Q3 2024 Impinj Inc Earnings Call
Welcome to the impinge <unk> third quarter 2024 financial results earnings Conference call and webcast, all participants will be in listen only mode.
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I would now let's turn the conference over to Mr. Andy Cobb, Vice President Strategic Finance. Please go ahead.
Andy Cobb: Thank you Gary. Thank you good afternoon, and thank you all for joining us to discuss ingest third quarter 2024 results on.
Andy Cobb: On today's call Kristi, Oreo impinges, cofounder and CEO, who will provide a brief overview of our market opportunity and performance.
Speaker Change: Cary Baker <unk>.
Speaker Change: CFO will follow with a detailed review of our third quarter financial results.
Speaker Change: Third quarter outlook we.
Speaker Change: We will then open the call for questions Hussein, Michael I intend just C O O will join us for the Q&A.
Speaker Change: 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 I.
Speaker Change: Any such statements are forward looking under the private Securities Litigation Reform Act of 1995.
Speaker Change: 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 filed with the FCC we.
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.
Speaker Change: Our balance sheet and cash flow metrics, except for free cash flow our gout.
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 note that we will participate in the Baird 2024 Global Industrial conference on November 13th in Chicago, and the UBS Global Technology Conference on December 4th in Scottsdale.
Speaker Change: We look forward to connecting with many of you there.
Speaker Change: I'll now turn the call over to Chris.
Chris: Thanks, Randy and thank you all for joining the call.
Chris: Our third quarter results were strong with revenue and profitability well above our guidance.
Chris: Excluding last quarter with its $15 million licensing revenue.
Chris: Third quarter revenue and adjusted EBITDA, both set new records.
Chris: <unk> supply chain and logistics steady growth in retail general merchandize continued secular growth in both apparel and long tail of applications drove these strong financial results.
Chris: As Carey will highlight these results again demonstrate the leverage in our operating model.
Chris: Starting with Silicon third quarter infant I see product revenue exceeded our expectations.
Chris: Unit volumes set a new quarterly record Arsenal shippers and retailers prepare for the holiday season.
Chris: And so the third consecutive quarter and 800 shipments more than doubled.
Chris: Looking to the fourth quarter, we expect end point IC revenue to decline modestly versus third quarter.
Chris: Typical seasonal trends, partially offset by market strength.
Chris: We also expect continued 800 adoption is more than 800 based inlays achieved market qualification.
Chris: Turning to reader Ice's third quarter volumes exceeded our expectations driven by stronger than anticipated demand for both <unk> and <unk> family of Ics.
Chris: Looking to fourth quarter project timing at the large supply chain and logistics and user Wedbush <unk> family revenue lower.
Chris: Longer term as we wind down our legacy India Ice's, we see continued eat family adoption across the broad rain market.
Chris: Solutions, we expect the current phase of the visionary European retailers ongoing rollout of our self checkout and loss prevention solution to spike in the fourth quarter.
Chris: Driving strong fourth quarter gateway revenue and growing endpoint IC volumes.
At the large north American retailer I see volumes continue ramping drew.
Chris: Driven by expanding general merchandize tagging.
And we see the second large north American supply chain, and logistics and user increasing labor consumption this year and next.
Chris: He's very public enterprise successes are driving additional fortune 500 enterprises to us.
Chris: In existing markets like retail general merchandize, and new ones like perishable foods and.
Chris: And with that endpoint IC volumes.
Chris: Our enterprise account pipeline is much larger today.
Our current base.
Chris: I expect us to continue investing in enterprise solutions.
Chris: Putting software and cloud services that we believe are key to our long term success.
Chris: Touching now on the broader market our conviction in food tagging continues.
Chris: Buoyed by multiple supply chain, a quick serve restaurant rollouts as well as grocery parents.
Chris: While we are still in the early days the.
Endpoint IC opportunity is at least an order of magnitude larger than any of todays markets.
Chris: And retail general merchandise, we continue seeing retailers piggyback and pioneering rollout at the large north American retailer.
Chris: And Qualcomm statement about rain reading on mobile devices galvanized expectations of rain as a digital product passport data carrier.
Chris: It also peaked retailer interest in engaging consumers through their connected items.
Chris: At the recent rain Alliance meeting in Florence, I highlighted one potential use case.
