Q2 2024 Impinj Inc Earnings Call
Welcome to the Impinj second quarter 2024 financial results conference call and webcast.
Unknown Executive: All participants will be in listen-only mode. Please signal any conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note, today's event is being recorded. I would now like to turn the conference over to Mr. Andy Cobb, Vice President of Strategic Finance. Please go ahead. Thank you, Rocco. Good afternoon, and thank you.
Chris Diorio: Thank you. This concludes our question and answer session. I'd like to turn the conference back over to Chris Diorio, co-founder and CEO, for any closing remarks.
Speaker Change: All participants will be in listen-only mode.
Speaker Change: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions.
Speaker Change: To ask a question you may press star then 1 on your telephone keypad. To withdraw your question please press star then 2.
Speaker Change: Please note, today's event is being recorded.
Speaker Change: I would now like to turn the conference over to Mr. Andy Cobb, Vice President of Strategic Finance. Please go ahead.
Chris Diorio: So, thank you, Rocco. I'd like to thank you all for joining the call today, and thank you for your ongoing support. Bye bye.
Andy Cobb: Good afternoon, and thank you all for joining us to discuss Impinj's second quarter 2024 results. On today's call, Chris Diorio, Impinj's co-founder and CEO, will provide a brief overview of our market opportunity, and Cary Baker, Impinj's CFO, will follow with a detailed review of our second quarter financial results and third quarter outlook. We will then open the call for questions. Jeff Dossett, Impinj's CRO, will join us for the Q&A.
Operator: Thank you, sir. Today's conference is now concluded. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Chris Diorio: Thank you, Rocco. Good afternoon, and thank you all for joining us to discuss Impinj's second quarter 2024 results. On today's call, Chris Diorio, Impinj's co-founder and CEO , will provide a brief overview of our market opportunity and performance.
Speaker Change: Cary Baker, Impinj's CFO , will follow with a detailed review of our second quarter financial results and third quarter outlooks. We will then open the call for questions.
Unknown Executive: You can find management's prepared remarks, plus trended financial data on the company's investor relations 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 Security Litigation Reform Act of 1995. 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 uncertainty.
Speaker Change: Jeff Dossett, Impinj's CRO will join us for the Q&A. You can find management's prepared remarks plus trended financial data on the company's investor relations website.
Unknown Executive: 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. All balance sheet and cash flow metrics, except for free cash flow, are GAAP. Please refer to our earnings release for a reconciliation of non-gap financial metrics to the most comparable gap. Before turning to our results and outlook, note that we will participate in the Canaccord Genuity 44th Annual Growth Conference on August 13 in Boston and the 13th Annual Needham Virtual Industrial Tech Robotics and Clean Tech One-on-One Conference on August 19.
Speaker Change: We will make statements in this call about financial performance and future expectations that are based on our outlook as of today.
Speaker Change: Any such statements are forward-looking under the Private Security Litigation Reform Act of 1995. 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.
Speaker Change: We describe these risks and uncertainties in the annual and quarterly reports we file with the SEC.
Speaker Change: We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements except as required by law.
Speaker Change: On today's call, all financial metrics, except for revenue, or where we explicitly state otherwise, are non-GAAP . All balance sheet and cash flow metrics, except for free cash flow, are GAAP.
Speaker Change: Please refer to our earnings release for a reconciliation of non-GAAP financial metrics to the most comparable GAAP metrics.
Speaker Change: Before turning to our results and outlook,
Speaker Change: Note that we will participate in the Canaccord Genuity 44th annual growth conference on August 13th in Boston
Speaker Change: The 13th Annual Needham Virtual Industrial Tech, Robotics, and Clean Tech One-on-One Conference on August 19th.
Unknown Executive: The Jeffrey Semiconductor IT Hardware and Communications Technology Summit on August 27th in Chicago, the 2024 Evercore ISI Semiconductor IT Hardware and Networking Conference on August 28th in Chicago, the Piper Sandler Growth Frontiers Conference on September 10th in Nashville, and the Goldman Sachs immunocopia and technology conference on September 11th in San Francisco. We look forward to connecting with many of you there.
Speaker Change: The Jeffrey Semiconductor IT Hardware and Communications Technology Summit on August 27th in Chicago.
Speaker Change: The 2024 Evercore ISI Semiconductor IP Hardware and Networking Conference on August 28th in Chicago. The Piper Sandler Growth Frontiers Conference on September 10th in Nashville.
Speaker Change: and the Goldman Sachs immunocopia and technology conference on September 11th in San Francisco.
Speaker Change: We look forward to connecting with many of you there. I will now turn the call over to Chris.
Chris Diorio: Thank you, Andy, and thank you all for joining the call. Our second quarter results were strong, setting several new records. Revenue topped $100 million, and adjusted EBITDA topped $25 million, both well above our guidance. Pre-cash flow topped $40 million.
Chris Diorio: Thank you, Andy, and thank you all for joining the call.
Chris Diorio: Our second quarter results were strong, setting several new records.
Chris Diorio: Revenue topped $100 million and adjusted EBITDA topped $25 million, both well above our guidance.
Chris Diorio: Multiple trends drove that outperformance, including apparel and footwear strength, early signs of retail rebuying, Steady Growth in General Merchandise, continued secular growth, including a long tail of specialty applications, and strong demand for our products and platforms. We expect these same trends to drive solid third-quarter product revenue growth. Starting with silicon, second quarter endpoint IC product revenue exceeded our expectations as unit volumes set a new quarterly record, including M800 shipments more than doubling. The $15 million 2024 licensing payment added to the revenue stream.
Chris Diorio: Free cash flow topped $40 million.
Chris Diorio: Multiple trends drove that outperformance, including apparel and footwear strength.
Chris Diorio: Early signs of retail rebuying.
Chris Diorio: Steady Growth in General Merchandise.
Chris Diorio: Continued secular growth including a long tail of specialty applications and strong demand for our products and platform.
Chris Diorio: We expect these same trends to drive solid third-quarter product revenue growth.
Chris Diorio: Starting with silicon, second quarter endpoint IC product revenue exceeded our expectations as unit volumes set a new quarterly record, including M800 shipments more than doubling.
Chris Diorio: The $15 million 2024 licensing payment added to the revenue strength.
Chris Diorio: Looking to the third quarter, we expect to again deliver sequential endpoint IC product revenue growth. We also expect M800 to continue ramping, albeit from a modest base, but growing sharply as M800 inlays pass market qualification. Finally, our investments in post-processing capacity during the COVID downturn are paying dividends today, with our operations team well positioned to meet the rising demand. Turning to reader ICs, second quarter eFamily volumes exceeded our expectations, driven by broad market demand for handhelds, printers, and fixed readers.
Chris Diorio: Looking to third quarter, we expect to again deliver sequential endpoint IC product revenue growth.
Chris Diorio: We also expect M-800 to continue ramping, albeit from a modest base, but growing sharply as M-800 inlays pass market qualification.
Chris Diorio: Finally, our investments in post-processing capacity during the COVID downturn are paying dividends today, with our operations team well-positioned to meet the rising demand.
Chris Diorio: Turning to reader ICs, second quarter e-family volumes exceeded our expectations, driven by broad market demand for handhelds, printers, and fixed readers.
Chris Diorio: Looking to the third quarter, we see continued strong e-family shipment volumes, albeit masked by modestly lower overall reader IC revenue as we wind down our prior generation in the ICs. Turning to solutions, we expect the visionary European retailers' ongoing rollout of our self-trackout and loss prevention solution to continue driving growing demand for our protected mode enabled endpoint ICs, as well as delivering modest gateway revenue. We expect IC volumes at the large North American retailer to continue growing, driven by general merchandise tagging and product rebuy.
