Q4 2023 Impinj Inc Earnings Call

Operator: Welcome to the Impinj fourth quarter and full year 2023 financial results earnings conference call and webcast. All participants will be listening. Did you need us?

Welcome to the impinged fourth quarter and full year 2023 financial results earnings conference call and webcast.

All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

Operator: Signal a conference specialist by pressing the star key followed by zero after today's meeting. There will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone.

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Operator: Draw your question. On this note, this event is being recorded. I would now like to turn the, Go ahead.

Please note this event is being recorded.

I would now like to turn the conference over to Mr. Andy Cobb, Vice President Strategic Finance. Please go ahead.

Operator: Thank you, MJ. Good afternoon, and thank you all for joining us to discuss Impinj's fourth quarter and full year 2023 results. On today's call, Chris Diorio, Impinj's co-founder and CEO, will provide a brief overview of our market opportunity and performance. Kerry Baker, Impinj's CFO, will follow with a detailed review of our fourth quarter and full year 2023 financial results and first quarter 2024 outcomes. We will then open the call for questions. Jeff Dossett, Impinj's CRO, will join us for the Q&A.

Thank you Jay good afternoon, and thank you all for joining us to discuss impinges, our fourth quarter and full year 2023 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 fourth quarter and full year 2023 financial results and first quarter 2024 outlook. We will then open the call for questions, Jeff Dossett Impinges C. R O will join us for the Q&A.

Operator: You can find management's prepared remarks plus trended financial data in the investor relations section of the company's website. We will make statements in this call about financial performance and future 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.

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 the financial performance and future 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, whereas we believe we have a reasonable basis for making these forward looking statements.

Operator: Whereas we believe we have a reasonable basis for making these forward-looking statements, our actual results could differ materially because any such statements 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 law. On today's call, all financial metrics, except for revenue, or where we explicitly state otherwise, are non-GAAP. Balanchine and cash flow metrics are gap; Please refer to our earnings release for a reconciliation of our non-GAAP financial metrics to the most comparable GAAP metrics.

Our actual results could differ materially because any such statements are subject to risks and uncertainties. We described these risks and uncertainties in the annual and quarterly reports, we file with the FCC, we do not undertake and expressly disclaim any obligation to update or alter our forward looking statements.

Except as required by 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 GAAP.

Please refer to our earnings release for a reconciliation of our non-GAAP financial metrics to the most comparable GAAP metrics before turning to our results and outlook note that we will participate in Susquehanna 13th annual Technology Conference on February 29th in New York Loop.

Operator: Before returning to our results and outlook, note that we will participate in Susquehanna's 13th Annual Technology Conference on February 29th in New York, Loop Capital's 6th Annual Investor Conference on March 11th, and the 36th Annual Roth Conference on March 18th in Dana Point. We look forward to connecting with many of you at those events. I will now turn the call over to Andy. Thank you, Andy, and thank you all for joining the call.

<unk> fixed annual Investor Conference on March 11th and the 36th annual Roth Conference on March 18th and data point.

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.

Chris Diorio: We exited 2023 on an upswing, with fourth quarter revenue and profitability exceeding both our third quarter results and fourth quarter guidance. Our focus on silicon and enterprise solutions paid dividends in strong fourth quarter endpoint IT volumes, led by our two strategic verticals, retail and Supply Chain and Logistics. We will sharpen that focus as we enter 2024, increasing our investment in silicon and enterprise solutions while streamlining our organization to accelerate our pace and improve our profitability. Every January, we kick off the year with the National Retail Federation trade show in New York. This year, Rainer Aphadies felt like the belle of the ball.

We exited 2023 on an upswing.

With fourth quarter revenue and profitability are both both our third quarter results and fourth quarter guidance.

Our focus on Silicon and enterprise solutions pay dividends and strong fourth quarter endpoint IC volumes led.

Led by our two strategic verticals retail and supply chain and logistics.

It will sharpen that focus as we enter 2024, increasing our investment in silicon and enterprise solutions, while streamlining our organization to accelerate our pace and improve our profitability.

Every January we kicked off the year with the National Retail Federation trade show in New York.

This year rain RFID, you felt like the Belle of the ball.

Chris Diorio: Solution providers across the show touted use cases from inventory visibility to self-checkout, and users cited letting customers just walk out and retail necessities like loss identification, coming off the significant retail inventory destocking that characterized 2023. The excitement at NRF was palpable. Although I still feel it is premature to call the retail downturn over, the green shoots I cited last quarter feel a shade greener post-NRF, buoyed by secular growth opportunities and supply chain and logistics, and retail general merchandise. Harrell, and a long tale of other applications.

Solution providers across the show how to use cases from inventory visibility to self checkout.

End user set excited delighting customers with just walk out.

Retail necessities like loss identification.

Coming off the significant retail inventory destocking that characterize 2023.

The excitement at <unk> was palpable.

Although I still feel it is premature to call the retail downturn over the.

The green shoots I cited last quarter.

Shade greener posted in RF.

Buoyed by secular growth opportunities in supply chain and logistics retail general merchandise.

And a long tail of other applications.

Chris Diorio: From my perspective, Impinj stood out as the leading rain silicon provider and enterprise solutions enabler, which is precisely where we want to be. Turning to silicon, our 2023 endpoint IC unit volume growth exceeded our industry's historical 29% CAGR, with Opportunity Expansion and Inlay Partner Inventory Rebuilds More Than Offsetting the Retail De-stocking Headwind. Fourth quarter N.A.C.

From my perspective, and pinch stood out as the leading rain silicon provider and enterprise solutions enabler.

Which is precisely where we want to be.

Turning to Silicon, our 2023 endpoint IC unit volume growth exceeded our industry's historical 29% CAGR.

With opportunity expansion in late partner inventory rebuilds more than offsetting the retail destocking headwinds.

Fourth quarter endpoint IC revenue exceeded our expectations as growth in retail demand outpaced headwinds from some inlay partners still dialing in their inventory levels.

Chris Diorio: revenue exceeded our expectations as growth and retail demand outpaced headwinds from some inlay partners still dialing in their inventory levels. Looking forward, we anticipate the first quarter to again deliver modest N.X.E. unit volume growth.

Looking forward, we anticipate first quarter to again deliver modest endpoint IC unit volume growth.

Chris Diorio: For Reader ICs, a revenue-held firm despite continued macroeconomic headwinds in China, and as partners transition from older Indie-based products to new eFamily designs. The fourth quarter also showed strong test and measurement product deliveries to our inlay partners as they expanded their inlay manufacturing capacity. We believe those capacity expansions bode well for the long-term endpoint IC opportunity. Before we turn to solutions, I would be remiss in not citing our multiple intellectual property trial wins against our primary endpoint IC competitor, NXP, with steadfast determination. We intend to pursue the dispute to a long-term successful outcome.

Our reader Ics are revenue held firm despite continued macroeconomic headwinds in China.

As partners transition from older Andy based products to new <unk> family designs.

Fourth quarter also showed strong test and measurement product deliveries to our inlay partners as.

As they expand their inlay manufacturing capacity.

We believe those capacity expansions bode well for the long term endpoint IC opportunity.

Before we turn to solutions I would be remiss in not against setting our multiple intellectual property trial wins against our primary end point IC competitor NXP.

Steadfast determination, we intend to pursue the dispute to a long term successful outcome.

Chris Diorio: Moving to solutions, the visionary European retailers' ongoing rollout of our self-checkout and loss prevention solution contributed strong fourth quarter gateway revenue. We expect this deployment, their third to date, to conclude in the second quarter, even as it accelerates their embedded tagging ramp. We anticipate future self-checkout and loss prevention opportunities with this retailer and other brands and geography. In general merchandise, the large North American retailer continued its rollout, albeit at a slower pace than they and we originally expected, primarily due to the breadth of their supplier base and the large diversity in the products being tagged.