Chris: Which is consumers crowdsourcing their location of items in our everyday world.
Chris: Think Bluetooth trackers no additional cost.
10000 times todays footprint.
Chris: With overall rain penetration is still less than 1% of the total collectible market.
Chris: We remain laser focused on winning the race to connect everything.
Chris: In closing, we delivered a very strong third quarter.
Chris: Our solutions focus continues paying dividends.
Chris: And I am personally heartened by the consumer opportunity.
So I've been touting for what feels like ages finally seeming within reach.
Chris: Looking ahead, we see continued secular endpoint IC growth category expansion and burgeoning solutions opportunities.
Chris: As we continue driving our bold vision.
Main confident in our market position and energized by the opportunities ahead.
Chris: Before I turn the call over to Kerry for our financial review and fourth quarter outlook I'd.
Chris: I'd like to again, thank every member of the impinged by your tireless effort as always.
Feel honored by my incredible good fortune to work with you.
Chris: Right.
Kerry: Thank you, Chris and good afternoon, everyone third quarter revenue was $95 2 million down 7% sequentially from $102 5 million in second quarter, 2024, and up 46% year over year from $65 million in third quarter 2023.
Kerry: Third quarter endpoint IC revenue was $81 million down 9% sequentially from $89 4 million in second quarter of 2024, and up 67% year over year from $48 6 million in third quarter 2023.
Excluding the $15 million second quarter licensing revenue endpoint IC revenue grew 9% sequentially.
Kerry: Looking forward, we expect fourth quarter endpoint IC revenue to decline, but on the favorable side of normal seasonality.
Kerry: Third quarter systems revenue was $14 2 million up 9% sequentially from $13 1 million in second quarter, 2024, and down 13% year over year from $16 4 million in third quarter 2023.
Kerry: Systems revenue exceeded our expectations driven by strength in both test and measurement and reader IC sales.
Kerry: Looking forward, we expect fourth quarter systems revenue to increase sequentially.
Third quarter gross margin was 52, 4% compared with 58, 2% in second quarter, 2024, and 55% in third quarter 2023.
The year over year increase was due primarily to less excess and obsolescence charges in the current year.
Kerry: The sequential decrease was due primarily to second quarter licensing revenue.
Kerry: Excluding the licensing revenue third quarter product gross margin increased 140 basis points sequentially, driven primarily by end point IC product mix, including fewer 200 millimeter wafers looking forward, we expect fourth quarter gross margin to increase sequentially.
Kerry: Total third quarter operating expense was $32 5 million compared with $32 $8 million in second quarter, 2024, and $32 6 million in third quarter 2023.
Operating expense was below expectations, driven by engineering program timing.
Kerry: Research and development expense was $17 9 million sales and marketing expense was $7 1 million general and administrative expense was $7 6 million.
Kerry: Looking forward, we expect fourth quarter operating expense to increase sequentially.
Kerry: Third quarter, adjusted EBITDA was $17 3 million compared with $26 8 million in second quarter, 2024, and 300000 in third quarter 2023.
Kerry: Third quarter adjusted EBITDA margin was 18, 2%.
Kerry: Third quarter GAAP net income was 200003rd quarter non-GAAP net income was $16 9 million or <unk> 56 per share on a fully diluted basis.
Kerry: Turning to the balance sheet, we ended the third quarter with cash cash equivalents and investments of $227 4 million compared with $222 million in second quarter, 2024, and $113 2 million in third quarter 2023.
Inventory totaled $88 4 million up $7 6 million from the prior quarter.
Third quarter capital expenditures totaled $5 4 million free cash flow was $4 7 million.
Kerry: Before turning to our guidance I want to highlight three items specific to our results and outlook.
Kerry: First we expect fourth quarter gross margins to increase sequentially driven by lower 200 millimeter endpoint IC volume a larger mix of systems revenue and end point IC replenishment into Asia based authenticity pilots.
Kerry: As we signaled last quarter, we increased our second half 2020 for wafer purchases, we will move some of those wafers to inventory ahead of 2025 gross and the remainder to fulfill stronger than anticipated second half 2024 demands.
Kerry: Finally, with the additional revenue and disciplined investment in third quarter, our adjusted EBITDA margins are approaching the long term range, we presented at our 2023 Investor day.