Chris Diorio: Looking to third quarter, we see continued strong e-family shipment volumes, albeit masked by modestly lower overall reader IC revenue as we wind down our prior generation in the ICs.
Chris Diorio: Turning to solutions, we expect the visionary European retailers ongoing rollout of our self-checkout and loss prevention solution to continue driving growing demand for our protected mode enabled endpoint ICs as well as delivering modest gateway revenue.
Chris Diorio: We expect IC volumes at the large North American retailer to continue growing, driven by general merchandise tagging and product rebuys.
Chris Diorio: And we expect the second large North American supply chain and logistics end user to increase their label consumption and fixed reader footprint, driving demand for both our endpoint ICs and E-family reader ICs. Taken together, our enterprise solutions efforts continue paying dividends in silicon volume. Touching now on growth opportunities, we see food tagging expanding, including in-store item level pilots where the volumes are really large, and apparel. We see increasing supply chain usage driving demanding readability expectations, benefiting our higher performing M 800 and General Merchandise.
Chris Diorio: And we expect the second large North American supply chain and logistics end user to increase their label consumption and fixed reader footprint, driving demand for both our endpoint ICs and eFamily reader ICs.
Chris Diorio: Taken together, our enterprise solutions efforts continue paying dividends in silicon volumes.
Chris Diorio: Touching now on growth opportunities, we see food tagging expanding, including in-store item-level pilots where the volumes are really large.
Chris Diorio: In apparel, we see increasing supply chain usage driving demanding readability expectations benefiting our higher performing M800.
Chris Diorio: We see market expansion as retailers piggyback on the pioneering work of the large North American retailer, and we see growth in specialty applications. For example, one I had the opportunity to see in depth during a recent trip to Japan, in which a consortium of four Japanese publishers is tagging books, magazines, and comic books to better match store inventory to consumer demand.
Chris Diorio: and General Merchandise.
Chris Diorio: We see market expansion as retailers piggyback on the pioneering work of the large North American retailer.
Chris Diorio: and we see growth in specialty applications.
Chris Diorio: For example, one I had the opportunity to see in-depth during a recent trip to Japan.
Chris Diorio: In which a consortium of four Japanese publishers are tagging books, magazines, and comic books to better match store inventory to consumer demand.
Chris Diorio: On the organizational front, we promoted Gahan Richardson to executive vice president for our products and platform. We added Alberto Pesadento, a 23-year Impinj veteran and CTO, to our executive team, and we promoted Christina Balam to Senior Vice President of HR. Heartfelt congratulations and thank you, Gahan, Alberto, and Christina.
Gahan Richardson: On the organizational front, we promoted Gahan Richardson to Executive Vice President for our products and platforms.
Gahan Richardson: We added Alberto Pesadento, a 23-year Impinj veteran and CTO.
Gahan Richardson: to our executive team. And we promoted Christina Bailam to Senior Vice President of HR.
Speaker Change: Heartfelt congratulations and thank you Gahan, Alberto, and Christina.
Chris Diorio: In closing, we delivered a very strong second quarter and see steady product revenue growth looking into the third. On the solutions front, we believe our efforts are and will continue driving endpoint AC volumes and share gain. Further out, we see continued secular growth opportunities in retail, supply chain, and logistics, and specialty applications with food layering on top. 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.
Speaker Change: In closing, we delivered a very strong second quarter and see steady product revenue growth looking into the third.
Speaker Change: On the solutions front, we believe our efforts are and will continue driving N20C volumes and share gains.
Speaker Change: Further out we see continued secular growth opportunities in retail, supply chain and logistics, and specialty applications with food layering on top.
Speaker Change: 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.
Chris Diorio: Before I turn the call over to Cary for our financial review and third quarter outlook, I'd like to again thank every member of the Impinj team for your constant effort driving our bold vision. As always, I feel honored by my incredible good fortune to work with you.
Cary: Before I turn the call over to Cary for our financial review and third quarter outlook, I'd like to again thank every member of the Impinj team for your constant effort driving our bold vision.
Cary: As always, I feel honored by my incredible good fortune to work with you.
Cary L. Baker: Thank you, Chris, and good afternoon, everyone. Second quarter revenue was $102.5 million, up 33% sequentially from $76.8 million in first quarter 2024, and up 19% year over year from $86 million in second quarter 2023. Second quarter endpoint IC revenue was $89.4 million, up 45% sequentially from $61.5 million in first quarter 2024, and up 38% year over year from $64.9 million in second quarter 2023. Excluding the $15 million in licensing revenue, second quarter product revenue grew 21% sequentially and 15% year over year. Product revenue exceeded our expectations for the reasons Chris already cited.
Cary: Cary?
Cary: Thank you, Chris, and good afternoon, everyone. Second quarter revenue was $102.5 million, up 33% sequentially from $76.8 million in first quarter 2024, and up 19% year-over-year from $86 million in second quarter 2023.
Cary: Second quarter endpoint IC revenue was $89.4 million, up 45% sequentially from $61.5 million in first quarter 2024, and up 38% year-over-year from $64.9 million in second quarter 2023.
Cary: Excluding the 15 million licensing revenue, second quarter product revenue grew 21% sequentially and 15% year-over-year.
Cary L. Baker: Looking forward, we expect third quarter Endpoint IC product revenue to increase sequentially. Second quarter systems revenue was $13.1 million, down 14% sequentially from $15.3 million in first quarter 2024, and down 38% year-over-year from $21.1 million in second quarter 2023. Systems revenue was below our expectations, due primarily to lower channel reader sales.
Speaker Change: Product revenue exceeded our expectations for the reasons Chris already cited. Looking forward, we expect 3rd quarter Endpoint IC product revenue to increase sequentially.
Speaker Change: Second quarter systems revenue was $13.1 million, down 14% sequentially from $15.3 million in first quarter 2024, and down 38% year-over-year from $21.1 million in second quarter 2023.
Speaker Change: Systems revenue was below our expectations due primarily to lower channel reader sales. Looking forward, we expect third quarter systems revenue to increase sequentially.
Cary L. Baker: Looking forward, we expect third quarter systems revenue to increase sequentially. Second quarter gross margin was 58.2% compared with 51.5% in first quarter 2024 and 53.3% in second quarter 2023. The sequential increase was driven primarily by licensing revenue. The year over year increase was also driven primarily by licensing revenue, partially offset by a higher mix of endpoint IC revenue. Excluding the licensing revenue, second quarter product gross margin was 51%.
Speaker Change: Second quarter gross margin was 58.2% compared with 51.5% in first quarter 2024 and 53.3% in second quarter 2023. The sequential increase was driven primarily by licensing revenue.
Speaker Change: The year-over-year increase was also driven primarily by licensing revenue, partially offset by a higher mix of endpoint IC revenue.
Speaker Change: Excluding the licensing revenue, second quarter product gross margin was 51 percent.
Speaker Change: Looking forward, we expect third quarter product gross margin to increase sequentially.
Cary L. Baker: Looking forward, we expect third quarter product gross margin to increase sequentially. Total second quarter operating expense was $32.8 million, compared with $32.9 million in first quarter 2024 and $35.9 million in second quarter 2023. Operating expense was consistent with our expectations, even with the revenue outperformance. Research and Development Expense was $17.6 million, Sales and Marketing Expense was $7 million, and General and Administrative Expense was $8.2 million. Looking forward, we expect third quarter operating expenses to increase sequentially.
Speaker Change: Total second quarter operating expense was $32.8 million compared with $32.9 million in first quarter 2024 and $35.9 million in second quarter 2023.
Speaker Change: Operating expense was consistent with our expectations, even with the revenue outperformance.
Speaker Change: Research and Development Expense was $17.6 million, Sales and Marketing Expense was $7 million, General and Administrative Expense was $8.2 million.
Speaker Change: Looking forward, we expect third quarter operating expense to increase sequentially.
