticipate significant volume growth in 2023.
Spike macroeconomic cross currents and retailers ongoing inventory reductions.
The bulk of that growth is rooted in our platform focused on supply chain or logistics package striking as well as reach out self checkout in loss prevention.
On the way for a front, we are seeing improved supply.
As anticipated.
Life partners layered on additional bookings as I work as our wafer visibility improves.
Creating record your N backlog.
That improved supply, we can and will ranch shipments into that strong demand.
That said our shipment volumes will remain constrained at least in the second half 2023.
Wait for a deliberate timing and teasing issues as we ramp or expand at 300 millimeters post processing.
Volume production.
Turning now to systems, Fourthquarter reader and gateway revenue exceeded our expectations.
Led by deliveries to the visionary European retailers self checkout loss prevention deployment and.
And despite components shortfalls constraining shitness.
Looking forward, although we anticipate less schedule and cost variability as components shortfalls debate.
A few components remains stubbornly type.
And we do not expect supply to normalize until the second half 2023.
Like for the fourth quarter, we entered first quarter, what's significant reader backlog.
Reader I see revenue set a record for the third consecutive quarter driven by impinge E family strength is our partner's belt products ahead of their product launches.
Looking at the first quarter, we expect lower E family volumes, because those partners follow the typical product kittens seeding the market.
By subsequent strength as they ramped production volumes.
We expect first quarter strength in our Indian reader ice's to more than offset the E family declined.
Looking further into 2023.
We expect our E family to significantly outpaced and rapidly replace R. N D family.
How the product Brian November we announced the impinge M 780 and M 781.
Our latest 300 millimeter endpoint ice's.
They extend our M 700 product line with extended product identifiers and significant user memory.
He also introduced our patent pending impinge core three D and 10, a reference design portfolio that enables omni directional reading for all 707 hundred iz's improving item readability.
The project front, the visionary European retailer continued to flying <unk>.
Contributing strong fourth quarter gateway revenue.
We expect this project to deliver a strong first quarter revenue then stepped down as this deployment stays approaches completion.
We anticipate future self checkout and loss prevention opportunities with this retailer at other brands and then new geographies.
The Asia based global retailers self checkout deployment also generated meaningful fourth quarter revenue.
And its supply chain and logistics.
We continue to expect a second large north American end user to both continue their system deployment and drive large and point I see volumes and 20 twenty-three and beyond.
Turning to our organization.
Like to start by welcoming Haulsey land.
Chief Innovation Officer.
Hello focus on longterm innovation and intellectual property strategy as well as remain on our board of directors welcome call.
It's a pleasure to have you on our executive team.
In December we published our second corporate citizenship citizenship statement.
Outlining our commitments to people culture, the environment and governance.
Last year, we strengthened our ESG programs Foundation.
Formalising, our board's oversight of ESP matters.
Measuring and recording our scope, one and scope two emissions and adopting a new supplier code of conduct.
In 2023, we will focus on corporate culture, and environmental sustainability and anticipate meaningful progress on both.
Last and certainly not least.
I want to congratulate my Dear friend in a pinch cofounder Dr cover me.
He is 20 twenty-two Kyoto prize and advanced technology.
This award is a wonderful honor for a G M. A a person.
It was also one of the fathers of modern iced tea design of computing.
In addition to as many contributions to engineering physics and applied science.
Carver.
It makes me feel very happy to see you when this well deserved award.
Congratulations.
Before I close I'd like to thank every member of the pinch team.
The grit you showed every day of 2022.
Our results are a testament to.
So your grace under pressure.
Facing challenge after challenge.
To each of you.
Every member of this company you have built.
I'd like to offer my heartfelt. Thank you.
In closing 20 twenty-two was a banner your friend pinch.
We delivered record revenue and adjusted EBITDA, well lots of new products.
Best thing in our team and unlocking new opportunities.
As we continue driving our bold vision to connect every item in our everyday world.
I remain confident in our market demand in position and energized by the opportunities ahead.
I will now turn the call over to carry.
For our financial review and first quarter outlook.
Sorry.
Thank you Chris and good afternoon, everyone is Chris noted in pain shot a fantastic 20 twenty-two with four consecutive record revenue quarters record adjusted EBITDA margin and record backlog entering 2023.