Kerry: As our revenue scales, we anticipate incremental leverage and cash flow generation.
Kerry: Turning to our outlook, we expect fourth quarter revenue between $91 million to $94 million compared with $70 7 million in fourth quarter, 2023% to 31% increase at the midpoint.
Kerry: We expect adjusted EBITDA between $13, six and $15 1 million on the bottom line, we expect non-GAAP net income between $13 four at $14 9 million, reflecting non-GAAP fully diluted earnings per share between <unk> 45, and 49 cents.
Kerry: In closing I want to thank the <unk> team our customers our suppliers and you our investors for your ongoing support.
Kerry: I will now turn the call to the operator to open the question and answer session.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
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Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
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 time allows at this time, we will pause momentarily to assemble our roster.
Speaker Change: Our first question is from Jim Ricchiuti with Needham <unk> Company. Please go ahead.
Alright, thanks, good afternoon.
Speaker Change: Wanted to.
Go back to some of the commentary that you had.
Speaker Change: The systems business I'm trying to reconcile some of the comments you've made you're talking I think about.
The current phase of European.
Speaker Change: Retailer visionary retailers, you talked about and talking about.
Speaker Change: Thank you and the text transcript you were talking about solutions spiking in Q4 normally Q4 is a better quarter seasonally right in the systems business. So are you anticipating.
Speaker Change: A stronger.
Speaker Change: Systems quarter as a result of some of the factors I just mentioned.
Kerry: Hi, Jim Yeah. This is Kerry thanks for the question and you've incorporated interpreting things correctly. So.
Kerry: We're expecting fourth quarter systems revenue to increase sequentially due to a few factors and you highlighted a couple first just as a matter of base lining Q4 has historically been a seasonally stronger quarter for the systems business as our customers typically look to deploy capital ahead of the end of their fiscal years and then specific to this.
Kerry: Fourth quarter, we're seeing the benefits from the visionary and European retailers ongoing self checkout loss prevention rollout and that deployment will spike in terms of volume and therefore revenue in Q4 before normalizing in Q1, and then finally the Indy.
Kerry: In the reader IC end of life process has elongated a little bit we anticipated last time shipments in the second quarter, though some of those have moved into Q3 and into Q4 and as a result, that's adding a little bit of a tailwind to Q4 systems revenue as well.
Kerry: Okay.
Speaker Change: Thanks, Alright.
Speaker Change: Follow up question.
Speaker Change: Actually unrelated your large <unk> customer earlier today was talking about the adoption that they're seeing.
Speaker Change: Rain RFID and grocery stores in particular, I think bakery being one of the early use cases.
Speaker Change: I'm wondering maybe Chris a question for you if you could frame the opportunity.
Speaker Change: It might look like for the industry, you've obviously been getting more positive about the opportunity in food both in the <unk>.
Speaker Change: Grocery and <unk> I'm, just wondering if you could talk a little bit to that.
Chris: Yeah, Jim Thank you so.
Chris: I have been talking about food on that past couple earnings calls if you recall.
Chris: So a little bit slow in coming to the table here to talk about <unk>, because it's such a big opportunity I didn't I wanted to give it some time to see how things would play out but what we're really seeing right. Now is exactly what you cited were seeing opportunities in quick serve restaurants, and the food supply chain and now in individual grocers feel very well positioned in these opportunities.
Chris: And although given the size of.
Chris: These enterprises.
Chris: This overall size of the 2025 food volumes will not be as will be just a start down this gigantic task.
Chris: We still think there'll be some meaningful volumes in 2025. So we're excited by the food opportunity. We're excited by the announcement.
Chris: You just saw and and there are more opportunities out there in the market today.
Speaker Change: Okay. Thanks very much.
Thank you.
Speaker Change: The next question is from harsh Kumar with Piper Sandler. Please go ahead.
Harsh Kumar: Yeah, Hey, guys first of all congratulations on very strong results to the whole team and I had two maybe first one for Chris Chris you had quite a bit of outperformance in your September quarter results.
I wanted to ask a question is there was one thing that stood out but it seems like it's very broad base. However, if I was to ask you that question and they were using one driver that spans greater than the rest and driving the number of quarter results.
Harsh Kumar: Which one would that be.
Speaker Change: Alright, thanks harsh for the question.