Moving to solutions, the visionary European retailers ongoing rollout of our self checkout and loss prevention solution contributed strong fourth quarter gateway revenue.

We expect this deployment there are third today to conclude in the second quarter, even as it accelerates their embedded tagging ramp.

We anticipate future self checkout and loss prevention opportunities with this retailer and other brands and geographies.

And general merchandise the large north American retailer continued their rollout.

But at a slower pace than they than we originally expected.

Primarily due to the breadth of their supplier base and large diversity and the products being tagged.

Chris Diorio: Regardless, they continue to make progress. Finally, in supply chain and logistics, we expect the second large North American supply chain and logistics end user to increase their label volumes in 2024. We expect all these projects to provide a tailwind to our 2024 Endpoint IC revenue. On the product front, Impinj M800 deliveries are poised to ramp, as our inlay partners finish their quals and begin shipping production inlays. The M800 is our best-performing and most feature-rich endpoint IC ever, and, so far, customer feedback has been very positive.

Regardless, they continue making progress.

Finally, it supply chain and logistics, we expect the second large north American supply chain and logistics and user to increase their label volumes in 2024.

We expect all of these projects to provide a tailwind to our 2024 end point IC revenue.

On the product front impinge <unk> hundred deliveries are poised to ramp.

As our inlay partners finished their close and begin shipping production in place.

Yes, 800 is our best performing and most feature rich endpoint IC ever and so far customer feedback has been very positive.

Chris Diorio: Although we are assuming that the M-800 will follow a typical multi-year ramp, we remain hopeful that our hard work on product performance and market readiness will accelerate that ramp. We also continue shifting our focus away from channel readers and gateways to our reader IPs and enterprise solutions, the former as partner products built on those ICs become increasingly able to unlock channel opportunities, and the latter leveraging our readers and gateways as indispensable elements of whole platform solutions. Turning to new market drivers, late last year, the European Commission and European Parliament provisionally included the Digital Product Passport, or DPP, in the EU's revised sustainability product legislation.

Although we are assuming the MA Hunter will follow a typical multi year ramp.

We remain hopeful that our hard work on product performance and market readiness will accelerate that ramp.

We also continue shifting our focus away from channel readers and gateways to our reader Ics and enterprise solutions.

<unk> as partner products built on those ice's, becoming increasingly able to unlock channel opportunities and the latter leveraging our readers and gateways as indispensable elements a whole platform solutions.

Turning to new market drivers late last year, the European Commission and European Parliament provisionally included a digital product passport or DPP in the eight used revised sustainability product legislation.

Chris Diorio: DPP will provide information about product sustainability and traceability and help consumers and businesses make informed purchasing decisions. We expect a phased introduction, including for apparel, to start in 2027. We already see leading European retailers planning for and investing ahead of it. We believe DPP is a pivotal opportunity for us because rain, already used extensively in retail apparel, can provide the information required by DPP.

D. P. P will provide information about our products sustainability, and traceability and help consumers and businesses make informed purchasing decisions.

We expect a phased introduction, including apparel to start in 2027.

We already see leading European retailers planning for and investing ahead of it.

We believe DPP as a pivotal opportunity for us because rain.

Already used extensively in retail apparel.

Can provide the information required by DPP.

Chris Diorio: We also believe BPP can be the impetus for post-purchase consumer RAN use cases. We began investing in DPP-related R&D in 2023 and will continue doing so in 2024. In closing, 2023 was another year of solid growth despite market headwinds, with annual revenue crossing the $300 million threshold for the first time. We delivered four quarters of positive adjusted EBITDA.

We also believe DPP can be the impetus for post purchase consumer range use cases.

We began investing in DPP related R&D in 2023, and we will continue doing so in 2024.

In closing <unk>.

122023 was another year of solid growth despite market headwinds.

With annual revenue crossing the $300 million threshold for the first time.

We delivered four quarters of positive adjusted EBITDA successfully defended our IP.

Chris Diorio: We have successfully defended our IP, introduced market-leading new products, and are well down the path to normalizing our inventory level. Looking forward, we are sharpening our strategic focus to improve our profitability and increase our competitiveness. As we continue driving our bold vision to connect every item in our everyday world, I remain confident in our market position and energized by the opportunities ahead. And I'll now turn the call over to Kerry for our financial review and first quarter outlook. Thank you, Chris. Good afternoon, everyone.

Introduced market, leading new products and are well down the path to normalizing our inventory levels.

Looking forward, we are sharpening our strategic focus to improve our profitability and increase our competitiveness as we continue driving our bold vision to connect every item in our everyday world I remain confident in our market position and energized by the opportunities ahead.

I will now turn the call over to Carrie for her financial review and first quarter outlook.

Thank you Chris and good afternoon, everyone 2023 was another year of strong revenue growth driven by our enterprise solution wins and end market diversification into supply chain and logistics and retail general merchandise.

Kerry Baker: 2023 was another year of strong revenue growth driven by our enterprise solution wins and end market diversification into supply chain logistics and retail general merchandise. That said, we also navigated a fluid retail environment, marked by significant retail apparel inventory destocking that elevated our first half revenue and depressed our second half revenue as our inlay partners first overbuilt endpoint IC inventory and then adjusted stock back to healthier levels. Despite those fluctuations, our team executed well, delivering non-gap profitability in each quarter of the year. Another 2023 highlight was our Voyantic acquisition, which extends our solutions to include inlay test and measurement. The cultural and financial fit between the companies is fantastic, and the integration is proceeding as planned. The Voyantic test and measurement systems used by both our inlay partners and end users are a key element of our focus on silicon and enterprise solutions.

That said, we also navigated a fluid retail environment marked by significant retail apparel inventory destocking for elevated our first half revenue and depressed our second half revenue as our inlay partners first overbuilt endpoint IC inventory and then adjusted stock back to healthier levels.

Despite those fluctuations our team executed well delivering non-GAAP profitability in each quarter of the year.

Another 2023 highlight was our oriented acquisition, which extends our solutions to include in late test and measurement.

The cultural and financial fit between the companies is fantastic and the integration is proceeding as planned.

<unk> test and measurement systems used by both our inlay partners and end users are a key element of our focus on silicon and enterprise solutions.

Kerry Baker: Fourth quarter revenue was $70.7 million, up 9% sequentially compared with $65 million in third quarter 2023, and down 8% year-over-year from $76.6 million in fourth quarter 2022. Fourth quarter endpoint IC revenue was $53.9 million, up 11% sequentially compared with $48.6 million in third quarter 2023, and down 8% year-over-year from $58.7 million in fourth quarter 2022. The sequential endpoint

Fourth quarter revenue was $70 7 million up 9% sequentially compared with $65 million in third quarter, 2023, and down 8% year over year from $76 6 million in fourth quarter 2022.

Fourth quarter endpoint IC revenue was $53 9 million up 11% sequentially compared with $48 6 million in third quarter, 2023, and down 8% year over year from $58 7 million in fourth quarter 2020 to the.

The sequential endpoint IC revenue growth exceeded our expectations, especially when compared to typical fourth quarter decline.

Kerry Baker: revenue growth exceeded our expectations, especially when compared to typical fourth-quarter declines. Looking to the first quarter, we again expect sequential endpoint IC revenue growth now that our large inlay partner inventory levels are relatively healthy. Fourth quarter systems revenue was $16.8 million, up 2% sequentially compared with $16.4 million in third quarter 2023, and down 6% year-over-year from $17.9 million in fourth quarter 2022. The sequential increase overcame our expectation of a decline due to strength in test and measurement.

Looking to the first quarter, we again expect sequential endpoint IC revenue growth now that are large and late partner inventory levels are relatively healthy.

Fourth quarter systems revenue was $16 8 million up 2% sequentially compared with $16 4 million in third quarter, 2023, and down 6% year over year from $17 9 million in fourth quarter 2022.

The sequential increase overcame our expectation of a decline due to strength in test and measurement.