<unk> built throughout the year, culminating in a record fourth quarter revenue adjusted EBITDA and D. P. S.
That said, we also wrestled with wafer shortfalls and component challenges preventing us from fully capitalizing on our demand.
Despite those challenges are teams consistent execution led to meaningfully improve supply and sequential revenue growth every quarter.
Today more than ever I am energized by her many enterprise deployments in retail and supply chain of logistics that are driving strong secular demand and which will in turn enabled us to grow to deliver growth and operating leverage.
Fourth quarter revenue was 76.6 million or 12% sequentially compared with $68.3 million in the third quarter of 2022.
End up 46% year over year from 52.6 million in fourth quarter of 2021.
Fourth quarter and point I see revenue was 58.7 million up 15% sequentially compared with 51.2 million in third quarter of 2022, and 53% year over year from 38.4 million in fourth quarter of 2021.
Quarter over quarter and point I see revenue growth significantly outpaced our original mid to high single digit expectations.
Unit volume growth also exceeded our original expectations more than upset in the expected decline in specialty in industrial mix.
Looking forward to first quarter 2023, we expect low double digit sequential and point I see revenue growth driven by increasing volumes as wafer supply continues to improve.
Fourth quarter systems revenue was 17.9 million up 4% sequentially compared with 17.1 million in third quarter, 2022, and 26% year over year for $14.2 million in fourth quarter 2021.
Systems' revenue exceeded our expectations due to our contract manufacturer delivering more readers than we had anticipated.
On both a sequential Andrew over a year basis gateway and reader I see revenue increased while reader revenue decreased despite strong backlog, we expect first quarter 20 twenty-three systems revenue to be similar to fourth quarter due to a few stubbornly type components.
2022 revenue was 257.8 million up 35% year over year, compared with 190.3 million in 2021 and.
Point I see revenue grew 38% year over year, driven by growing volumes from new deployments expansion of existing deployments and a strong strong specialty in industrial mix.
[noise] system's revenue groups, 30% year over year, driven by your family reader I see strength the loss prevention deployment with the visionary European retailer and broad based reader demand.
Fourth quarter gross margin was 53.8% compared with 56.9 per cent in third quarter of 2022, and 58.2% in fourth quarter 2021.
The quarter over quarter decline was driven by and point I see product margins, specifically, the lighter mix of specialty in industrial iced teas.
The year over year decline was driven by and point I see product margins both from the lighter mix of specialty in industrial iced teas, and less sales are fully reserved inventory.
Four year 22 gross margin set an annual record at 55.5% compared with 54.2% in 2021 with the increase due primarily to end point I see product margins, specifically the specialty in industrial mix, partially offset by less sales are fully reserved inventory.
Total fourth quarter operating expense was 29.5 million compared with 29 million in third quarter of 2022, and 25.3 million in fourth quarter of 2021.
Research and development expenses was 14 billion sales and marketing expense was 7.3 million general and administrative expense was 8.1 million.
2022 operating expense totaled 114.2 million compared with 94.1 billion in 2021.
We expect total first quarter 20, twenty-three operating expense to increase driven by annual payroll tax resets bonus structure changes legal fees as well as continued investments on our platform.
Fourth quarter, adjusted EBITDA was 11.8 million compared with 9.8 million in third quarter, 2022, and $5.3 million in fourth quarter 2021.
Fourth quarter adjusted EBITDA margin was 15.3 per cent.
2022, adjusted EBITDA was 28.9 million compared with $9.1 million and 2021.
2022, adjusted EBITDA margin was 11.2%.
Fourth quarter GAAP net loss was 100000 Fourthquarter non-GAAP net income was 11.6 million for 41 cents per share on a fully diluted basis.
20, twenty-two GAAP net loss was $24.3 million 20, twenty-two non-GAAP net profit was $26.3 million or 96 cents per share on a fully diluted basis.
Turning to the balance sheet, we ended the fourth quarter with cash cash equivalents and investments of $192.9 million compared with 201.1 million in third quarter, 2022, and 207.6 million in fourth quarter of 2021.
Inventory totaled $46.4 million up $14.5 million from the prior quarter with the increase coming primarily from and point I see work in process.
Fourth quarter.