Harsh Kumar: Okay.
Harsh Kumar: You know.
One driver.
Speaker Change: Harsh I don't think I can give you one and I am going to apologize for that but we're seeing supply chain and logistics strength.
Speaker Change: Steady growth in retail general merchandize secular growth in apparel and long tail applications and.
Speaker Change: We're seeing our solutions efforts paying dividends.
Speaker Change: And across the solutions that we're driving into so.
Speaker Change: I feel that we as a company or.
Speaker Change: Pushing hard in several areas the areas that I, just said, we see the market overall pushing hard in those areas.
Speaker Change: We just are now really.
Speaker Change: Take a broad based industry adoption of our market adoption not any one particular market.
Speaker Change: Broad based industry adoption and if you look at the food announcement, where kind of where we've been talking about food that broad based industry adoption is poised to continue so I feel I'd hoped my prepared remark conveyed my enthusiasm enthusiasm about the market overall, and I really and truly feel that enthusiasm. So I'm, sorry, I can't point to one I gave you for.
Speaker Change: But there are meaningful.
Speaker Change: Hey, Thank you. This is very good color I was trying to pin you down but it seems like you are seeing broad adoption at all.
Speaker Change: Maybe a two part question on cheating a little bit you mentioned in the logistics.
Speaker Change: Segment your second customer will increase adoption in 2024, and then again in 2025 I was curious if you could give us some idea of where they are how much are you penetrated into that customer and then part two separate question is I've gotten this from a client already seems like logistics systems business will be.
Speaker Change: Downtown, but youll see a spike in Europe Premier visionary European.
Speaker Change: Customer and it seems like the balance is positive, but I was curious if you can give us an interplay between those two what is happening.
Speaker Change: What is happening with the logistics catchment to come down is it just there's just the end of life of.
Speaker Change: One thing versus the other or something else going on there.
Speaker Change: Okay.
Going back to the first question.
Speaker Change: I can't really site volumes are where they are we obviously have a very good relationship with that customer, but I think you need to listen to their their remarks, what I can say is.
Speaker Change: Their execution has been very strong I think I used the word before I mean this in the most positive way that Theyre a machine and they are executing like a machine and I mean that would be very positively execution has been strong.
Speaker Change: Not fully deployed obviously it wouldn't be fully deployed if I said things are going to pick up next year or increase next year, but if you look at their publics if theres no public statements that they think they get the best picture in terms of where they are.
Speaker Change: In terms of the go forward.
Speaker Change: And finally see volumes, we expect to increase next year.
Speaker Change: Reader IC that with some project timing related items as I noted.
Speaker Change: We see reader Ics down in fourth quarter due to that project timing.
Speaker Change: But you Shouldnt read anything really meaningful into that it just it truly is project timing and the projects they've got going on right now continue to move at pace.
Speaker Change: I wish I could give you more specific answers, but obviously.
Speaker Change: I can't say anything more specific at this point in time, but I think the customer speaks for themselves.
Speaker Change: Very helpful. Chris Congratulations again, thank you.
Speaker Change: Thank you very much.
Speaker Change: The next question is from Troy Jensen with Cantor Fitzgerald. Please go ahead.
Troy Jensen: Hey, gentlemen, I also want to say congrats on another great quarter here.
Troy Jensen: Thank you maybe not yet youre very welcome maybe first question here for Chris could.
Troy Jensen: Could you just talk a little bit more about the Qualcomm partnership you know what.
Troy Jensen: The implications and the timing.
Troy Jensen: Is it all related to RFID getting into tablets and iphones and just how you see him.
Watches and whatnot, but just an update there would be great.
Speaker Change: Yes, Troy, so I might go a little bit long on this one but I kind of on a stage a little bit.
Troy Jensen: I'm going to start by saying that we.
Speaker Change: <unk>.
Speaker Change: And the overall rain industry.
Troy Jensen: Thanks for the call confident coming out with a public statement about reign.
Speaker Change: <unk> mobile devices.
Speaker Change: Public statement is dramatically helped advance.
Speaker Change: The position of rain as a data carrier for particular product passport in the EU combination of that statement push from major retailers in Europe.
Speaker Change: Essentially.
Speaker Change: <unk>.