Kerry Baker: Looking to the first quarter, we expect similar systems revenue to the fourth quarter. Total 2023 revenue was $307.5 million, up 19% year-over-year compared with $257.8 million in 2022. Endpoint I.C.

Looking to the first quarter, we expect similar systems revenue for fourth quarter.

Total 2023 revenue was $307 5 million up 19% year over year, compared with $257 8 million in 2022.

Endpoint IC revenue grew 22% year over year with enterprise solution wins, and inlay partner inventory rebuilds more than offsetting retail apparel destocking headwinds.

Kerry Baker: revenue grew 22% year-over-year with Enterprise Solution Wins and Inlay Partner Inventory Rebuilds more than offsetting retail apparel destocking headwinds. Systems revenue grew 10% year-over-year with test and measurement and gateway strength more than offsetting weakness in our partner-led reader business. Fourth quarter gross margin was 50.9%, compared with 50.5% in third quarter 2023 and 53.8% in fourth quarter 2022. The year-over-year decline was driven by higher indirect costs against lower production volumes.

Systems revenue grew 10% year over year with test and measurement and gateway strength more than offsetting weakness in our partner led reader business.

Fourth quarter gross margin was 59% compared with 55% in third quarter, 2023, and 53, 8% in fourth quarter 2022.

The year over year decline was driven by higher indirect costs against lower production volumes.

Kerry Baker: Full-year 2023 gross margin was 51.9% compared with 55.5% in 2022, with the decrease due primarily to lower endpoint IC product margins from fewer specialty and industrial ICs, as well as mix within those specialty and industrial ICs. Looking to first quarter 2024, we expect gross margin to sequentially increase. Total fourth-quarter operating expense was $33 million, compared with $32.6 million in the third quarter 2023 and $29.5 million in the fourth quarter 2022. Research and Development Expense was $15 million, Sales and Marketing Expense was $7.7 million, General and Administrative Expense was $10.3 million, including Litigation Expense of $3.8 million.

Full year 2023 gross margin was 51, 9% compared with 55, 5% in 2022 with the decrease due primarily to lower endpoint IC product margins from less specialty and industrial Ics as well as mix within those specialty and industrial Ics.

Looking to the first quarter 2024, we expect gross margins to sequentially increase.

Total fourth quarter operating expense was $33 million compared with $32 6 million in third quarter, 2023, and $29 5 million in fourth quarter 2022.

Research and development expense was $15 million sales and marketing expense was $7 7 million general and administrative expense was $10 3 million, including litigation expense of $3 8 million.

Kerry Baker: 2023 operating expense totaled $137.8 million compared with $114.2 million in 2022. We expect total first quarter 2024 operating expense to increase sequentially, driven by annual payroll tax and bonus accrual receivables. We expect first quarter litigation expense to decline sequentially.

2023 operating expense totaled $137 8 million compared with $114 2 million in 2022.

We expect total first quarter 2020 for operating expense to increase sequentially driven by annual payroll tax and bonus accrual resets, we expect first quarter litigation expense to decline sequentially.

Kerry Baker: Fourth quarter adjusted EBITDA was $3 million, compared with $300,000 in Q3 2023 and $11.8 million in Q4 2022. Fourth quarter adjusted EBITDA margin was 4.2%. 2023 adjusted EBITDA was $21.8 million, compared with $28.9 million in 2022. 2023 adjusted EBITDA margins were 7.1%. Fourth quarter gap net loss was $15.2 million.

Fourth quarter, adjusted EBITDA was $3 million compared with 300000 in third quarter of 2023, and $11 8 million in fourth quarter 2022.

Fourth quarter adjusted EBITDA margin was four 2%.

2023, adjusted EBITDA was $21 8 million compared with $28 9 million in 'twenty two 'twenty.

2023, adjusted EBITDA margin was seven 1%.

Fourth quarter GAAP net loss was $15 $2 million fourth quarter non-GAAP net income was $2 5 million or <unk> <unk> per share on a fully diluted basis.

Kerry Baker: Fourth quarter non-gap net income was $2.5 million, or $0.09 per share on a fully diluted basis. The 2023 gap net loss was $43.4 million. 2023 non-gap net income was $19.8 million, or $0.70 per share on a fully diluted basis. Turning to the balance sheet, we ended the fourth quarter with cash, cash equivalents, and investments of $113.2 million. Inventory totaled $97.2 million, down $9.6 million from the prior quarter, with the decrease coming primarily from endpoint ICs. Fourth quarter net cash provided by operating activities was $1.4 million, property and equipment purchases totaled $2.6 million, and free cash flow was negative $1.2 million. For the full year, net cash used in operating activities was $49.4 million.

2023, GAAP net loss was $43 4 million in 2023, non-GAAP net income was $19 8 million or <unk> 70 per share on a fully diluted basis.

Turning to our balance sheet, we ended the fourth quarter with cash cash equivalents and investments of $113 2 million.

Inventory totaled $97 2 million down $9 6 million from the prior quarter with the decrease coming primarily from endpoint Ics.

Fourth quarter net cash provided by operating activities was $1 4 million property and equipment purchases totaled $2 6 million free cash flow was negative $1 2 million.

For the full year net cash used in operating activities was $49 4 million property and equipment purchases totaled $18 6 million free cash flow was negative $68 million driven by our endpoint IC inventory rebuilds.

Kerry Baker: Property and equipment purchases totaled $18.6 million, and free cash flow was negative $68 million, driven by our Endpoint IC inventory rebuild. Before turning to our guidance, I want to highlight a few items unique to our results and outlook. First, in the fourth quarter, our inlay partners made further progress reducing their end-point IC inventory, and our large partners exited the year relatively healthy, leaving them well-positioned to ramp M800 volumes. Some of our smaller partners still hold elevated inventory, which we expect them to bleed down as their project-based demand returns. Second, as we conclude our eFamily Reader IC transition, we will end the life of our prior generation Indie product family with last time shipments scheduled in the first half of 2024.

Before turning to our guidance I want to highlight a few items unique to our results and outlook.

First and fourth quarter, our inlay partners make further progress reducing their endpoint IC inventory and our large partners exited the year relatively healthy leading them well positioned to ramp <unk> 800 volumes.

Some of our smaller partners still hold elevated inventory, which we expect them to bleed down as they're project based demand returns.

Second as we conclude our E family reader IC transition, we will end of life. Our prior generation Indeed product family with last time shipments scheduled in first half 2024.

Kerry Baker: Turning to our outlook, we expect first quarter revenue between $72 and $75 million, compared with $70.7 million in fourth quarter 2023, a 4% quarter over quarter increase at the midpoint. We expect adjusted EBITDA between $3 and 4.5 million. On the bottom line, we expect non-GAAP net income between 2.2 and 3.7 million, reflecting non-GAAP fully diluted earnings per share between $0.08 and $0.13.

Turning to our outlook, we expect first quarter revenue between 72, and $75 million compared with $70 7 million in fourth quarter, 2023% to 4% quarter over quarter increase at the midpoint.

We expect adjusted EBITDA between 3% and $4 5 million on the bottom line, we expect non-GAAP net income between two two and $3 7 million, reflecting non-GAAP fully diluted earnings per share between <unk> and <unk>.

Kerry Baker: In closing, I want to thank the Impinj team for your outstanding execution this quarter. We have delivered nine consecutive quarters of positive adjusted EBITDA, even as we continue investing in our business. We now turn our focus to the next goal, generating consistent free cash flow. I believe our efforts to streamline our organization will accelerate progress towards that goal. With that, I will now turn the call to the operator to open the question and answer session. Thank you very much. To ask a question, you may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the button. If, at any time, your question has been answered and you would like to withdraw your question, you may press star then.

In closing I want to thank the <unk> team for your outstanding execution. This quarter, we have delivered nine consecutive quarters of positive adjusted EBITDA, even as we continued investing in our business. We now turn our focus to the next goal generating consistent free cash flow I believe our efforts to streamline our organization will accelerate.