Cash used an operating activities was 6.2 million property and equipment purchases totaled 6.1 billion free cash flow was negative $12.3 million for the full year net cast provided by operating activities was 600000 property and equipment purchases totaled $12.1 million free cash flow was negative 11.4 million.
Before turning to our first quarter guidance I want to highlight a few items unique to our fourth quarter results and first quarter outlook.
First we currently anticipate first quarter of 2023 gross margins between 52, and 53% with the sequential reduction due to a lighter mix of family reader Iced teas, and unanticipated costs in both 300 millimeter and point I see post processing and reader components. We are actively addressing these.
[noise] elevated cost and anticipate gross margins to return to our targeted 53% to 54% range and second quarter of 2023.
Looking further ahead, we see gross margin stabilizing and that 53 to 54 per cent range until product innovations create opportunities for gross margin accretion.
Second our business model demonstrated significant 20 twenty-two operating leverage and while we expect a step down in first quarter 2000, twenty-three adjusted EBITDA margin our goals remain operating margin expansion and then consistent free cash flow.
That said in first half 20 twenty-three are planned inventory growth comprising primarily in point I see working process will consume more cash than we will otherwise generate from operations.
Finally upside way first began leering into our fourth quarter 2022 inventory and we expect another increase doing during the first quarter 20 twenty-three. Despite that increase we expect to be hand to mouth on finished and point iced teas at least until second half 20 twenty-three for the reasons, Chris already noted.
Nonetheless, we anticipate growing and point I see shipment volumes to drive low double digit sequential and point I see revenue growth in first quarter 2000, twenty-three and mid to high single digit sequential and point I see revenue growth in the second quarter of 2023.
Turning to our outlook, we expect first quarter revenue between 82, and 85 million compared with 53.1 billion in first quarter 2022, a 57% year over year increase at the mid point.
We expect adjusted EBITDA between 9.2, and 10.7 million on the bottom line, we expect non-GAAP net income between 8.6, and 10.3 million, reflecting non-GAAP fully diluted earnings per share between 30 and 36 cents.
In closing I want to thank our and pinch team our customers or 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 M. J.
Thank you very much.
And the question and answer session.
Ask a question you may <unk> 10, one on your telephone keypad.
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At this time, we will pause momentarily to assemble Iraq.
Today's the first question comes from <unk> with Goldman Sachs. Please go ahead.
Hi, guys, good afternoon, and and congratulations on the strong results. My first question is for Chris I was hoping you could talk a little bit about how you were thinking about the full year, both from a supply perspective as well as the demand perspective.
On the supply side it it sounds like you're still working through you know some of the constraints both in your I T business as well as well as your systems business, but at this point in time, what kind of visibility do have you know what kind of support you have from your foundry partners and from your component suppliers.
In terms of growth for the full year and I guess on the demand side. If you can talk a little bit about you know, what you're saying from a pricing perspective, and and and how you're thinking about volume, particularly across logistics supply chain and retail that would be super helpful. Thank you.
Okay. Thank you to <unk> and I will do my best to get that question and.
Looking at Jacqueline Carey for a little bit of assistance, because there's a lot of items too on top of that.
So to start out and <unk>.
20, twenty-three, we anticipate significant time, when I see volume growth, despite macro economic crosscurrents and retailers ongoing inventory reductions, we see longterm multiyear tailwinds for our industry. Overall, we have of course very strong backlog entering the year.
There is pent up demand out there in the market from programs that were that were either delayed or that we couldn't fully get going.
In 2022, and we are seeing increased supply from our founding partner.
Now as I noted in my prepared remarks.
That increase supply is ramping up so we will <unk> as well as our post processing is ramping up and so we will.
Still be running hand to mouth for at least the next two quarters I'm heading into the second half of twenty-three and we'll have to give an update at that time based on what the demand looks like and what our supply and our post processing looked likes to give to get an idea of how much we're catching up if at all.
In terms of overall strength in the market, we collectively all of us.
Very good about where the market is right now.
[noise] opportunities that we're seeing on both and retail and supply chain of logistics and more broadly and I'll just add a little anecdote here.
Back when we first started in Rayne R F I D O.
15 years ago I.
I remember a lot of programs that were potentially going to ramp at that time.