Speaker Change: It moves the ball forward such that rain is no longer question within the standards bodies in Europe is whether it's going to be part of GPP. They know exactly what the with the implementations.
Speaker Change: As we project forward.
Speaker Change: And Qualcomm statement, and then sort of a follow up that's happening, particularly at the rain Alliance meeting in Florence.
Speaker Change: The first opportunities are going to be an enterprise mobile.
Speaker Change: Welcome declined despite a timeline for consumer mobile.
Speaker Change: Other than to say, it's following the enterprise mobile.
Speaker Change: I actually.
Speaker Change: Ourselves don't believe that it's going to be the implementation in the phones, that's going to be pacing us in consumer mobile.
Speaker Change: But it's going to be readiness.
Speaker Change: The entire community in terms of either data resolution in terms of the backend services and other stuff that has to all get prepared.
In advance of consumers being able to engage with those connected items. So you shouldnt be thinking in months or quarters, it's going to take a bit longer than that to build up the entire backend.
Speaker Change: But I'm personally incredibly excited because when was the last new significant radio incorporated into a mobile device either fix some minor introductions, but think back when was the last big one.
Speaker Change: And I firmly think that range is going to be a big one we're going to have to get it right. We're on a focus on getting it right, but I'm Super excited.
Speaker Change: I did my best answer your question I think give you exact date, but that's the best I can do.
Speaker Change: No that was great, but let me ask you said the first implementation in the enterprise mobile applications that specifically branded logistics, whether it be in it logistics I guess is my question.
Speaker Change: Not necessarily no it's going to be it will be broad based because those enterprise mobile devices income molded mobile devices that employees carry around in stores.
Speaker Change: Mccarry, almonds and supply chain logistics centers there basically.
That kind of a broad base of enterprise mobile devices.
Speaker Change: Chipsets that go into those enterprise devices are essentially the same chipsets that go into mobile phones. So that's why I said, it's not.
Speaker Change: The implementation is not going to be in a phone implementation is not going to be what pieces. The adoption is going to be the readiness and so we all of us not just in the entire community needs to work on the readiness for consumers too.
Speaker Change: Two items.
Speaker Change: Awesome love the excitement.
Speaker Change: Couple of follow up quick for Kerry I always love when you kind of give us a little bit more incremental gross margin guidance.
Speaker Change: Thoughts on kind of how much does it spike here in Q4 and is there any roll through in the next year or just any insight there would be helpful.
Speaker Change: Yes, sure. So if you unpack our guidance you can reasonably get to a Q4 gross margin.
Speaker Change: Round, 53%.
Speaker Change: Now understand that Theres, a couple benefits in Q4 that that we're calling out first with the strength that we already talked about and systems, we see a richer systems mix.
Speaker Change: The revenue profile.
Speaker Change: Then we're also shipping some high margin authenticity endpoint Ics into those Asia based pilots, which theyre small quantity, but those are a little bit higher IC and therefore higher margin.
Speaker Change: Products for us so that provides a little bit of a tailwind into the fourth quarter gross margin.
Speaker Change: And then as you look over the long term.
Speaker Change: Nearly 100 plays a role in our gross margin accretion and what I would say is that we remain confident in the gross margin targets that we outlined at our 2023 Investor day.
Okay, perfect Alright, guys keep up the amazing work.
Speaker Change: Thank you Troy Thanks, Laura.
Speaker Change: The next question is from Christopher Rolland with Susquehanna. Please go ahead.
Christopher Rolland: Hey, guys just following up on that Qualcomm Todd.
Christopher Rolland: Topic as well.
Christopher Rolland: Are there any ways.
Christopher Rolland: Excuse me two <unk>.
Christopher Rolland: Monetize the.
Christopher Rolland: The reader IC and the mobile device.
Christopher Rolland: Or does Qualcomm provide that like just just on the mobile device side.
Christopher Rolland: Maybe you can talk about if there are any economics, there either IP or hardware.
Christopher Rolland: Or is this really just a driver of endpoints in a more general adoption for you guys.
Speaker Change: Yes, Chris Thanks for the question.
Speaker Change: Im pausing a little bit here.
Speaker Change: Without saying anything specific.
Speaker Change: Hi, Thank you.
Speaker Change: You really should think about it number one.
Speaker Change: As a driver broad based industry adoption.
Speaker Change: Number two.