Cary L. Baker: Second quarter adjusted EBITDA was $26.8 million compared with $6.7 million in first quarter 2024 and $10 million in second quarter 2023. Second quarter adjusted EBITDA margin was 26.2%, excluding the licensing revenue. Second quarter adjusted EBITDA margin was 13.5%. Second quarter gap net income was $10 million.
Speaker Change: Second quarter adjusted EBITDA was $26.8 million compared with $6.7 million in first quarter 2024 and $10 million in second quarter 2023.
Speaker Change: Second quarter adjusted EBITDA margin was 26.2%, excluding the licensing revenue adjusted EBITDA margin was 13.5%.
Cary L. Baker: Second quarter non-gap net income was $25.3 million, or $0.83 per share on a fully diluted basis. Turning to the balance sheet, we ended the second quarter with cash, cash equivalents, and investments of $220.2 million compared with $174.1 million in first quarter 2024 and $114.9 million in second quarter 2023. Inventory totaled $80.8 million, down $7 million from the prior quarter. Second quarter capital expenditures totaled $1.4 million, and free cash flow was $44.1 million. Before turning to our guidance, I want to highlight two items specific to our results and outline.
Speaker Change: Second quarter gap net income was $10 million, second quarter non-gap net income was $25.3 million or $0.83 per share on a fully diluted basis.
Speaker Change: Turning to the balance sheet, we ended the second quarter with cash, cash equivalents, and investments of $220.2 million compared with $174.1 million in first quarter 2024 and $114.9 million in second quarter 2023.
Speaker Change: Inventory totaled $80.8 million, down $7 million from the prior quarter.
Speaker Change: Second quarter capital expenditures totaled $1.4 million. Free cash flow was $44.1 million.
Speaker Change: Before turning to our guidance, I want to highlight two items specific to our results and outlook.
Cary L. Baker: First, favorable working capital trends boosted second quarter free cash flow. We expect those favorable accounts receivable and inventory trends to normalize in the second half. We recently increased our wafer purchases to ensure we can meet demand, and so we also expect second half inventory to increase from the second quarter level. Finally, our second quarter adjusted EBITDA outperformance previewed the operating leverage in our business model as revenue scales. That leverage will again be on display in the third quarter as product revenue scales once again.
Speaker Change: First, favorable working capital trends boosted second quarter free cash flow. We expect those favorable accounts receivable and inventory trends to normalize in the second half.
Speaker Change: We recently increased our wait for purchases to ensure we can meet demand, so also expect second half inventory to increase from second quarter levels.
Speaker Change: Finally, our second quarter adjusted EBITDA outperformance previewed the operating leverage in our business model as revenue scales.
Speaker Change: That leverage will again be on display in third quarter as product revenue scales once again. And with most of the M800 ramp yet to come, we expect additional leverage in the future.
Cary L. Baker: And with most of the M800 ramp yet to come, we expect additional leverage in the future. [inaudible] We expect third-quarter revenue between 91 and 94 million compared with 65 million in third-quarter 2023, a 42% increase at the midpoint. We expect adjusted EBITDA between $13.8 and $15.3 million. On the bottom line, we expect non-GAAP net income between $13.5 and $15 million, reflecting non-GAAP fully diluted earnings per share between $0.46 and $0.50.
Speaker Change: Bernie Chor, Outlook
Speaker Change: We expect third quarter revenue between $91 and $94 million, compared with $65 million in third quarter 2023, a 42% increase at the midpoint.
Speaker Change: We expect adjusted EBITDA between $13.8 and $15.3 million. On the bottom line, we expect non-GAAP net income between $13.5 and $15 million, reflecting non-GAAP fully diluted earnings per share between $0.46 and $0.50.
Cary L. Baker: In closing, I want to thank the Impinj team, our customers, our suppliers, and you, our investors, for your ongoing support. I will now turn the call over to the operator to open the question and answer session. Rocco?
Rocko: In closing, I want to thank the Impinj team, our customers, our suppliers, and you, our investors, for your ongoing support. I will now turn the call to the operator to open the question and answer session. Rocko.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star and then one on your touch-tone phone. If you are using a speakerphone, we ask that you please pick up your handset before pressing the key.
Rocko: Thank you. We will now begin the question and answer session.
Rocko: To ask a question, you may press star then one on your touch tone phone.
Rocko: If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys.
Operator: If at any time your question has been answered and you would like to withdraw your question, please press star then 2. As a courtesy to others, we ask that you limit yourself to one question and one follow-up. If you have additional questions, please rise, and we will take as many questions as the time allows. At this time, we will pause for just a moment to assemble our office. And our first question today comes from Harsh Kumar with Piper Sandler. Please go ahead.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.
Speaker Change: As a courtesy to others, we ask that you limit yourself to one question and one follow-up.
Speaker Change: If you have additional questions, please re-queue and we will take as many questions as the time allows.
Speaker Change: At this time, we will pause for just a moment to assemble our roster.
Speaker Change: And our first question today comes from Harsh Kumar with HyperSandler. Please go ahead.
Harsh V. Kumar: Yeah, guys, first of all, Chris, Cary, Andy, and the rest of the team at Impinj, congratulations, you know, fantastic results and fantastic guidance. I'm sure all the investors and sell-side analysts appreciate that. Chris, I have two questions.
Harsh V. Kumar: Yeah, hey guys. First of all, Chris, Cary, Andy, the rest of the team at Impinj, congratulations. You know, fantastic results and fantastic guide. I'm sure all the investors, outside analysts appreciate that.
Chris Diorio: First of all, I wanted to ask about the second logistics customer. You went out of your way to mention them in your commentary. I was curious if you could provide a little bit more update than perhaps in your commentary. Where are they in terms of endpoint IC? Where are they in terms of readers, in terms of fully getting embedded on both fronts? And how long will it be before they are 100% penetrated? And then I will follow up.
Harsh V. Kumar: Chris, I have two questions. First of all, I wanted to ask about the second logistics customers.
Speaker Change: You went out of your way to mention them in your commentary. I was curious if you could provide a little bit more update than perhaps in your commentary. Where are they in terms of endpoint IC? Where are they in terms of readers, in terms of fully getting embedded on both fronts? And how long will it be before they are 100% penetrated? And then I will follow up.
Chris Diorio: Okay, thank you harsh for your kind words. On the second large North American supply chain and logistics enterprise end user, we've got a close and direct relationship supporting that end user, as well as with the multiple inlay partners that supply labels to that end user. The end user's deployment is proceeding as we and they anticipated. They remain committed to a full rollout. And as I said in my prepared remarks, we see them increasing their label consumption, and we also see opportunities for our reader ICs.
Speaker Change: Okay, thank you Harsh for your for your kind words.
Speaker Change: On the second large North American supply chain and logistics enterprise end user, we've got a close and direct relationship supporting that end user, as well as with the multiple inlay partners that supply labels to that end user.
Speaker Change: The end users deployment is proceeding as we and they anticipated. They remain committed to a full rollout and as I said in my prepared remarks, we see them increasing their label consumption and we also see opportunities for our reader ICs.
Chris Diorio: In terms of the timeframe for them to get to 100%, I think I'd better just refer you to the comments that they've made about what their plans are. They've made some pretty, pretty strong statements to the market about what they plan to do, and we see them executing on and delivering against those commitments.
Speaker Change: In terms of the time frame for them to get to 100%, I think I better just referring you to the comments that they've made about what their plans are. They've made some pretty strong statements to the market about what they plan to do, and we see them executing to and delivering against those commitments.
Harsh V. Kumar: And then for my other question, one of your distributors and inlay partners reported yesterday and sort of spooked the market, if you will, by talking down the growth rate from previous expectations for intelligent labels. I think at this point, again, you are growing a lot faster than that particular distributor is. So maybe you could help us understand how you are growing fundamentally that much faster than this large distributor of yours? And maybe, you know, maybe there's some color to it that you could help us think through.