Progress towards that goal.

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

Thank you very much 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 any time at your question has been addressed and you would like to withdraw. Your question you May Press Star then two.

Operator: As a courtesy to others, we ask that you limit yourself to one question and one follow-up. If you have additional questions, And we will take as many questions as time allows. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Harsh Kumar with Piper. Please go ahead. Yeah, hey guys, first of all, congratulations. You guys are back to beat and raise, which is fantastic

As a courtesy to others, we ask that you limit yourself to one question and one follow up if 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.

Today's first question comes from harsh Kumar with Piper Sandler. Please go ahead.

Yeah, Hey, guys first of all congratulations you guys are back to beat and raise which is fantastic.

And as you.

Chris Diorio: Chris, you sound fantastic about the prospects of the business. We appreciate that. So on that note, Chris, my first question to you is, you know, historically, you've had endpoint IC unit growth fall at 20, 25%. You're coming off of a pretty healthy inventory correction, but your end markets are all looking, you know, nicely up. Is it fair for us to think about endpoint IC unit growth in the 25% range for 2024? Well, first, I'm going to say thank you for your kind words, Harsh.

Chris you sound fantastic about the prospects of the business we appreciate that.

So on that note Chris My first question to you is you know.

Historically, you've had endpoint IC unit growth.

2025% Youre coming off of a pretty healthy inventory correction, but your end markets are all looking nicely up is it fair for us to think about endpoint IC unit growth in the 25% range for 2024 year.

Well first of all to say thank you for your kind words harsh.

Chris Diorio: So we guide one quarter at a time, as you know, and making predictions at this point in time relative to overall 2024 is quite difficult. You've probably heard some of our partners talk about 2024 overall and say they potentially see some macro pick up in the back half of the year. If that macro improvement actually happens, then we will see strength in the back half of the year as well, and the potential for gains, as we have seen in other years, but a lot depends on what happens in the macro environment.

So we guide one quarter at a time as you know and making predictions at this point in time relative to overall 2024 is quite difficult.

You've probably heard some of our partners talk about 2024 overall, let's say a potentially see some macro.

On pickup in the back half of the year.

That macro improvement actually happens then we see strength in the back half of the year as well and the potential for gains as we have seen in other years, but a lot depends on what happens in the macro environment I am not willing to call yet that we're going to see that pick up in the back half of the year because as I said in my prepared remarks.

Chris Diorio: I'm not willing to call yet that we're going to see that pick up in the back half of the year because, as I said in my prepared remarks, it's a bit too early for us to call the downturn over, but I'm guardedly optimistic for the back half of the year. And if it picks up, we'll see it at the end point. I see volume. And as I said, you know, green shoots look greener, so let's hope those green shoots continue growing. We're going to do our best to water them.

It's a bit too early for us to call the downturn over but I'm guardedly optimistic for the back half of the year and if it picks up we're going to see it in the endpoint IC volumes.

Fair enough and as I said, great Green shoots.

Green shoots look greener, so, let's let's hope those green shoots continue growing we're going to do our best to water.

Okay.

Chris Diorio: That's great. For my follow-up, I wanted to clarify what you call your second logistics customer. Now they do, I think, $6 billion in odd shipments a year.

My follow up I wanted to clarify on what you call is yes second life.

Second logistics customer now they do I think $6 billion. Some odd shipments a year is it is it fair to think that you are now fully penetrated in 2024 with that set of $6 billion on a shipment number or you think that the NP.

Chris Diorio: Is it fair to think that you are now fully penetrated in 2024 with that sort of 6 billion shipment number? Or do you think that the Endpoint IC installation within that particular customer will continue to ramp not just for 2024 but possibly into 2025?

Now she installation within that particular customer will continue to ramp not just for 2024, but possibly into 2025.

So.

Chris Diorio: I think you meant 6 billion units rather than $6 billion in terms of the total number of products they ship. You know, Harsh, it's difficult for me to speak to the pace and timing of an end-customer ramp. What I said in my prepared remarks is we see increases in volumes in 2024. That said, that end user has diverse operations.

And it's just I think he meant six 6 billion units rather than the $6 million in terms of the covenant of our products.

Jeff.

Harsh it's difficult for me to speak to.

The pace and timing of an end customer ramp what I said in my prepared remarks, we see.

Increases in volumes in 2024.

That said that end user has diverse operations.

Chris Diorio: And so, I think it's probably fair to say that there will be opportunities for continued gains with that end user, and we will do our best to support them at every opportunity to support their deployment and make it successful. In terms of the pace and timing at which they ultimately go, I think I'm going to have to defer to them and the remarks that they often make in their earnings. Fair enough, Chris.

And <unk>.

So I think it's probably fair to say that there will be opportunities for continued gains with that end user and we will do our best to support them at every opportunity to support their deployment and make it successful.

Terms of the pace and timing of which they ultimately go I think I'm going to have to defer to them in the remarks that the affirmation of our earnings calls.

Chris Diorio: I'll get back in line. Thank you and congratulations, guys. Thank you, folks. Thank you. The next question is from Shia Hari on behalf of Goldman Sachs. Please go ahead. Hi, good afternoon.

Fair enough, Chris and I will get back in line. Thank you and congratulations guys.

Thanks George.

Thank you. The next question is from Toshi Hari with Goldman Sachs. Please go ahead.

Hi, good afternoon. Thank you so much for taking the question I had two questions as well the first one is on the <unk> hundred.

Operator: Thank you so much for taking the question. I had two questions as well. The first one is about the M800.

Kerry Baker: I think it was you, Carey, toward the end of your remarks, you talked about your large partners being in a pretty good spot from an inventory position perspective and how they're well-positioned to ramp up the M800. As the M800 kind of comes into your mix, how should we think about the penetration rate exiting the year? And how should we think about the impact that could have on both ASP expansion as well as your gross margin? And then there is a follow-up. Thanks, Toshia. This is Kerry. Customer feedback on the M800 has been overwhelmingly positive.

I think it was you carried toward the end of your remarks, you talked about.

Your large partners being in a pretty good spot from a from an inventory position perspective, and how they are well positioned to ramp.

100.

We have made 100 kind of comes in.

And to your mix, how should we think about the penetration rate exiting the year.

And how should we think about the impact that could have on both ASP expansion as well as your gross margins.

And then I have a follow up.

Okay. Thanks, Chris here this is carey.

Customer feedback on the <unk> hundred has been overwhelmingly positive our partners are moving forward with the calls and we expect some initial production shipment volumes this quarter.

Kerry Baker: Our partners are moving forward with their qualifications, and we expect some initial production shipment volumes this quarter. Historically, however, new endpoint IC ramps have taken multiple years. We're optimistic that the excitement around the M800 can accelerate that historical product ramp, but it's too early to predict the pace of the ramp at this point. I would add that, in addition to the performance and manufacturability gains, the M800 also carries a significant cost advantage for Impinj, given the die strength that's built into that endpoint IC.

Historically, however, new endpoint IC ramps have taken multiple years, we are optimistic that the excitement around the <unk> hundred we can accelerate that historical product ramp, but it's too early to predict the pace of the ramp up at this point.

I would add in addition to the performance and manufacturer ability gains. The MH 100 also carries a significant cost advantage for impinge given the dice strength thats built into that endpoint IC.

Kerry Baker: When fully ramped, we expect the M800 to deliver approximately 300 basis points of gross margin accretion. Given how early we are on the product ramp, however, I do not think I'll see, or we will see, the MH-100 impact and gross margin in the first half of this year. Give us another six months, and we'll see how that ramp goes, but we're very encouraged by what we've seen so far. That's helpful.

When fully ramped we expect the 800 to deliver approximately 300 basis points of gross margin accretion.