Speaker Change: As a driver for differentiation.
Speaker Change: And advancements in the market.
That deflation and advancement in the market is around.
Speaker Change: Authentication privacy sustainability security.
Speaker Change: The differentiation in the market as cloud services that support only those protection features but also consumers to think about it as.
Speaker Change: The opportunity for enterprises to engage consumers through their connected items.
And.
Speaker Change: In that engagement rely on priority things that you spoke to them. So you would think of it first and foremost as a broad.
Speaker Change: And when I see opportunity and.
Speaker Change: Perhaps equally important as a broad ecosystem play and much less.
Speaker Change: As an opportunity for the season.
Speaker Change: Understood I was just wondering if you share any economics in the reader at all.
Speaker Change: Yes, I told you what the prices are I can't answer that question directly we haven't said anything publicly on that front.
Speaker Change: But I think I kind of gave you our thought process in terms of what we see is the price and the price or the things.
Speaker Change: A huge amount of surprises are the things that I, just highlighted and those are our focus areas that endpoint Ics and ecosystem opportunity at large which gets monetize photos endpoint Ics cloud services software just a bunch of stuff.
Speaker Change: Excellent and then.
Speaker Change: For a second question Chris.
I think you talked about food in order of magnitude bigger than general merchandise.
Speaker Change: That's pretty incredible if I, if I understood that correctly.
Speaker Change: As these products.
Our attached to lower and lower priced products and of course higher volumes with those.
Speaker Change: Is there any point at which these tags, which could be call. It five to 10 cents each could be reused.
Speaker Change: By your customers or do you fully expect them to be.
Speaker Change: Thanks.
Speaker Change: Yeah. So a couple of points there Chris on number one I think you should be thinking about lower price points, even straight off the gate, it's not 5% to 10% 10 census, well under that.
Speaker Change: Number two you should be thinking about we've spoken a lot about the elasticity of demand and that is that label price point comes down that drives new opportunities and you should view the food opportunity.
Speaker Change: Getting to the point, where we can hit the price points needed by the food market actually tag individual everyday items.
Speaker Change: And <unk>.
Speaker Change: Number three I don't see.
Speaker Change: Much if any opportunity for a reasonable tax food items for packaging disposable and in fact, it would be hard to even think of a scenario, where the FDA would allow reducing attack or any part of packaging associated with not with <unk>.
Speaker Change: So the price points of the additional labels that go into food items needed such that the protect itself can be discarded.
Speaker Change: The price point that I believe.
Speaker Change: We'll allow gigantic industry adoption, probably best set by <unk> in Japan, a couple of years ago. They did an analysis and said basically.
Speaker Change: When you get down to about a penny and a half incremental cost for the wireless digital identifier. It makes sense to take every item in Japanese convenience stores.
Speaker Change: The average selling price for those items was between the Bakken about 50, so that will kind of give you a benchmark of where we need to get to.
Speaker Change: In order for broad.
Speaker Change: Super broad adoption to happen.
Speaker Change: That's great that's a great piece of data. Thanks, Chris appreciate it guys. Okay. Thank you.
Speaker Change: Thank you. Thank you.
Speaker Change: The next question is from Guy Hartwig with Freedom capital markets. Please go ahead.
Guy Hartwig: Hi, good afternoon.
Speaker Change: Good afternoon.
Guy Hartwig: Okay. Congratulations.
Guy Hartwig: Congratulations on the results are tremendous.
Guy Hartwig:
Speaker Change: So could you update us on the MA hundreds specification.
Speaker Change: How many more inlay partners have been certified and maybe you could give us some.
Speaker Change: Yes.
Speaker Change: Color around that and the continued ramp of CMA hundred chip. Please.
Speaker Change: Hi, guys. This is Sam I'll field that question. Thank you for the question.
Speaker Change: So far we've heard that two of our major inlay partners have gotten certification for the <unk> iron in the process of designing a multiple inlays and multiple products to service that enterprises, and we believe that behind them. There are additional major customers that are on the verge of getting their.
Speaker Change: <unk>, we expect to see in general we're seeing the logjam break and we expecting to see.
Speaker Change: Multiple customers coming out fairly soon with products space. So right now the <unk> hundred ramp is looking very promising it's growing as we had expected and hoped.