Including everything from.
Magazines to pharmaceuticals to building supplies and somebody just so many areas.
Back at that time, the technology wasn't ready the products weren't ready and quite frankly.
The the radar if I wasn't far enough along for that kind of broad based adoption.
What we're seeing right now is those programs starting to return we're seeing demand on the market from many vertical and in addition to the strength in retailing supply chain of logistics.
That gives me a very positive feeling for the future 2023 N b out and a pause to see if anybody else here with like late or anything else on Earth I'll, just turn it back to you till she had checked it for a follow up question.
I think we're good did I answer your question stirs, Yeah, Yeah, just Chris on pricing I I think it's well telegraph your key foundry supplier increased pricing across the board not just for for you guys, but for for all Fabulous customers your ability to to to pass that through to the customers.
And and twenty-three and then I'll just ask my follow up as well and this one's for Kerry. So the so the increased costs. You you you spoke to on the post processing.
Things I I wasn't quite sure what what exactly is going on there and and Q1. So if you can kind of expand on that or elaborate that would be super helpful. And then your conviction level around that reverting and Q2 and beyond thank you.
Thanks to see I'm Gonna hand, the entire thing up to carry so.
Alright, so far so she is starting with the first part of your question, Yes start foundry partner raise prices those those prices increases are going into our going into effect right now expect us to handle the in a similar way that we've handled previous cost increases we will look to pass those on to our.
<unk> in a way that were enables us to maintain the integrity of our margin model those price increases are going into effect now over the course of the first couple of quarters of the year.
At this point.
And then to your question on post processing the the dip in gross margin is temporary and will rebound and Q2 for a couple of reasons first we had a very last minute cost increase from one of our back and partners for the first quarter, we are prioritizing.
Action volumes over costs, so that we may deliver on our customer commitments and continue scaling into this record demand.
Four Q2, however, we will flex our supply chain. So that we may get back to our targeted gross margin percent, while while delivering on increased volumes as well. So we just need a little bit more time to to flex to support that and.
And then the the second item.
<unk> two ongoing component challenges for a reader business, we had a cancellation and decided to pay a premium to get to secure the component from an alternative supplier based on today's visibility. However, we expect to deliver flatt systems revenue in Q2 at a ritual margin than Q1, so for those reasons we.
Expect Q2 to bounce back into the 53% to 54% range.
And I would end with I expect full year gross margin to be in the 53 to 54 per cent range, so will more than make up for it in the back half of the year.
Great. Thanks for all the details.
Yep, Thank you to share.
The next question comes from harsh Goodnight with papers handler. Please go ahead.
Yeah, Hey, guys first of all congratulations pretty incredible results in this economy.
Couple of questions first I wanted to clarify something Carrie did you say the second quarter, we'll see double digits teams and point I see blood just as a point of clarification and my question is.
You are seeing very healthy increases around noon is the main point iced tea I was curious if you could just take two she is question I'm trying to turn it around could you could you point us to the end markets that this is coming from.
Yeah, I'll I'll take the first one and then hand over to Jeff or Chris for the second so her to clarify.
For the first quarter expect low double digit quarter over quarter revenue growth for employment I see in the second quarter expect mid to high single digit quarter over quarter and point I see revenue growth.
Alright, thank you.
Keep <unk>.
Yeah, sorry that was it. Thank you and then and then the clarification on perhaps they're coming from.
Yeah demand is so harsh demand is coming from as I said in my prepared remarks significantly from our target verticals.
Retail and supply chain of logistics buoyed by some of the work we're doing in package tracking and select channels, just extent loss prevention itself check out on the retail side.
But as I said in answer to two so she is question and we're also seeing them kind of broad based growth and the other verticals and other opportunities and although we don't call those out specifically, we feel some buoyancy in the market from those many opportunities stable not all materialised into instant volumes, but programs are that I had thought word.
Or you know.
Find us at night I've kind of put out of my mind, starting to return right now so I feel good about the market I see Jeff nodding. His head the same so I think we feel good about war, where you are in terms of.
Longterm and when I see unit volume opportunities and a tailwind as we see overall for our industry and for us in particular.
Okay, great. Thank you so much christa that color and then Kerry from my follow up I I think when what's the numbers to the model of the Opex goes up quite significantly I think you're laid out a bunch of things.