Given how early we are in the product ramp however, I do not think I'll cede or we will see the MH 100 impacting gross margin in the first half of this year give us another six months and we'll see how that ramp goes.

But we're very encouraged by what we've seen so far.

Kerry Baker: And then as a follow-up, Chris and Kerry, I think you both mentioned something about streamlining your organization. You've generated positive EBITDA on a consistent basis. You talked about being focused on generating consistent free cash flow. When you say streamlining your organization, what do you mean? What are you doing today internally?

Great. That's helpful and then as my follow up.

Chris and Carrie I think you both mentioned something about streamlining your organization.

You've generated positive EBITDA on a consistent basis, you talked about being focused on generating consistent free cash flow. When you say streamlining our organization like what do you mean, what are you doing today.

Today internally and what kind of cost reductions or efficiencies can be expected model going forward in 'twenty four and beyond thank you.

Kerry Baker: And what kind of cost reductions or efficiencies can we expect and model going forward in 24 and beyond? Thank you. Thanks, Tashia. This is Kerry again.

Thanks for sure. This is Terry again, I'll take that one we are streamlining and adjusting our channel reader investment to better align that portion of our reader business to its revenue profile.

Kerry Baker: I'll take that one. We are streamlining and adjusting our channel reader investment to better align that portion of our reader business to its revenue profile. We're not exiting the channel reader business, and we will continue supporting our partners in the market. This move will allow us to do that and support our partners in a more profitable fashion. This change is a natural progression of our strategy as our partner designs with eFamily are increasingly able to unlock that channel reader business, and we are therefore able to focus our efforts on the enterprise solution. We remain focused on our three financial goals that we outlined last year at Analyst Day, long-term revenue growth, profitability, and free cash flow. Thank you and congrats.

We're not exiting the channel reader business and we'll continue supporting our partners in the market. This move will allow us to do that and support our partners in a more profitable fashion.

This change is a natural progression of our strategy as our partner designs with E family are increasingly able to unlock that channel reader business and we are therefore able to focus our efforts on the enterprise solutions.

We remain focused on our three financial goals that we outlined last European investor or the analyst day.

Long term revenue growth profitability and free cash flow.

Okay.

Thank you and congrats.

Kerry Baker: Thank you. Thank you. Thank you. Your next question... Christopher Rowland with Susquehanna, please go ahead. Hey, Matt, this is Kerry.

Thank you. Thank you. Thank you for this year.

Thank you. Your next question comes from Chris Christopher Rolland with Susquehanna. Please go ahead.

Hey, guys. This isn't that Myers on for Chris.

First off congrats on the quarter, but also just wanted to get some more clarity around the inventory inventory dynamic you guys have been seeing so is this largely over now for you do you still see much excess inventory on the endpoint IC side or is it on the reader side.

Kerry Baker: I think I could take a shot at that. In the fourth quarter, our inlay partners made further progress reducing their endpoint IC inventory, and the large partners exited the year relatively healthy. So they're now able to ramp up the M800 as production volumes increase. Think of our inlay business as an 80-20 rule with a handful, maybe six or so inlay partners driving the bulk of that volume. There are smaller partners whose inventory levels remain a little elevated. We're not as concerned about that.

I know you mentioned the smaller partners that still have some elevated inventory how incremental is this and this.

Is there any inventory still with your inlay partners.

Hey, Matt. This is Cary I think I could take a shot at that in in the fourth quarter. Our inlay partners made further progress reducing their endpoint IC inventory and the large partners exited the year relatively healthy so theyre now able to ramp the <unk> 800 as production volumes increase think of our inlay business.

As an 80 20 rule with a handful maybe six or so inlay partners driving the bulk of that volume there are smaller partners, whose inventory levels remain a little elevated we're not as concerned about that their demand has historically been project based and as that project based demand.

Kerry Baker: Their demand has historically been project-based, and as that project-based demand comes back, they'll get healthy again. But we're feeling pretty good about where we are at this point, and we think in the first quarter, we'll be shipping closer to demand, whereas in the last couple quarters, we've been pulling down channel inventory and, as a result, under-shipping demand. And I guess I'll say a tiny bit more there. As you look at the overall market, we do see retail inventory de-stocking at the end-user level starting to taper, but sales out still exceeds imports, and so it's not clear how long that de-stocking is going to go on. At some point, it has to end.

Comes back they'll get healthy again, but we're feeling pretty good about where we are at this point and we think in the <unk>.

In the first quarter, we will be shipping closer to demand, whereas the last couple of quarters, we've been pulling down channel inventory and as a result under shipping demand and I guess I'll say, a tiny bit more there as you look at the overall market.

We do see their retail inventory destocking at the end user level starting to taper.

Sales out still exceeds imports and so.

It's not clear how long that Destocking is going to go on at some point that sand.

Chris Diorio: We're seeing it taper off now, and as that de-stocking ends and assuming demand stays healthy, then we expect to see accelerating retail demand on the other side. You know, Matt, I don't think there have been any public comments from that customer, and I don't think we've got anything that we can add at this point in time. Sorry about that.

We're seeing a tapering now and is that Destocking ensign and assuming demand stays stays healthy and we expect to see accelerating retail demand on the other side.

That's great color. Thanks, guys. Another quick follow up to I know you talked about your second logistics customer, but curious if there are any updates around your first customer here.

No Matt I don't think.

There have been any public comments from that customer and I don't think we've got anything that we can add at this point in time.

Sorry about that.

Thanks, Chris.

Thank you. The next question is from Jim Ricchiuti with Needham <unk> Company. Please go ahead.

Chris Diorio: Thank you. The next question... Let's go ahead. All right, thanks. Good afternoon. I may have missed it.

Alright. Thanks, Good afternoon, I may have missed it and I joined the call little bit late but can you elaborate there.

Operator: And I joined the call a little bit late, but can you elaborate on some of the restructuring that you're doing, to what extent that's impacting OP-X carry? I think Kerry and I are going to share this one a little bit.

Just on some of the restructuring that youre doing towards extent that's impacting.

Opex Carey.

I think I think carrying <unk> on a little bit and thats part of it.

Chris Diorio: As part of sharpening our focus, and as Kerry mentioned in answer to one of the prior questions, I'm adjusting our spend and normalizing our spend in our reader and gateway channel business. We have reduced our headcount by about 10 percent and refocused our company along the lines of our silicon and enterprise solutions. We believe that refocusing will drive both our profitability and our success, the kind of focus we go forward, and the growth opportunities for the company. So although it's painful, very painful, to go through a headcount reduction, and it's not something we take lightly or easily, it's something that we felt we needed to do.

Sharpening our focus and as Carey mentioned in answer to one of the prior questions.

Okay.

Adjusting our spend in normalizing our spend and our reader engagement channel business, we have reduced our head count by about 10%.

And refocused our company along the lines of our Silicon and enterprise solutions, we believe that refocusing will drive both our profitability and our success kind of our focus going forward.

The growth opportunities for the company.

So although it's painful very painful to go through a headcount reduction is not something we take lightly or easily something that we felt we needed to do.

Chris Diorio: And in refocusing the company, we're going to be focusing on growth, on accelerating our growth, even as we drive profitability. So we're aligning to our strategy, and I think you'll see us tighten that alignment as we go forward, not in terms of further headcount reductions, but just in terms of how we're really focusing on the opportunity in front of us. Chris, I think you did a fine job answering that

In refocusing the company, we're going to be focusing on growth on accelerating our growth even as we drive profitability.

So we're aligning to our strategy and.

And I think youll see us tightened that alignment as we go forward not in terms of further head count reductions, but just in terms of how we're really focusing on the opportunity in silence here.

Chris I think I think you did a fine job of answering Jim I would just reiterate that this is a.