Speaker Change: Thank you Chris and then for my for my other question one of your distributors and inlay partners reported yesterday and sort of spooked the market if you will
Speaker Change: by talking down the growth rate from previous expectations on intelligent labels.
Speaker Change: I think at this point, again, you are going a lot faster than that particular distributor is. So maybe help us understand how are you going fundamentally that much faster than this large distributor of yours.
Speaker Change: And maybe, you know, maybe there's some color to it that you could help us think through.
Chris Diorio: Sure. Thanks for the question, Harsh.
Chris Diorio: You know, we have been building, and today we have close relationships and direct visibility into innovative solutions for leading enterprises. We really feel that those relationships are paying dividends in silicon volume. Additionally, we partner closely with and deliver to eight large inline suppliers that broadly supply the market, as well as dozens of smaller ones. So we've got broad reach into the market, not just through one inlay provider or label provider but through many, many of them.
Speaker Change: Okay, sure. Thanks for the question, Harsh.
Speaker Change: You know
Speaker Change: We have been building and today have close relationships and direct visibility innovating solutions for leading enterprises.
Speaker Change: And we really feel that those relationships are paying dividends in silicon volumes.
Speaker Change: Additionally, we partner closely with and deliver to eight large inline suppliers that broadly supply the market, as well as dozens of smaller ones.
Speaker Change: So we've got broad reach into the market not just through one one inlay provider or label provider But through many many of them
Chris Diorio: Finally, as I said in my prepared remarks, we see strong demand for our products and platform. We think we've got the leading products in the market. We feel good about our market position, and overall, we're seeing strength in the market today. Cary, anything you'd like to add?
Speaker Change: Finally, as I said in my prepared remarks.
Speaker Change: We see strong demand for our products and platform. We think we've got the leading products in the market.
Speaker Change: We feel good about our market position and
Cary L. Baker: Thank you, Chris. First, I would just like to remind everybody that we don't always line up with Avery Dennison in a given quarter. And, in fact, we haven't lined up with them in the last four quarters. So they're an incredibly strong partner for us, but we just don't always line up with their public comments.
Speaker Change: And overall, we're seeing strength in the market today. Cary, anything you'd like to add? Yeah, thank you, Chris.
Cary: First, I would just like to remind everybody that we don't always line up with Avery Dennison in a given quarter. And in fact, we haven't lined up with them in the last four quarters. So they're an incredibly strong partner for us, but we just don't always line up with their public comments.
Harsh V. Kumar: Understandable. Thank you guys for the call, and I appreciate it. And congratulations.
Speaker Change: Understood. Thank you guys for the call. I appreciate it and congratulations.
Operator: Thank you. And our next question today comes from Jim Ricchuti with Needham & Company. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Thank you. And our next question today comes from Jim Ricchuti with Miniman Company. Please go ahead.
Jim Ricchiuti: Hi, thank you. Maybe just to follow up on that last question. Yeah, Avery did talk about certain customer rollouts shifting to the right, and I'm just curious, I know you don't line up with them quarter to quarter, but are you seeing any signs of that versus maybe what you were anticipating earlier in the year?
Jim Ricchiuti: All right, thank you. Maybe just to follow up on that last question. Yeah, Avery did...
Jim Ricchiuti: Talk about certain customer rollouts shifting to the right, and I'm just curious. I know you don't line up with them quarter to quarter, but are you seeing any signs of that versus maybe what you were anticipating earlier in the year?
Chris Diorio: You know, Jim, this is Chris. At the highest level, I'd say no, not really. There's, you know, there's puts and takes with any given account. So the answer I just gave you about the second large North American supply chain and logistics end user. We see their deployment proceeding as we and they anticipated. So we're actually not seeing pullback in the market. We see strength in the market today and, I also, you know, I gave some reasons as I was speaking about the apparel and footwear strength, retail rebuys, steady growth and general merchandise, the long tail of specialty applications, and strengthening our products and platform, and the retail rebites, see those retail rebites beginning now, with Europe actually leading. The market, as we see it, is not yet caught up, and we see no evidence of us So, broadly speaking, we do not see a pullback.
Jim Ricchiuti: You know Jim at the, this is Chris, at the highest level I'd say
Jim: No, not really. There's you know, there's puts and takes with any given account.
Jim: So the answer I just gave to Harsh about the second large North American supply chain of logistics end-user, we see their deployment proceeding as we and they anticipated.
Jim: So we're actually not seeing pullback in the market. We see strength in the market today and
Jim: We also, you know, I gave some reasons as I was speaking. The apparel and footwear strength, retail rebuys, steady growth in general merchandise, long tail of specialty applications, and strength in our products and platform.
Jim: On the retail rebuys, see those retail rebuys beginning now with Europe actually leading The market as we see it is not yet caught up and we see no evidence of us over shipping demand So we broadly do not see a pullback
Jim Ricchiuti: Got it. That's clear, Chris. Thanks.
Speaker Change: got it that's clear Chris thanks and the follow-up question is just regarding the systems business and I'm wondering if you could
Speaker Change: Talk about the line of sight you have in the systems business. I think you're suggesting a pickup in Q3. Is that a pickup in project-based business or just more broadly the systems business?
Cary L. Baker: And the follow-up question is just regarding the systems business. And I'm wondering if you could talk about the line of sight you have in the systems business. I think you're suggesting a pickup in Q3. But is that a pickup in project-based business or just more broadly the systems business?
Speaker Change: Hey Jim, this is Cary, I'll take that one.
Cary: So yes, you're correct. We expect systems revenue to increase quarter over quarter in Q3. There's a couple components at play.
Speaker Change: We see continued strong e-family reader IC shipment volumes, but they're a little bit masked by the modestly lower overall reader IC revenue as we wind down the prior generation in the ICs. I recall those last time ships.
Speaker Change: largely occurred in Q2, which makes the sequential a tough compare for the reader IC component of our systems business.
Speaker Change: Outside of Reader IC, we expect all systems product lines to grow sequentially in Q3. We're coming off of what we hope to be a low point as we look to the future, and in Q4,
Speaker Change: Historically, systems business has been stronger. Now it's too early to guide a Q4 number at this point.
Speaker Change: But we're encouraged by some of the traction we're seeing.
Speaker Change: In the number that we're guiding, there's clearly not a big project at play in Q3.
Speaker Change: The loss prevention final phase is going as expected. We recall that we thought that would be more modest volumes quarterly, given the complexity of that deployment across four different brands.
Speaker Change: But that's what we're seeing today in the systems business. We're encouraged by our Q3 guide being up a little bit for systems.
Speaker Change: Thanks very much. And congrats, by the way, guys in the court.
Speaker Change: Thank you, Jim.
Speaker Change: Thank you. And our next question today comes from Scott Searle with Roth Capital. Please go ahead.
Scott Wallace Searle: Good afternoon. Thanks for taking my questions and great job on the quarter.
Speaker Change: Thank you, Scott.
Speaker Change: Cary and Chris, maybe to jump in, it seems like systems...
Speaker Change: is on a little bit of a better trajectory into the third quarter than I think we were thinking probably about 90 days ago.
Speaker Change: Blending that into your guidance, you know, it implies that endpoint ICs are growing give it give or take 10% or so sequentially. I know the last couple of years we haven't had traditional seasonality, but before we went into a constrained environment from a supply chain perspective.
Speaker Change: You know, the uptick I think was historically larger. So I wonder if you could talk a little bit about that, about what you're seeing from an endpoint IC standpoint into the third quarter and the fourth quarter, especially given the strength that we just saw in the June quarter.
Cary L. Baker: Hey, Jim, this is Cary. I'll take that one.
Speaker Change: Yeah.