Would this be the new base for our backs as we move forward or are you expecting a sort of a one time step up from a variety of reason in the March quarter cause you gave us. The revenues you gave us a margins and then there isn't a whole lot outside of <unk> that that that would be the the numbers.
And then Chris for you every Denison talks about 20% growth Homogonic Lee and this and the intelligent label business Yoga is much larger than I was trying to understand.
Why you're growing so much faster than your biggest the stupid.
Okay. Harsh this is Kerry I think I can take both of those so so yes, we are anticipating a step up in opex for the reasons I mentioned in the prepared remarks. It is the seasonal affective payroll tax resets, it's the structural change to a bonus remember this was the.
The second final step to change in our bonus to 100 per cent cash. It is legal fees and then it's our ongoing investment in in our platform. So as you look forward I expect this level to be at approximately where will be for for the near term.
With fluctuation depending on G&A relate it to to legal fees, which I expect more first half way to the second half and then as the seasonal expense abates expect our investment in in our engineering team, but our sales and marketing to step into that so the trend will match somewhat similar to what you.
Saw in 2022 since many of the dynamics are present in twenty-three as they were in 22.
Understood and then and then your second question regarding our growth rates are relative to one of our top <unk> customer is Avery Dennison, we don't always line up with Avery Dennison in each quarter. They report an enterprise wide and tell.
Intelligent labels revenue growth rate, but there are mixed in ASP differences that need to be taken into account.
We are also in a in a high inflationary environment right now and it's unlikely that it's impacting us both in this exactly the same way what I would add is we're incredibly encouraged that they're talking about the market acceleration of 2023, and that's exactly what we see as well.
Mmm.
Research, we serve kind of the broader market in general Denison is of course, one of the key suppliers of labels some advice, but there are others out there and so when we serve the broader market, which includes many other partners also keep quiet.
I'm sorry.
No no I was just saying thank you for all the collar guys and congratulations again.
Thank you thank you harsh.
The next question comes from Mike Lark Lane with Kenacort Genuity. Please go ahead.
Oh, great. Thank you let me add my congratulations that's been certainly fun to fall the intended journey over the past decade, and all that you guys have accomplished.
I guess my sneaky.
Yeah can.
My first question is just just on the the system is business you've had some very large projects rolled out over the past year and it sounds like.
It should be flattish.
Into the first half of the year, but how should we think about just the system business in the pipeline and maybe the second half of the year or is it too early to call once a new projects might hit.
This is Jeff I start by saying that the assistance pipeline is strong and growing nicely.
We.
We do have some large enterprise deployments better going well and success in those initial deployment creates opportunity to expand within those accounts as well as other other enterprises in the retail and supply chain and logistics <unk>.
Sectors, which are both.
Significant growth factors for <unk>.
As.
As it relates to I'll I'll pass it to carry to speak to that.
Timing and impact of revenue in the in 2023, Yeah, Mike. Thanks for the question, we signaled that we expect similar systems revenue in Q1 that we delivered in queue for and in Q1, we have a lot of the same dynamics with the visionary European retailer continuing.
To deploy the second phase of their loss loss prevention deployment now that Basil wrap up largely in Q1, there's opportunities to win more business with this customer that are are as great as what we've already delivered to the customer, but the time he may not match up perfectly.
We have been prioritising that deployment in terms of allocating are finite components to continue to be a struggle for us to get so as that phase two ramps down that frees up some components for us to deliver to other customers that have unfortunately been waiting on the sidelines Ah for their readers. So now that we.
Have a little bit desert better visibility into two Q components supply, we're able to to signal that Q2 will be is similar to Q1, whereas you recall last quarter. We were worried that we wouldn't be able to to to deliver similar revenue and we actually got a Q2 down just a little bit so we're in a little bit better position than what.
We when we were a quarter it go.
But we're still in a situation where demand outstrips, our ability to supply for systems, because because of these components shortfalls.
Alright, that's that's helpful colouring and for my follow up question, maybe for Chris or or Jeff just how.
How is the customer feedback for impinge authenticity that you've had a quarter of it rolled out in D. C anything even close to competitive on the market that can match decision and solution.