Kerry Baker: Jim, I would just reiterate that this is the natural next step in our strategy. You've heard us talk about enterprise solutions for the last several quarters at this point. This is allowing us to do that in a better way while also running our channel reader business in a more profitable fashion. As I think about OpEx in the first quarter, I still expect OpEx to step up, though not as much as you've seen in the last couple years in Q1. We still have the annual payroll tax resets, we still have the bonus accrual reset, but muting that will be a little bit lighter on labor or wage-related spending and a little bit lighter on litigation spending.

The natural next step in our strategy, you've heard us talk about enterprise solutions.

For the last several quarters at this point this is allowing us to do that in a better way while also.

Running our channel reader business in a more profitable fashion as I as I think about opex in in the first quarter I still expect opex to step up though not as much as as you've seen in the last couple of years in Q1.

We still have the annual payroll tax resets, we still have the bonus accrual reset.

But muting that will be a little bit lighter.

On labor wage related spending and a little bit lighter litigation spend.

Kerry Baker: Got it. Thank you for that. My follow-up question, Kerry, in the past when you've given guidance, you've given a little bit more color around the endpoint where I see revenue growth. And I'm wondering, is this quarter a little bit more challenging to forecast? What are some of the puts and takes as we think about the sequential growth that you're anticipating in endpoint I see revenue? And, you know, is there any color as we think about Q2? Jim, I think the color's about the same.

Got it. Thank you for that I'd like to follow up question Cary in the past when you had given guidance.

Given.

A little bit more color around endpoint IC revenue growth and I'm wondering is this quarter, a little bit more challenging to forecast and what are some of the puts and takes as we think about the sequential growth that youre anticipating in endpoint IC revenue.

Is there any color as we think about the Q2.

Jim I think the colors about the same.

Kerry Baker: Maybe I'll provide a little more here. Q4 is seasonally our softest quarter as we typically ship in front of the holiday season. We bucked that seasonality this Q4, and we were able to deliver 11% sequential endpoint IC revenue growth, even as we took down more channel inventory in Q4 than we did in Q3. Looking to the first quarter, we again expect sequential endpoint IC revenue growth. Now that our large inlay partners' inventory levels are relatively healthy, and our shipments, as I mentioned previously, are going to more closely match the underlying demand in the fourth quarter, we are very pleased that we are now modeling our third consecutive quarter of sequential demand increases. The upticks, however, have been modest, and I don't think they reflect the snapback that I would expect when the broader retail recovery occurs.

Maybe I'll provide a little a little more here.

Q4 is seasonally our softest quarter as we typically ship in front of the holiday season, we bumped that seasonality. This Q4, and we were able to deliver 11% sequential endpoint IC revenue growth, even as we took down more channel inventory in Q4 than we did in Q3.

Looking to the first quarter, we again expect sequential endpoint IC revenue growth now that our large inlay partners. The inventory levels are relatively healthy and our shipments as I mentioned previously our go to more closely match the underlying demand in the fourth quarter.

We are very pleased that we are now modeling our third quarter in a row of sequential demand increase.

The upticks, however have been modest and I don't think reflective of the snap back that I would expect when when the broader retail recovery occurs.

Kerry Baker: While some of our partners have signaled expectations of a retail recovery in the second half of the year, and as Chris mentioned, some of our green shoots are greener this quarter than they were last quarter, we're a couple steps removed from end customer demand, and I don't think it's our place to call the timing of a retail recovery. We're very encouraged by the progress that we're seeing in demand and the improvements that we're seeing, but at this point, I'm not modeling a retail rebound in the first half of the year. I got it.

While some of our partners have signaled expectations of retail recovery in the second half of the year and as Chris mentioned some of our Green shoots are greener this quarter than they were last quarter, where a couple of steps removed away from end customer demand and I don't think its our place to call the timing of our retail recovery.

We're very encouraged by the progress that we're seeing in demand and the improvements that we're seeing but at this point I'm not modeling a retail rebound in the first half of the year.

Got it thank you.

Kerry Baker: Thank you. The next question is from Mike Walkley with Canaccord Genuity. Please go ahead. Hi, this is Julian Rajan on behalf of Mike.

Thank you Jamie.

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

Hi, This is Julian Rishon on for Mike. Thank you for taking the question and congrats on the strong performance.

Operator: Thank you for taking the question and congratulations on the strong performance. So, for Chris, Impinj has strong intellectual property; can you discuss how you are protecting your IP and update us on the status of your ongoing lawsuits with NXP and also with the potential for a monetary award given your recent wins? Given your recent wins, how should we think about a potential amount or could a royalty type of arrangement happen with NXP? Thank you. Thank you, and

So to Chris' interest strong intellectual property.

Can you discuss how you are protecting your IP and update us on the status of your ongoing lawsuit with NXP.

Also with the potential for a monetary award given your recent wins, how should we think about a potential amount or could a royalty type of arrangement happened with NXP. Thank.

Thank you.

Thank you and.

Chris Diorio: The answer to that question could take more time than I think we have here. We'll say that we have gone through three separate trials with NXP, one in Washington, one in California, and one in Texas. We have prevailed in all three of those trials. In addition, NXP sued us in three separate trials in China and subsequently dropped all three of those trials.

The answer to that question could take more time than I think we have here.

We will say that we have gone through three separate trials with NXP, one in Washington, One in California, one in Texas.

We have prevailed in all three of those trials. In addition, NXP suit us in three separate trials in China and subsequently dropped off three of those trials.

Chris Diorio: So I feel good about where we are to date. There have been jury awards, both in terms of damages and lost profits, as well as ongoing royalties, but final judgments haven't yet been entered by the courts. So it's a bit, you know, and there are motions back and forth and a lot of other things that go on on the legal front. So it's too early for us to call where we will net out. As I said in my prepared remarks, I'm prepared to take this litigation through to its successful completion.

I feel good about where we are to date.

There have been jury awards, both in terms of damages and loss profits as well as ongoing royalties.

Final judgments hasn't yet been entered by the courts.

So it is a bit more.

<unk> back and forth and a lot of the other things that go on the legal front so.

So it's too early for us to call, where we will net out as I said in my prepared remarks.

We prepare to take this litigation through to a successful completion.

Chris Diorio: We feel that we need to defend our leadership position in the market, our intellectual property that we have expended so much effort to develop as the market creator, against people who copy our products and infringe our IP. So you should expect us to continue pursuing that litigation. SETTLEMENT TAKES TWO PARTIES, The date, we haven't been able to reach a settlement with NXP; I don't know if we will or we won't.

We feel that we need to defend our leadership position in the market our intellectual property that we extended so much effort to develop as the market creator.

Against people, who copy our products infringe our IP. So you should expect us to continue pursuing that litigation.

Suddenly it takes two parties to date.

There hasn't we haven't been able to reach a settlement with NXP I don't know, if we will or we want.

Chris Diorio: Either way, we feel that it's our obligation to protect our company, protect our IP, protect against people who copy it, and so we expect us to do our best here going forward, and, like I said, pursue this litigation to a successful outcome. Thank you. Thank you, Joanne. Your next question comes from Chris Kapsch with Loop Capital Markets. Please go ahead. Hi, good afternoon.

Either way.

We feel that it's our obligation to protect our company protect our IP protected against people who copy it.

So expect us to do our best here going forward and like I said pursue this litigation to a successful outcome.

Okay.

Thank you.

Thank you Julien.

Yeah.

Your next question comes from Chris Capps with loop capital markets. Please go ahead.

Hi, Good afternoon, my questions are focused around the 800 offering.

Operator: My questions are focused around the M800 offering. And so I understand the manufacturing yield benefits that you'll get with that chip being produced at an advanced technology node given the, you know, much greater die per weight per yield. And I appreciate the gross margin tailwind that you mentioned, the 300 bits of upside as that transition happens. I'm just curious if any of that IC unit cost improvement accrues to your inlay customers as well. I'm asking because I was wondering if that might be an incentive for them to ship more of their inlay footprint or production to inlays based on your chips. And there was a follow-up. Got it. Thank you. Good question. So the M-800 has a roughly 25% greater read range than the M7. That's with the same size end. Or said another way, if you shrink the size of the antenna and save money on the inlay cost, you can get the same effective range as the M700.