Cary: Thanks Scott, this is Cary, I'll take that one. So, you know, you highlighted it, both Q1 and Q2 N.I.C. volumes have significantly outperformed normal seasonality.
Cary L. Baker: So yes, you're correct. We expect systems revenue to increase quarter over quarter in Q3. There are a couple components at play. We see continued strong eFamily reader IC shipment volumes, but they're a little bit masked by the modestly lower overall reader IC revenue as we wind down the prior generation in the ICs. Now recall that those last time ships largely occurred in Q2, which makes the sequential a tough compare for the reader IC component of our systems business.
Cary: In Q1, normal seasonality is flat to slightly up. We were up 14% sequential. Q2 is typically up around 15%. And as I noted, in the prepared marks, our Endpoint IC business was up 21%. So again, we significantly outperformed
Cary L. Baker: Outside of Reader IC, we expect all systems product lines to grow sequentially in Q3. We're coming off what we hope to be a low point as we look to the future, and in Q4, historically, the systems business has been stronger. Now it's too early to guide a Q4 number at this point, but we're encouraged by some of the traction we're seeing. In the number that we're guiding, there's clearly not a big project at play in Q3.
Speaker Change: Seasonality through the first half of the year. That's given us a little bit of a cautious approach into Q2. We're still signaling systems business up, maybe on the lower, Q3, signaling systems business up, but maybe on the lower end of seasonality.
Speaker Change: Gotcha, but just carry to just do that a little bit more. There's, you're not seeing anything specific from a customer standpoint, a pullback. It's more just caution given one cue and two cue traditional norms.
Speaker Change: Yeah, we're not seeing any, any pullback in customers, you know, there's always puts and takes here and there. But we see broad strength in our endpoint IC business. And that's reflected in what we've delivered through the first half of this year, as well as our guide into Q3.
Cary L. Baker: The loss prevention final phase is going as expected. We recall that we thought that would be more modest volumes quarterly given the complexity of that deployment across four different brands, but that's what we're seeing today in the systems business. We're encouraged by our Q3 guide being up a little bit for systems.
Speaker Change: Yeah, Scott, in my prepared remarks, I talked about solid third quarter product revenue growth extending to endpoint SEs. And then we do expect to see some seasonal, typical seasonality in fourth quarter. But you know, we got one quarter at a time.
Jim Ricchiuti: Thanks very much. And congrats, by the way, guys in the court.
Scott Wallace Searle: Gotcha. And Chris, if I could just quickly follow up. You're starting to talk about food vertical again, or starting to talk about it now. Huge opportunity. I wonder if you could take us through how you're seeing the early implementations and pilots and how we should think about that as we get into, I guess, 25 and beyond. Thanks.
Operator: Thank you. And our next question today comes from Scott Searle with Roth Capital. Please go ahead.
Chris Diorio: Yeah, so Scott, that's a, as I said, I think it was on last quarter's earning call, food opportunity is moving more quickly than I had previously anticipated. And I had tempered my expectations just based on the
Scott Wallace Searle: Good afternoon, thanks for taking my questions and a great job on the quarter. Thank you, Scott. Cary and Chris, maybe you could jump in.
Chris Diorio: It seems like systems is on a little bit of a better trajectory into the third quarter than I think we were thinking probably about 90 days ago. Blending that into your guidance, you know, it implies that endpoint ICs are growing, give or take 10% or so sequentially. I know the last couple of years we haven't had traditional seasonality, but before we went into a constrained environment from a supply chain perspective, the uptick, I think, was historically larger.
Chris Diorio: So I wonder if you could talk a little bit about that, about what you're seeing from an endpoint IC standpoint in the third quarter and the fourth quarter, especially given the strength that we just saw in the June quarter.
Chris Diorio: The potential volumes in food, the bigger things are, the slower they tend to go. But we saw, we're seeing, and saw then or continue to see
Chris Diorio: Some real promising opportunities around pallet and case tagging through the supply chain for food freshness. Those opportunities are accelerating or accelerated in the second quarter and we see further acceleration looking further out.
Chris Diorio: On top of that, I said in my prepared remarks this time that we're actually now seeing item level pilots in stores. That's relatively new. Those pilots have not yet turned into rollouts, but there are multiple of them.
Chris Diorio: And the opportunity around food freshness and reducing food waste in stores is very significant.
Chris Diorio: So the fact that we're already seeing in-store pilots to me is very exciting. I can't give you a time frame for when those pilots will turn into deployments, but just the size and the scope of the pilots and the fact that they are in-stores and they're layering on top of the supply chain opportunities for me is very exciting.
Cary L. Baker: Hi Scott. This is Cary. I'll take that one. So, you know, you highlighted it.
Speaker Change: Great, thanks so much. Congrats on the quarter again.
Cary L. Baker: Both Q1 and Q2 Endpoint IC volumes significantly outperformed normal seasonality. In Q1, normal seasonality is flat to slightly higher. We were up 14% sequentially. Q2 is typically up around 15%. And as I noted in the prepared marks, our Endpoint IC business was up 21%. So, again, we significantly outperformed seasonality through the first half of the year. That's given us a little bit of a cautious approach into Q2. We're still seeing signaling systems business up, maybe on the lower end of Q3. Overall, signaling systems business is up, but maybe on the lower end of seasonality.
Scott Wallace Searle: Thank you, Scott.
Speaker Change: Thank you. And our next question comes from Troy Jensen with Cancer Fitzgerald. Please go ahead.
Cary L. Baker: Gotcha, but just carry on to just do that a little bit more. There's you're not seeing anything specific from a customer standpoint to pull back. It's more just caution given one Q and two Q traditional norms.
Troy Jensen: Hey gentlemen, congrats on another spectacular quarter. Maybe I'll start here with Cary, I've got a follow-up. You're welcome. A follow-up for Cary, or a follow-up for Chris. Cary, can you just kind of help us out with on Q3, OPEX versus margins, gross margins, kind of directionally where you think we're going?
Cary: Yeah, sure. So in Q3, we expect our product gross margins. Now, again, that's without the license revenue. We expect our product gross margins to increase quarter over quarter.
Speaker Change: I would say currently our product gross margins are running below our targeted 53 to 54 percent range for a few reasons. First, we have stronger than typical mix of endpoint IC revenue as our systems business recovery has lagged that of endpoint ICs.
Cary L. Baker: Yeah, we're not seeing any pullback in customers, you know, there's always puts and takes here and there. But we see broad strength in our endpoint IC business, and that's reflected in what we delivered through the first half of this year, as well as our guide into Q3.
Speaker Change: second.
Speaker Change: Our lower margin 200 millimeter volume running SKUs were a higher percentage of our revenue in Q2.
Speaker Change: And to a lesser degree, we expect it again in Q3. That product line is two generations old at this point, and we are moving it before the M800 ramps. That effort should mostly be finished before we enter Q4.
Speaker Change: And then finally, while growing sharply, we expect the M800 volumes to remain small from a mixed perspective and will not have a visible impact to product gross margins.
Speaker Change: and I would just add that overall we remain confident in the long-term margin targets that I outlined at our investor day last year.
Chris Diorio: Yeah, Scott, in my prepared remarks, I talked about solid third-quarter product revenue growth, extending the endpoint SEs. And then we do expect to see some seasonal, typical seasonality in the fourth quarter. But, you know, we got one quarter at a time.
Speaker Change: Okay, so 51% in Q2, if you X out NXP, and you expect that to grow sequentially here in Q3? Correct.
Scott Wallace Searle: Gotcha. And Chris, if I could just quickly follow up.
Chris Diorio: You're starting to talk about the food vertical again, or starting to talk about it now. Huge opportunity. I wonder if you could take us through how you're seeing the early implementations and pilots and how we should think about that as we get into, I guess, 25 and beyond. Thanks.