I'll take that one Mike and I'm excited that you asked the question I'm very encouraged by the growing level of interest among our solution partners and an increasing number of enterprise and customers regarding impinge authenticity solution engine.
Call that it's an innovative differentiated impinged platform solution engine that delivers cryptographic products authentication that protects brands and consumers.
The pipeline is growing nicely.
Of course that time, and pacing or the pace and timing of those opportunities is challenging you predict but I am even more optimistic today than when we had this conversation last quarter regarding the opportunity not only to build and point icy recurring revenue, but also to.
<unk>, a new services revenue opportunity in the longer term.
Like I I guess I would like to add one thing they're just as you think about it long term.
[noise] about any technology.
It doesn't matter, which one you pick.
Did you think of any really successful technology that hasn't rolled out security.
You'd be hard pressed to find one and here were the first ones to truly lodge and then fine I C design for broad based adoption as a cryptographic.
Cryptographic engine and a key in it and that cryptographic engine and the key.
Just to authenticate the item.
The iced tea is attached we believe that capability.
The future will be essentials and that at some point in the distant future as you know cause we get better and better at doing this that there will be a key and every single icy and.
Needs to be I mean, it just how technology go. So we're excited about where we stand today, we're excited about our pipeline and I personally I'm excited about the long term opportunities not just a year or two out but further out in time as well.
Okay. Thanks for taking my question.
Thank you.
The next question comes from Scott Sarah with Raw.
Go ahead.
Yeah. Good afternoon, Thanks for taking my questions and congrats again on the night score.
Things such as that.
[noise], Hey, Christian in past quarters, I think you've talked about under shipping demand from an end point I see in the ballpark of 50 per cent plus I didn't hear a number of this time around so I was wondering if there was one that you're willing to share with us and then on the system's out look I just want to clarify again it sounds like now with European visionary retail phase one deployment rolling off on the first.
What are you still a visibility at this point and comfort to a flat second quarter I'm kind of wondering how you think that that progresses, then into the second half of this year cause it sounds like phase two is not being factored in there. If it does that would be upside that we could possibly see in the second half of this year 2024.
So Ah Scott I think I'll take the first part of the <unk>. The first question and then I'll have to Paris.
We had signaled that for six consecutive quarters dramatic C. As flagged me more than 50 per cent.
I can't say that it's the same for this this current quarter as well so seven quarters demand is 60 to supply by more than 50 per cent. However.
We're going to stop using that metric going forward and instead focus on providing.
More detailed information about demand and supply the market and other things. So we're gonna we're gonna try and provide more color rather than just one single number going forward, but if you're asking about did we did we achieve that metric again for the seventh quarter at the answer is yes.
And Scott This is Kerry I can take the second question, Yes, you heard correctly, we know belief systems revenue will be flat it through the first two quarters of the year.
The the the last deployment bench deployment phase will go off and then the limited supply that we have will go to other customers in queue too, but keeping revenue about flat I don't want a guy second half systems revenue just yet.
We're still navigating these components shortfalls, so I don't feel comfortable going beyond the next couple of quarters, but as soon as we have better visibility two components, we will update that.
Great very helpful and and if I could just on the Big picture fun I guess two items following up on Mike's question on authenticity and you're kind of opened the door. There from our services revenue standpoint, I'm wondering how you're starting to see that model develop if there's any commentary in terms of.
Timeline, how you think that'll function and when we would actually see some contribution and then Chris from a really high level. You know if if we look over the past decade, and <unk> had been growing in the ballpark of 25 to 30 per cent a year.
Compound annual growth rate.
We're seeing that start to inflict you know being pulled forward by the pandemic obscured by a lot of the supply chain issues that we've had ongoing for the last several quarters. So.
I'm wondering if you would take a stab at what the groceries of this market looks like over the next 235 years. It's still very early days you know, we're still constrained by supply and wait for availability, but that's easing, but it's just some market. That's gonna grow 50 per cent for the next three to five years do you guys have any take on that thanks.
So let me take the second question first and then I'll hand over to that so the question of authenticity.
No Scott.
Hazard a lot of guesses on terms of where this markets could go or might go and I do feel.
It was very strong demand out in the market at N R. S.
Daily for the most part I was talking to enterprise and users as opposed to partners. So.