So I understand the manufacturing yield benefits that youll get with that chip being produced at advanced technology node given the much greater die per per wafer yield and I appreciate that the gross margin tailwind that you mentioned the 300 bps of.

Of upside as that transition happen I'm, just curious if any of that IC unit cost improvement accrues to your inlay customers as well.

I'm asking because it was wondering if that might be an incentive for them to shift more of their inlay footprint or.

Production based on your chips, and then I had a follow up Chris.

Got it. Thank you good question so the <unk> hundred has.

Roughly 25% greater REIT range than the 700.

With the same size.

Or said another way if you shrink the size of the antenna and save money on the inlet costs you can get the same effect of <unk> hundred <unk>.

Chris Diorio: So our late partners have the opportunity to either get that greater range for applications that need it, or, as is often the case, reduce their inlay cost, their antenna cost, their PET cost, other costs, and achieve the same performance that they've been able to get on the market. So there is definitely an incentive for our late partners to move forward with the M800. It's just overall goodness for them, for us, an incredible product, and they will see a benefit from it. And then Chris, this is Kerry.

Finally partners have the opportunity to either.

Get that greater range for effort for our applications that needed or as is often the case reduced their inlay costs their antenna cost their <unk> costs other costs and achieve the same performance that <unk> been able to get on the market. So there is definitely an incentive for our inlay partners to move forward with the MA hundreds.

It's just overall goodness for them for us an incredible product and they will see a benefit from it.

And then Chris This is Carrie I would add that from a pricing perspective, we've made the conscious decision to price DMA 800, even though it is more performance and more manufacturable slightly below the 700 to accelerate that adoption.

Kerry Baker: I would add that from a pricing perspective, we made the conscious decision to price the M800, even though it is more performant and more manufacturable, slightly below the M700 to accelerate that adoption. As I mentioned earlier, the typical adoption ramp is multiple years. We want to do that much quicker than that. We'll know more if we're successful in accelerating this adoption in another six months, but that is our goal. At this point, I'm not modeling a visible gross margin impact in the first half of the year. But, like I said, I'll know more in six months. Got it. That's a very helpful color.

As I mentioned earlier the typical adoption ramp is multiple years, we want to do that much quicker than that.

We'll know more if we're successful in accelerating the adoption in another six months, but that is our goal at this at this point I'm not modeling a visible gross margin impact in the first half of the year, although like I said I'll know more than six months.

Got it that's very helpful color and then separately you mentioned one feature of the greater read range and I believe there's other features that are.

Chris Diorio: And then separately, you mentioned one feature, the greater read range, and I believe there are other features that are, you know, imparted into the M800 chip design. And I'm just curious if those benefits are, in and of themselves, enough for the market to see impetus for the adoption of a program based on the, you know, capabilities of this new product. And, you know, just curious because if that's the case, it would also be something that helps, you know, extend your IP moat as the industry continues to grow and mature. Thank you. Yeah, a good question.

In part it into the MH 100, chip design and just curious if those benefits are in and of themselves enough too.

No.

The market to see inputs as to.

For two to embrace adoption of our program based on the capabilities of this new product.

And just curious because if thats the case it would also be something that helps.

Extend your IP.

Industry continues to grow and mature thank you.

Yeah. Good question. Thanks, Chris the answer to your question is yes, absolutely, yes, we've talked about at least one feature on our products our protection mode, which allows a retailer to make the tag invisible at point of sale to protect consumer privacy. We believe that feature will have value in DPP going forward.

Chris Diorio: Thanks, Chris. The answer to your question is, Yes, absolutely yes. We've talked about at least one feature on our products, our protection mode, which allows the retailer to make the tag invisible at point of sale to protect consumer privacy.

Chris Diorio: We believe that feature will have value in DPP going forward. We have introduced other features in the M800 that we haven't spoken about publicly yet, but we will over time, that we think will drive enhanced performance in enterprise solutions, make those solutions work better, and drive preference for Impinj and 25Cs. That's about all I can say on that topic at this point in time. Just know that. We migrated to a more advanced process node, and Custom Digital Logic came down. We took advantage of that effective savings to introduce features in the IC that we believe will solve previously unsolvable enterprise problems, as well as give us an opportunity to address DPP, as we said in our prepared remarks.

We have introduced other features in them 800 that we haven't spoken to publicly yet, but we will over time and we think will drive enhanced performance in enterprise solutions make those solutions were better and drive preference for an <unk> thats about all I can say on that topic at this point in time just know that.

As we migrated to a more advanced process node.

The cost of digital logic came down.

Because it took advantage of that effective.

Effective savings to introduce features in the IC.

That we believe will solve previously unsolvable enterprise problems as well as going forward give us an opportunity to address ETP as we said in our prepared remarks.

Yes.

Okay.

I appreciate the color.

Operator: Thanks, Chris. The next question... Scott Searle with the Roth MKM. Please go ahead. Good afternoon.

Thanks, Chris.

Thank you. The next question comes from Scott Searle with Roth.

Please go ahead.

Kerry Baker: Thanks for taking the questions. Congratulations on the quarter, and it's nice to see the inventory and the channel normalizing at this point in time. Hey, I apologize for joining the call late, but on the systems front, I was wondering if you could provide a little bit of color looking into 2024, what you're seeing from a pipeline opportunity perspective and linearity perspective. I think there were some larger contracts or projects that were reaching a conclusion or at least a phase of conclusion. I'm wondering what the visibility on that front is and how that pipeline is shaping up. Hey, Scott. This is Kerry.

Good afternoon, thanks for taking the questions.

And congrats on the quarter and nice to see the.

Inventory in the channel normalizing at this point in time.

I apologize I joined the call late but on the systems front I was wondering if you could provide a little bit of color looking into 2020 for what youre seeing from a pipeline opportunity perspective, and linearity perspective, I think there were some larger contracts or projects that were reaching a conclusion or at least the phase of conclusion.

Im wondering what the visibility on that front is and how that pipeline is shaping up.

Hey, Scott This is Gary I can take a startup that and then.

Kerry Baker: I can take a start on that, and then Jeff can jump in. So, looking to the first quarter, we expect similar system revenue in the fourth quarter. Looking a little bit further out than that, the first half of the systems revenue benefits from the IndyReader, and I see last time shipments related to that product's end of life. Additionally, phase three of the Visionary European Retailers Loss Prevention deployment will conclude in the second quarter. So, we've got some benefit there. There are more opportunities beyond phase three, but we're taking a conservative approach right now because they may not line up perfectly. Phase four, that is, may not line up perfectly with the conclusion of phase three.

Jeff can jump in so looking to the first quarter, we expect similar systems revenue in the fourth quarter.

Looking a little bit further out than that first half systems revenue benefits from the <unk> reader IC last time shipments related to that product end of life.

Additionally, phase III of the Europe visionary European retailers loss prevention deployment.

Will conclude in the second quarter. So we've got some benefit in there there is more opportunities beyond phase III.

But we're taking a conservative approach right now because they may not line up perfectly phase four that is may not line up perfectly with the conclusion of phase III. We had the same similar situation back when we knew phase III is completing but we didn't know when phase III.

Kerry Baker: We had the same similar situation back when we knew phase two was complete, but we didn't know when phase three would kick off. And then I would just add maybe a final thought on the systems outlook. We've historically seen that after economic downturns, our end-point IC business recovers before our systems business. So, good color on the first half of the year.

It kicked off.

And then I would just add maybe a final thought on the systems outlook.

We've historically seen that after economic downturns, our endpoint IC business recovers before our systems business. So good color on the first half of the year, we're in kind of a little bit of a wait and see mode to see how systems recovers in the back half of the year.