Chris Diorio: Yeah, so Scott, as I said, I think it was on last quarter's earnings call, the food opportunity is moving more quickly than I had previously anticipated. And I had tempered my expectations just based on the potential volumes of food. The bigger things are, the slower they tend to go.
Scott Wallace Searle: But we saw, we're seeing, and we saw then or continue to see some really promising opportunities around palette and case tagging through the supply chain for food freshness. Those opportunities are accelerating or accelerating in the second quarter, and we see further acceleration looking further out. On top of that, I said in my prepared remarks this time that we're actually now seeing item-level pilots in stores. That's relatively new. Those pylons have not yet turned into rollouts, but there are multiple of them, and the opportunity around food freshness and reducing food waste in stores is very significant.
Operator: Great. Thanks so much. Congratulations on the quarter again.
Scott Wallace Searle: So the fact that we're already seeing in-store pilots is very exciting for me. I can't give you a time frame for when those pilots will turn into deployments, but just the size and the scope of the pilots and the fact that they are in stores and they're layering on top of the supply chain opportunities for me is very exciting.
Speaker Change: Okay, that's correct, right?
Speaker Change: I expect OpEx to increase sequentially in Q3.
Troy Donavon Jensen: Thank you. And our next question comes from Troy Jensen with Canfor Fitzgerald. Please go ahead.
Speaker Change: On an absolute basis, it should be up to control.
Speaker Change: Yep.
Chris Diorio: Okay, all right. For Chris, for you, you remember coming out of COVID, a lot of chatter about wafer shortages and you know Impinj had a fight for capacity. There's so much chatter right now about just the processing needs for AI, right? So I'm just curious to know kind of your kind of like longer-term visibility on kind of wafer.
Speaker Change: Supply. I don't know if we've kind of thought about that much or talked on that, but that just kind of popped in my head recently.
Chris Diorio: We haven't talked about it much, Troy, but we've sure thought about it a lot. As we said in our prepared remarks, we are increasing our wafer orders to stay ahead of the growing demand.
Troy Jensen: We have good support from our foundry partner today, and both, and
Troy Jensen: Really right now, the way the market has evolved.
Troy Jensen: We and they recognize that we are together supplying into enterprises.
Troy Jensen: that have transformed their operations to rely on RAINN RFID.
Troy Jensen: And those enterprises are delivering everything from
Troy Jensen: medical parts and supplies to hospital crash carts to critical shipments
Troy Jensen: to airline parts and baggage. So so I can never say that we won't go through another shortfall because you know the the semiconductor industry is cyclical. I do feel today with the growth in rain RFID impinges growth overall.
Troy Jensen: and the recognition of what we are critically delivering to the market.
Troy Jensen: that we have good support from our foundry partner.
Troy Jensen: And as long as we stay ahead in terms of our wafer availability.
Troy Jensen: and are able to deliver into the opportunities. I'm guardedly optimistic that with that support from our foundry partner we'll be able to continue delivering going forward. No promises, can't project the future.
Troy Jensen: But I feel good today and I feel good also that we are better at forecasting, able to understand what we need in the market and are buying ahead into it.
Troy Donavon Jensen: Hey gentlemen, congrats on another spectacular quarter. Maybe I'll start here with Cary, I've got a follow-up, you're welcome, a follow-up for Cary, or a follow-up for Chris, but Cary, can you just kind of help us out with in Q3, OPEX versus margins, gross margins, kind of directionally where you think we're going?
Cary L. Baker: Yeah, sure. So in Q3, we expect our product gross margins. Now, again, that's without the license revenue. We expect our product gross margin margins to increase quarter over quarter. I would say currently, our product gross margins are running below our targeted 53 to 54% range for a few reasons. First, we have a stronger than typical mix of endpoint IC revenue as our systems business recovery has lagged behind endpoint ICs. Second, our lower margin 200 millimeter volume running SKUs were a higher percentage of our revenue in Q2, and to a lesser degree, we expect them to be again in Q3.
Cary L. Baker: That product line is two generations old at this point, and we are moving it before the M800 ramps. That effort should mostly be finished before we enter Q4. And then finally, while growing sharply, we expect the M800 volumes to remain small from a mixed perspective and will not have a visible impact on product gross margin. And I would just add that, overall, we remain confident in the long-term margin targets that I outlined at our investor day last year. Okay, so
Troy Donavon Jensen: Okay, so 51% in Q2, if you X out NXP, and you expect that to grow sequentially here in Q3? Correct.
Cary L. Baker: I expect OPEX to increase sequentially in Q3.
Troy Jensen: Troy, this is Cary, the other piece that I have...
Troy Donavon Jensen: On an absolute basis, it should be up to control. Okay, all right, for Chris, for you, you remember coming out of COVID with a lot of chatter about wafer shortages, and you know, Impinj had a fight for capacity. There's so much chatter right now about just the processing needs for AI.
Troy Jensen: today being different than 2020 is today we target carrying 180 days of forward inventory on the balance sheet. And and that is so that we can insulate or do our best to insulate our our customers from semiconductor cycles.
Troy Jensen: We just didn't have that in 2020.
Troy Jensen: Understood. Great answers, guys, as expected, and good luck on the board.
Cary: Thank you for having us.
Speaker Change: Thank you. And as a reminder, if you'd like to ask a question, please press star then one. Our next question comes from Guy Hardwick with Freedom Capital Markets. Please go ahead. Hi, good afternoon.
Chris Diorio: Great. So I'm just curious to know kind of your kind of longer-term visibility on kind of wafer supply. I don't know if we've kind of thought about that much or talked about that, but that just kind of popped in my head recently.
Chris Diorio: We haven't talked about it much, Troy, but we've sure thought about it a lot. As we said in our prepared remarks, we are increasing our wafer orders to stay ahead of the growing demand. We have good support from our foundry partner today and both and, really right now, the way the market has evolved. We and they recognize that we are together supplying enterprises that have transformed their operations to rely on RAINN RFID, and those enterprises are delivering everything from medical parts and supplies to hospital crash carts to critical shipments to airline parts and baggage.
Guy Hardwick: Good afternoon. Thank you.
Speaker Change: Just to echo what everyone else says, congrats on the tremendous results.
Guy Hardwick: So my question is regarding the M800 series I think you just you said that volumes doubled are you prepared to give us a sense of what proportion of IC volumes are the M800 series firstly and secondly I mean just wondering what the commercial implications are of the step-up in performance of the M800 versus the previous
Speaker Change: M700 and your closest competitor which I think is the NXP UCODE 9 because by my simple math I think the M800 is something like a 20% increase, provides a 20% increase in range for the same power.
Speaker Change: or something like a 30% reduction in power for the same range. Maybe you could talk us through the commercial implications of that.
Chris Diorio: So, I can never say that we won't go through another shortfall because, you know, the semiconductor industry is cyclical. But I do feel today, with the growth in RAIN RFID, Impinj's growth overall, and the recognition of what we are critically delivering to the market, that we have good support from our foundry partner. And as long as we stay ahead in terms of our wafer availability and are able to deliver on the opportunities, I'm guardedly optimistic that with that support from our foundry partner, we'll be able to continue delivering going forward.
Chris Diorio: No promises. I can't project the future. But I feel good today. And I feel good also that we are better at forecasting, able to understand what we need in the market and are buying ahead into, Troy, this is Cary, the other piece of
Speaker Change: Hi, this is Cary. I'll take the first piece and then I'll hand it over to Chris.
Chris Diorio: The volumes are small. We have received the first few market qualifications and now we're working on getting the M800 qualified into sockets. We won't really see a ramp until that piece is completed. So early days right now, we're encouraged by where we are. We're growing sharply. It's still a very small portion of our mix.
Chris Diorio: And Guy, to answer your question about the impact.