So I feel very good about the market about the opportunity about gross not only in our core vertical synergy and adjacent ones as well.
That said I don't feel good enough or I don't have predictive powers that are good enough to suggest that the market in.
In the future will be any different from the historical twin <unk> of 25 to 30 per cent. It may turn out to be the case and if it is will come forward and tell you, but right now the best predictions that I can make is just the historical trends had been 25 to 30 per cent and that's kind of what we're holding going slowly.
And Scott This is Kerry I can take the question.
Oh I'm sorry.
Yeah go ahead, Oh, no sorry, Chris I, just figured I'd give it a shot and try and private one area [laughter] My Crystal ball is not quite that good [laughter] sorry [laughter].
And it's got Unfortunately, my answer on authentication model is going to be roughly similar it's a little too early to model authentication revenue in 2023.
We are shipping or we will ship units are important I see authentication and point I see some as early as Q1, but very small quantities at this stage. So it won't really hit the radar so give us give us a little bit of time before we can provide clarity on that okay. Gotcha, Yeah, I think I would just add to that but I'm very encouraged by the creek.
<unk> of our solution partners, who will integrate cryptographic product authentication into their overall solutions offerings.
And one of the important things we're doing right now is engaging with leading enterprises in how they see the vows building value through the introduction of product authentication within their overall service certain product portfolios and in those disk.
<unk> <unk>.
These enterprise and customers.
Our bringing forest creative ways in which that value could be a tribute edge to both and point I see recurring revenue and the services revenue and how we and they and their partners might share in that building value. So.
I think it's a very important that were as well.
Where it gives valid paying this emerging opportunity to listen to enterprise customers on how they create value.
Contribution that the <unk> authenticity solution engine is making and therefore, how we ought to in partnership create and share that value.
Mmm, great. Thanks, so much guys grey quarter.
Okay. Thank you.
The next question is from January Shooty as Needham and company. Please go ahead.
Hi, Good afternoon. This is actually Kris kringle offer gym, congrats on the on the corner.
Sure.
Could you talk about B M 700, as a percentage of the mix and and how you expect that to progressive in the next few quarters.
So.
We don't break down on a percentage basis.
<unk> B 200 different are there are different product families. What I will say is that our intention and 700 family.
Volumes are growing.
They represent our newest products, that's where we're investing in building our post processing capacity and our future really is around that entire <unk> 700 families. So you should expect and you should expect that more and more as we go forward our volumes will be focused on the pinch M 700 fans.
Great and with with respect to the the two new chips that are targeting the the new use cases, and automotive farm and food what what should we be looking for their.
Terms of key milestones in and.
What what would you be playing you share with us over the course of the next the next few quarters.
Mmm.
I think the answer to that question is if we have particular customer opportunities that are using those <unk> will come forward if I liked them.
Otherwise, we intend to just treat the new impinge M 780, and M. 70, 81 is is kind of poor core elements of the M 700 product family and just expanding the breadth of the offering so.
Something notable comes up like we have a particular plan that gives them expect us to come forward with it otherwise we won't be breaking it out separately, but we're excited about the introduction because those particular ic's open up you know.
Just a broader range of opportunities for us.
Great. Thank you very much and and congrats again on the results.
Thank you Chris.
The next question is from tried Johnson That's Lake Street capital. Please go ahead.
Hey, Gentleman also for my congratulations as usual I'm just gonna ask one quick question here can be there for Ah for Jeffer for Chris, but I'd like to just chat a little bit about the pipeline and specifically logistics. We know you got you know the big first customer in the marquee second customer, but we've always talked about others waiting in the wings and.
It has to be a parent now that this big marquee customers. You know finds it successful I was moving for it. So I'm just curious if you could talk about you know big opportunities. There do you think will be talking about a third logistics customer and in 2022.
This is Jeff I can't speak to any specific customer, but when you do have sector, leading enterprises speaking publicly about the investments, they're making in their rain RFID deployments and the benefits there are already.
D seen in it no doubt others in the industry sector are tracking that those developments, if you will and I will say that the system's pipeline, including supply chain and logistics continues to build nicely.
As always I want to reinforce that that pace and timing of those opportunities it's hard to predict.
But I see increasing opportunity.