Jeff Dossett: We're in kind of a little bit of a wait-and-see mode to see how systems recover in the back half of the year. Great, very helpful. This is Jeff Blank.

Great very helpful. Jeff.

Jeff Dossett: Go ahead, Scott. Oh, no, no. Please, continue, Jim. Thanks. Thanks very much. I was just going to add that our systems pipeline remains strong. I think what's encouraging to me and our team is that we and our partners are seeing increased sales activity, increased detailed project planning, and an increase in the number of proof of concepts that are reactivating at this time. And really, it's in the context of our customers and our partners increasingly understanding the importance of end-to-end supply chain visibility and process digitization, that ability to sort of digitize and optimize the entire flow of everything they manufacture, transport, So, we're encouraged, but the pace and timing of these deployments are always determined by the individual end customers. So, as we get more visibility, we'll integrate that into our guidance each quarter. Great. Very helpful.

Go ahead, Scott I.

No no no. Please continue.

Okay.

Thanks, very much I was just going to add that.

Our systems pipeline remains strong.

I think what's encouraging to me and our team is that we and our partners are seeing increased sales activity increased detailed project planning.

Increase in the number of proof of concepts that are re activating at this time and really its in the context of our customers and our partners increasingly understanding the importance.

<unk> end to end supply chain visibility and process digitization that ability to.

That ability to digitize and optimize the entire flow of everything they manufacture transport cell and even process back into their business and returns are other forms of circular.

So.

We're encouraged but the pace and timing of these deployments is obviously determined by the individual end customers. So as we as we get more visibility into.

We integrate that into our guidance each quarter.

Great very helpful and if I could for a follow up on the DPP front. It sounds like you had some comments. So I apologize. If this is redundant I can take it offline, but I thought the initial discussion was contribution maybe starting in 'twenty five not in 'twenty, four but the opportunity to spread to not only different categories.

Chris Diorio: And if I could, for a follow-up, on the DPP front, it sounds like you had some comments, so I apologize if this is redundant; I can take it offline, but I thought the initial discussion was about contribution may be starting in 25, not in 24, but the opportunity to spread to not only different categories but other geographies. So I'm wondering if you framed it at all in terms of the opportunity, as we start to go into 25 and 26, kind of permeating not just within the EU but into other geographies. Thanks.

But other geographies. So I'm wondering if you've framed it at all in terms of the opportunity as we start to go into 25, and 26 kind of permeating not just within the EU, but into other geographies.

Chris Diorio: Yeah, so, Scott, we said some words about DPP, and I personally am very excited about DPP and what it means for our business going forward. There are two aspects that I would really focus on for the DPP. For one, retailers initially and other other enterprises and other markets going forward should provide true traceability. For a product's life cycle, from really initially at the time of manufacturing through point of sale, what that disability requires, and what the laws are going to require.

Yes. So so we did see some more insights ETP and I personally am very excited about <unk>, what it means for our business going forward.

There is two aspects that I would really focus on for DPP four one.

<unk> four.

Retailers initially and other other enterprises and other markets going forward.

<unk> true trade stability.

Product's lifecycle.

Really initially at the time of manufacturing through point of sale with that visibility requires within the laws are going to require what those customers need to be able to show in June and the fact that I believe rain RFID can provide all the data they need and we can do it in a proper way.

Chris Diorio: What those customers need to be able to show and do, and the fact that I believe BrainRFID can provide all the data they need, and we can do it in a proper way. Second, and actually, we see retailers already today, and we're gonna see it more from other customers as well, see retailers today already planning for DPP, speaking with us about it, talking about integration, talking about their needs, so it truly is an opportunity for us. The second aspect that I find very exciting is that DPP doesn't end at point-of-sale; it ends at an item's end-of-life. So, because it ends at an item's end of life, it will, I believe, open up the opportunity for us and Post Purchase. The Bulletproof Executive 2013, Initially, focus on recyclability at end-of-life, but there's more because when you have an IC that lasts for the life of an item, it's embedded in the item and becomes part of the item for recycling at end-of-life.

Second asset and actually we see retailers already today, and we're going to see more from other customers as well as the retailers today already planning for DTP speaking with us about it.

Talking about integration and talking about their needs. So it truly is an opportunity for us.

Aspects that I find very exciting is that DPP doesn't end at point of sale at ensign and items and Thats life.

So hesitancy and items end of life, if it will I believe open up the opportunity for us.

And post purchase.

<unk> use cases.

Initially focus on Recyclability and end of life.

It's more.

When you have an IC that last for the life of an item is embedded in the item and it becomes part of the item for recycling at end of life and health.

Chris Diorio: It opens up consumer use cases that today our market and our industry haven't touched. We as a company have been very excited about the opportunity for consumer use cases, but it's very early to say anything about them.

Our consumer use cases that state or market and our industry has touched this company have been very excited about the opportunity for some use cases, it's very early to say anything about AMETEK campaign about the harm how that materializes.

Chris Diorio: In fact, I can't say anything about them or how they're materialized, but I believe DPP will be the impetus for those consumer use cases over the next couple of years and expect us to put some effort into it because it's just an exciting opportunity for us. Hey, Chris, maybe just to follow quickly, when do you expect, I'll call it a quote unquote, meaningful impact, right? I think some of the initial deployments are around things like tires, etc. But not necessarily high volume items. Is this 25?

Believe ETP will be the impetus for those consumer use cases over the next couple of years and I expect us to put some effort into it.

Is it just an exciting opportunity for us.

Hey, Chris maybe just to follow up quickly when do you expect I'll call. It a clinical meaningful impact, but I think some of the initial deployments are around things like tires et cetera, but not necessarily high volume items is just 25 does it become meaningful or is it beyond that and we've just got a lot of infrastructure thats starting to.

Chris Diorio: Does it become meaningful? Or is it beyond that? And we just got a lot of infrastructure that's starting to go out the door in the next, you know, 12 to 24 months to support this deployment? As I've said in my prepared remarks, which... The real opportunity is further out in time. We already see retailers and others planning for DPP, but the regulations on the apparel side, I believe, at least with the current timeline, will effectively come into force in 2027.

Go out the door in the next 12 months to 24 months to support this deployment.

As I've said in my prepared remarks.

Yes.

So this is the real opportunity is further out in time, you already see retailers and others planning for GTT as the regulations on the apparel side at least at least with the current timeline effectively come into force in 2027.

Chris Diorio: So you'll see planning, you'll see work going on, you'll see us doing some investments, you'll see us working directly with enterprises as we prepare for that timeline. So BPP is a long-term, not short-term, opportunity, and it's a long-term gain for us. So think about it in the same time frame as we think about these large enterprise opportunity wins. They don't happen in a month. They don't happen in a quarter. They don't even happen in a year.

So youll see planning Youll see work going on Youll see us doing some investments you'll see us working directly with enterprises as we prepared for that timeline. So PDP as a long term not short term opportunity and it's a long term game for us.

Think about it in the same timeframe as we think about these large enterprise opportunity wins, they don't happen in a month they don't happen in a quarter. They don't haven't even had a year to take time, but as they roll in a really meaningful for our business <unk> DPP as in that same light.

Chris Diorio: They take time. But as they roll in, they're really meaningful for our business. And I view DPP in that same light; it is set much larger than any single enterprise.

At much larger than any single enterprise interest.

Chris Diorio: Great. Thanks so much. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Chris Diorio for any closing remarks. Thank you, MJ. I'd like to thank you all for joining the call today, and especially to thank you for your ongoing support. The conference has now concluded. Thank you for attending today's presentation. You may now go. BF-WATCH TV 2021

Great. Thanks, so much.

Okay. Thank you.

Thank you. This concludes our question and answer session I would like to turn the conference back over to Kristy Oreo for any closing remarks.

Thank you Ajay I'd like to thank you all for joining the call today.

And especially to thank you for your ongoing support.

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

Okay.

Okay.

Okay.

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Okay.

Yes.