Guy Hardwick: You are correct in the numbers. The M800, depending on the inlet, gives between 20 and 25% rate of re-range.
Chris Diorio: It also has additional capabilities in the AIC that improve overall readability.
Chris Diorio: We are seeing the M-800 unlock opportunities or solve problems that were previously very difficult to solve. I'll cite two examples. One is, as I mentioned in my prepared remarks, in retail supply chain.
Cary L. Baker: The other piece that I.., today being different than 2020 is that today we target carrying 180 days of forward inventory on the balance sheet. And that is so that we can insulate or do our best to insulate our customers from semiconductor cycles. We just didn't have that in 2020, understood
Troy Donavon Jensen: understood. Great answers, guys, as expected, and good luck on the board.
Operator: Thank you. And as a reminder, if you'd like to ask a question, please press star than one. Our next question comes from Guy Hardwick with Freedom Capital Markets. Please go ahead. Hi.
Chris Diorio: Retailers are putting more and more items into boxes.
Guy Hardwick: Hi, good afternoon. Good afternoon. Thank you guys. Just to echo what everyone else says, congratulations on the tremendous results.
Chris Diorio: and reading the boxes at outgoing from manufacturing and incoming into DCs with the expectation that they'll get 100% readability.
Chris Diorio: on the items in a box as it comes into the D.C. We're now seeing boxes containing several hundred items, very closely stacked, really packed in. The M-800 gives much better readability in those situations.
Guy Hardwick: So my question is regarding the M800 series; I think you said that volumes doubled. Are you prepared to give us a sense of what proportion of IC volumes are the M800 series firstly? And secondly, I'm just wondering what the commercial implications are of the step up in performance of the M800 versus the previous M700 and your closest competitor, which I think is the NXP UCODE 9. Because, by my simple math, I think the M800 is something like a 20% increase, which provides a 20% increase in range for the same power or something like a 30% reduction in power for the same range. Maybe you could talk us through the commercial implications of that.
Chris Diorio: Meaning that there's less exception handling where employees have to open the box and do a manual count. That's a big impact.
Speaker Change: Second one that I'll cite is, I mentioned the food pilots.
Speaker Change: The readability on certain food items is very difficult food items tend to either have a lot of liquid if they're proteins
Speaker Change: or they may be wrapped in foil. We're finding that using the M800, we're able to innovate with our inlay partners, innovate inlays that solve those use cases and give good readability
Speaker Change: where that readability wasn't achievable before. And so we're actually pushing fairly aggressively M800 based inlays into those food pilots. So overall, we have very high expectations for M800 in the market in terms of
Speaker Change: It's penetration and overall ability to drive new opportunities. We are coming off of modest volumes right now, but ramping sharply and really high expectations for the future.
Speaker Change: Thank you, that's very helpful. It's a great answer.
Cary L. Baker: Hi, this is Cary. I'll take the first piece, and then I'll hand it over to Chris.
Speaker Change: Thank you.
Speaker Change: Thank you. And our next question today comes from Christopher Rolland with Susquehanna. Please go ahead.
Cary L. Baker: The volumes are small, we have received the first few market qualifications, and now we're working on getting the M800 qualified into sockets. We won't really see a ramp until that piece is completed. So, these are early days, right now. We're encouraged by where we are, we're growing sharply, and it's still a very small portion of our mix.
Christopher Rollins: Hi guys, thanks for the question. I just wanted to talk about two opportunities.
Christopher Rollins: and get your opinions on them. I guess the first any update, I think you talked about the digital passport in Europe .
Christopher Rollins: Any update there? And then secondly...
Speaker Change: self-checkout I think there were retailers five and below is one of them talking about loss via self-checkout the traditional barcode checkout
Speaker Change: Obviously, doing it with ICs would be much better. But do you think there's an aversion to self-checkout overall? Or do you think
Speaker Change: There's a draw towards this IC driven checkout and have you seen an increase in interest?
Chris Diorio: And Guy, to answer your question about the impact, you are correct.
Chris Diorio: In the numbers, the M800, depending on the NLEG, gives between 20 and 25% greater read range. It also has additional capabilities in the IC that improve overall readability. We are seeing the M800 unlock opportunities or solve problems that were previously very difficult to solve. I'll cite two examples.
Speaker Change: around IC based checkout. Thanks. Yeah okay Chris, this is Chris. I'll take the I'll do them in reverse order. I'll take the second question first in terms of self checkout.
Chris Diorio: One is, as I mentioned in my prepared remarks, in the retail supply chain. Retailers are putting more and more items into boxes and reading the boxes outgoing from manufacturing and incoming into DCs with the expectation that they'll get 100% readability on the items in a box as it comes into the DC. We're now seeing boxes containing several hundred items, very closely stacked, really packed in. The M800 gives much better readability in those situations, meaning that there is less exception handling where employees have to open the box and do a manual count.
Chris Diorio: That's a big impact. The second one that I'll cite is the food pilots. The readability of certain food items is very difficult. Food items tend to either have a lot of liquid if they're proteins, or they may be wrapped in foil.
Chris Diorio: We're finding that using the M 800, we're able to innovate with our inlay partners, innovate inlays that solve those use cases and give good readability where readability wasn't achievable before. And so we're actually pushing fairly aggressively. And 800 based inlays into those food pilots. So overall, we have very high expectations for M800 in the market, in terms of its penetration and overall ability to drive new opportunities. We are coming off of modest volumes right now but ramping sharply with really high expectations for the future. Thank you. That's very helpful.
Guy Hardwick: Thank you. That's very helpful. It's a great answer.
Operator: Thank you. And our next question today comes from Christopher Rolland with Susquehanna.
Christopher Adam Jackson Rolland: Hi guys, thanks for the question. I just wanted to talk about two opportunities and get your opinions on them. I guess the first, any update on the digital passport in Europe? Any update there?
Speaker Change: We're seeing today the self-checkout opportunities in retail stores and those self-checkout opportunities are really improving customer satisfaction. You don't have to wait in line, you do a self-checkout, you walk out of the store.
Christopher Adam Jackson Rolland: And then secondly, self checkout. I think there were retailers, five and below is one of them talking about loss via self checkout, the traditional barcode checkout. Obviously, doing it with ICs would be much better, but do you think there's an aversion to self-checkout overall, or do you think there's a drawback to this IC-driven checkout, and have you seen an increase in interest around IC-based checkout?
Speaker Change: The reading of the items at the point of sale is essentially instantaneous. I've done it personally many times. I did some of the earliest ones in Japan. You just go up to the checkout counter, you put your items down, instantly you see on the screen what they are. You hit pay.
Speaker Change: Pick up the items and you walk out of the store. It is a seamless, credible experience compared to waiting in a line to getting checked out.
Speaker Change: Self-checkout requires effective loss prevention at the store exits.
Speaker Change: And that loss prevention is a very difficult problem.
Speaker Change: Because what the readers have to do is find the stolen item leaving the store and a sea of other items that's right near the store exit.
Speaker Change: We have been able to effectively solve that problem.
Speaker Change: And that solution is enabling the self-checkout. So we see pull from the retail market. We're focusing right now on our visionary European retailer.
Speaker Change: really to make sure that we have an incredibly robust solution, which they have today, working with them to make sure they are successful. And then we're looking with our partners to step and repeat that solution into the market.
Speaker Change: To go back to your first question on DPP.
Speaker Change: We, Impinj, are working very closely with the RAINN Alliance.
Speaker Change: who and together we're working the DPP initiative very closely. There's others participating of course as well.
Speaker Change: We're also participating directly in the European Standards Bodies via our Voyantic Business Unit together to ensure first that RAINN is an approved data carrier for DPP.
Speaker Change: After that, the necessary next step is to enable consumers to be able to read the tagged items.