Ah for follow on Ah Ah enterprises in that sector.
Evaluating planning for and ultimately deploying solutions that are relevant to how they create business value in the future and its Android expect us to keep investing in this flashing on logistics opportunity because we truly think that it's it's about whether opportunity for for US specifically given the solution said, we're bringing a mark.
[noise] understood completely keep up the good work because.
Thank you next door.
The next question is a follow up some harsh goodnight with Piper Sandler. Please go ahead.
Yeah, Hey, guys actually I have two quick ones I noticed that we're modeling patches of zero going forward I was curious Gary if you could give us a sense of what kind of tax loss carry over you have and if it's appropriate to tomorrow zero per cent taxes for foreseeable future.
Yeah, it's it's almost zero, we have some foreign taxes that I think are and.
A couple of hundred thousand dollar range, we have almost 250 million of Nol's. So I don't anticipate a tax bill in the near term.
Sure enough and then that's pretty straightforward and then for one for Chris Chris There was a fair bit of talk I think bitcoin of last year. The the Japanese convenience store guys were very interested in our five G. If the costs would come down just a little bit I was curious if.
You could help us understand how the the the total you know tag cost might come down you know I know, it's probably not you guys. Because you are the main brains behind it at a penny would want it some of the other components it might come down and maybe an update on those on the on the Japanese comedians uhm.
<unk> consortium.
Yeah first I'll do my best to unpack that on it and give you.
Kind of a.
Cogent broadbased answer to it post COVID-19 the world has changed.
Prior to Covid that there was a significant push to drive the cost down.
As the key driver that would enable adoption.
Of course, and like cost and.
The increment on an overall tag costs are still important but.
But the discussions we're having within customers now are much more about digital transformation.
How we can help those <unk>.
Enterprises changed our business change how they run their business enable them to track every item they manufacture transport in south optimize their labor.
Labour teams in terms of overall efficiency drive efficiencies in the organization that the entire dynamic has changed post COVID-19.
So I'm, not saying cost us matter, but it's no longer the single biggest thing that we get into a discussion on a lot more discussion is how we can solve the problem for the customer.
Now as I see Cos other costs have gone up.
[noise] across essentially all industries costs have increased.
Of course, they'll have those cost us discussions it's hard to predict what the future holds from a cost perspective.
But I would anticipate you know.
Last thing settle out longterm post COVID-19.
Go back to gradually decreasing costs over time, those single digit S. P declines over off our industry, but that's to be determined to you know it really depends on what the future holds.
S I think specifically about that opportunity in Japan.
That opportunity has gone slowly and at least from our perspective, although not gone away.
Our other food opportunities worldwide that have actually come to the fore really heard of it we don't have the ability to really speak about those opportunities.
About other companies talking about food on some of their calls.
And food is one of those areas, where we see these kind of long term growth prospects.
And so we will be pushing in that area and of course food is very sensitive to cost and so if the cost aspect will come up associated with food, but right now we're really focused on is digital transformation.
Two quick things that I would add to that this is Jeff is that recall, that's a challenge that the Japanese convenience store enterprises are seeking to address is a scarcity of labor and the and the cost of labor and Ah that challenge is.
[noise] no less today.
Today than it was when they started their investigation into the role of rain R. F. I D and helping address that challenge. So while cost does matter other costs have continued to increase.
Which has a favorite bowl impact on the business modeling if you will about making a platform investment to address the labor shortage or scarcity and I would say the impinged platform and its contribution to self checkout has advanced well within that same timeframe.
So the opportunity to smartly invest in increasingly Performant impinged platform based solutions to self checkout in an environment, where labor costs continue to increase in labor scarcity continues to worsen.
It means that over time, though it's hard to protect the pacing timing that opportunity within that sector as well as Chris mentioned, two overall food and quick service restaurant et cetera is and and an increasing.
<unk> opportunity and gross factor for <unk> in the longer term.
Alrighty well guys. Thank you so much for all the color appreciate it.
Thank you <unk> X Ray my charge.
Yeah can I get that question and answer session I would now like to turn the conference back over to Christy ARIA Co founder and C E L or any closing remarks.
Thank you N J.
I'd like to thank you all for joining the call today I Hope you and your loved ones are safe and well.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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