Speaker Change: and what I can say there is really our entire RAINN community, all the companies in it are galvanized behind that need for consumers to be able to read the tagged items. I can't point you to specific proof points right now.
Speaker Change: companies that provide to and to consumers to enable that readability so time will tell how fast this rolls out but those are the two things first get brain approved as a as a DPP carrier
Speaker Change: Second, enable consumers. So expect us and others to work very hard on both of those efforts.
Speaker Change: Thank you. Just a quick follow-up and then a question. For consumers to read that, would that imply they would have an app on their phone and readability? Or how would they be able to read that?
Speaker Change: And then just for my main question, second question.
Speaker Change: Your competitor in RFID had very strong results there. Do you think their share accelerates now that the lawsuit is done?
Speaker Change: and also they talked about having a workaround in your IP in the next three years or so. Do you think that's a...
Speaker Change: That's a possibility as well.
Speaker Change: Okay, I'll try and write those questions down. I'm going to do my best to answer them in order. We may have to come back to it. First one, in terms of consumer readability, the initial target is consumer mobile devices. I won't put the exclusive target. You can see readability in homes and things like that, but the initial target is readability in consumer mobile devices.
Speaker Change: It's a matter of getting that reading in the phone. And then of course, there would be an app that supports it. That's what the community is pushing towards. And quite frankly,
Speaker Change: We have enterprise end-users pulling for it, which they have a lot larger voice than our community. We're the suppliers. When the enterprise end-users say they want it, that really helps.
Speaker Change: On the NXP part,
Speaker Change: We feel good about our position in the market.
Speaker Change: We feel good about demand for our products and platform.
Speaker Change: And we believe our enterprise solution efforts have the potential to drive share gains for us.
Speaker Change: But we don't we don't really actually really can't comment on share gains or share losses or where we stand and share
Speaker Change: Until the end of each year when the rain Alliance compiles the composite data and gives a number for what the overall market is doing All I can say right now is we feel good about our position and we feel good about demand for our products and platform and we Believe we have the leading products in the market
Speaker Change: and a leading ability to deliver enterprise solutions that use those products and in many ways require those products in order to get, in order for the solution to work, to just flat out work.
Speaker Change: You know, time will tell there.
Speaker Change: Any
Speaker Change: just in just about every case.
Speaker Change: If there's somebody who really wants to put in a lot of effort to design around some IP, there's almost always a way. You can cite a couple of exceptions historically.
Speaker Change: But there is a way to design around IP, but it takes a lot of effort and Impinj has a very large number.
Speaker Change: of patents in the IC space, in the RFID IC space, and in the systems and solutions that kind of use that IP.
Speaker Change: You know, it's going to be up to NXP whether they put effort into designing out that IP or put effort into Innovating new products. I can't speak for what they're going to do I feel good about the fact that we reached a settlement that we've We've brought in a 45 million dollar upfront payment at 15 million dollars at least this first time in licensing revenue
Speaker Change: And I feel good about the fact that Impinj is the leading provider in the market in terms of products and in terms of our IP portfolio, which will do well for us going forward.
Chris Diorio: Yeah. Okay, Chris. This is Chris.
Speaker Change: Thank you very much, Chris.
Chris Diorio: I'll do them in reverse order. I'll take the second question first. In terms of self-checkout, we're seeing today the self-checkout opportunities in retail stores, and those self-checkout opportunities are really improving customer satisfaction. You don't have to wait in line; you do a self check out as you walk out of the store. The reading of the items at the point of sale is essentially instantaneous. I've done it personally many times. I did some of the earliest ones in Japan.
Chris Diorio: You just go up to the checkout counter, you put your items down instantly, you see on the screen what they are, you hit pay, pick up the items, and you walk out of the store. It is a seamless, incredible experience compared to waiting in line to get checked out. Self-checkout requires effective loss prevention at the store exit. And what we and that loss prevention is a very difficult problem, because what the readers have to do is find the stolen item leaving the store and a sea of other items that's right near the store eggs.
Speaker Change: Thank you.
Chris Diorio: We have been able to effectively solve that problem, and that solution is enabling self-checkout. So we see pull from the retail market, focusing right now on our visionary European retailer to really make sure that we have an incredibly robust solution, which they have today, working with them to make sure they are successful. And then we're looking with our partners to step in and repeat that solution in the market, to go back to your first question on DPP.
Chris Diorio: We, Impinj, are working very closely with the RAINN Alliance, who, and together, we're working on the DPP initiative very closely. There are others participating, of course, as well. We're also participating directly in the European standards bodies via our Voyantic business unit together to ensure first that RAIN is an approved data carrier for DPP. After that, the necessary next step, to enable consumers to be able to read the tagged item. And what I can say there is that our entire RAINN community, all the companies in it, are galvanized behind that need for consumers to be able to read the tagged items. I can't point you to specific proof points right now; I would just know there's a lot of push. And at the end user level, at the enterprise end user level, there's a lot of pull from
Speaker Change: Thank you. And this concludes our question and answer session. I'd like to turn the conference back over to Chris Diorio, co-founder and CEO , for any closing remarks.
Chris Diorio: www.youtube.com.au Second, enable consumers, so expect us and others to work very hard on both of those efforts.
Christopher Adam Jackson Rolland: Thank you. Just a quick follow-up and then a question. For consumers to read that, would that imply they would have an app on their phone and readability, or how would they be able to read that?
Chris Diorio: And then just for my main question, my second question: your competitor in RFID had very strong results there. Do you think their share will accelerate now that the lawsuit is done? And also, they talked about having a workaround in your IP in the next three years or so. Do you think that's a possibility as well?
Christopher Adam Jackson Rolland: Okay, I'll try and write those questions down. I'm going to do my best to answer them in order, but we may have to come back to it.
Chris Diorio: First one, in terms of consumer readability, the initial target is consumer mobile devices. That won't be the exclusive target. You can see readability in homes and things like that. But the initial target is readability and consumer mobile devices. It's a matter of getting that reading on the phone.
Chris Diorio: And then, of course, there would be an app that supports it. So that's what the community is pushing for. And quite frankly, we have enterprise end users pulling for it, and they have a lot larger voice than our community. We're the suppliers. When the enterprise end users say they want it, that really helps on the NXP part. We feel good about our position in the market. We feel good about the demand for our products and platform.
Chris Diorio: So thank you, Rocco. I'd like to thank you all for joining the call today.
Chris Diorio: And we believe our enterprise solution efforts have the potential to drive share gains for us. But we don't, we don't really actually really can't comment on share gains or share losses or where we stand and share until the end of each year when the RAIN Alliance compiles the composite data and gives a number for what the overall market is doing. All I can say right now is that we feel good about our position.
Chris Diorio: And we feel good about demand for our products and platform. And we believe we have the leading products in the market and a leading ability to deliver enterprise solutions that use those products and, in many ways, require those products in order to get the solution to just flat out work. And then the third question was about IP design around, You know, time will tell there, and in just about every case, there's somebody who really wants to put in a lot of effort to design around some IP. There's almost always a way.
Chris Diorio: You can cite a couple of exceptions historically, but there is a way to design around IP, but it takes a lot of effort. And Impinj has a very large number of patents in the IC space, in RFID IC space, and in the systems and solutions that use that IP. You know, it's going to be up to NXP whether they put an effort into designing out that IP or put an effort into innovating new products.
Chris Diorio: I can't speak for what they're going to do, but I feel good about the fact that we reached a settlement that we've brought in a $45 million upfront payment of $15 million, at least this first time in licensing revenue. And I feel good about the fact that Impinj is the leading provider in the market in terms of products and in terms of our IP portfolio, which will do well for us going forward.
Christopher Adam Jackson Rolland: Thank you very much, Chris.
Speaker Change: and thank you for your ongoing support. Bye-bye.
Speaker Change: Thank you, sir. Today's conference is now concluded. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.