Speaker Change: A healthy ramp and it looks like customers are.
Speaker Change: Pleased with the product and theyre getting their certifications to be able to launch at market.
Speaker Change: Okay, and just as a follow up on the systems you have guided to sequential growth in systems revenue.
Speaker Change: Is there a percentage kind of number you can put behind that for us.
Speaker Change: And maybe the way I would this is Kerry guidance, maybe the way I would think about it is we do look at our guide and contacts of endpoint Ics and systems.
We have guided endpoint Ics to be down sequentially based on normal seasonality and the reason we have down seasonality in Q4 is we ship in front of the holiday season for both retailers and logistics providers.
Speaker Change: Normal seasonality in Q4 for endpoint Ics is down 5% to 10% and I signaled that we'd be on the more favorable side of that so if you use that as an anchor point and our overall guide you can back into where we think our systems businesses.
Speaker Change: Thank you.
Speaker Change: The next question is thank you Scott.
Speaker Change: Excuse me. The next question is from Scott Searle with Roth Capital. Please go ahead.
Scott Searle: Hey, good afternoon, congrats on the quarter and thanks for taking the questions.
Just a quick clarification first off on the on DPP.
Scott Searle: Want to make sure I heard this correctly it sounds like Theres been a lot of advancements since the original Arena Alliance blog posts and momentum with Qualcomm, but.
Scott Searle: These range certified at the current time and or do you still expect it to be a multimodal technology in terms of DPP implementation and then may be carry seasonality into the March quarter, I know, it's a little bit early but historically, it's in recent years, it's kind of been all over the place. So I was wondering if you can remind us about how things are starting to shape up.
Scott Searle: At this point in time and if pricing.
Discount rate, we used to we typically had the annual price decline kick in in the March quarter.
Scott Searle: Is that something thats coming back into play in 2025.
Speaker Change: Okay. So thanks, Scott and I'll take the first question.
Speaker Change: So rain is not yet an approved data carrier for ETP, but that doesn't really seem to think because nothing's unapproved data carrier for DPP, because the standards arent done yet so.
Speaker Change: What's happened now is the dialogue has changed previously.
Speaker Change: Previously the dialogue was.
Speaker Change: Barcodes and QR codes could be improved data carrier NFC could be an improved data carrier, but rain is this new thing is power consumers can get access to information.
Speaker Change: With Qualcomm statement.
Speaker Change: And a major push some significant enterprise end users not just I've said in the retail space before it but it goes beyond the retail space that includes automotive tires and others significant push the dialogue has fundamentally changed its nominal really no longer about what our range is going to be improved data carrier, how we get the standards getting done at everything approved.
Speaker Change: So you should expect multimodal.
Speaker Change: Our approvals.
Speaker Change: Alright.
Speaker Change: Given the strength of the end user commitments that they signaled in those standards meetings in Europe.
Speaker Change: If you wanted me to place my bet and of course, I'm biased, but if wanted me to place my bet range will be the carrier everybody goes the data care everybody goes forward with because it's already in the supply chain. It will extend it to consumers and the opportunities huge that doesn't mean, the other stuffs going is that locked out but I think we've moved from a question mark to being in the pole position.
Speaker Change: Okay got it and then I can take the second part of your question. So from an endpoint IC pricing negotiation. Those conversations are just now getting underway. So stay tuned we will keep you apprised of that.
Speaker Change: To your question regarding Q1 seasonality Youre right its been all over the place I would say historically, we saw seasonality be flat to slightly down.
Speaker Change: More recently, we've seen it as flat to slightly up so we kind of think of it right now as as flattish.
Speaker Change: Our endpoint Ics I'm speaking specifically to endpoint Ics here.
Speaker Change: And I think that's where I'd leave it you know our philosophy, we guide one quarter at a time and then we go out and execute against that.
Speaker Change: Got you very helpful and maybe if I could just quickly on the systems front. That's a lead indicator I know there is it seems like theres a lot of activity in the pipeline, but I'm wondered if you could help us understand either pilots or other activity to be that lead indicators. We get into 2025, you start to talk about food service it.
Speaker Change: Sounds like other big box guys are being pulled in by the conditioning of the Walmart supply chain I'm wondering if you could just.
Speaker Change: So a few more bread crumbs in terms of how that is shaping up as we go into 2025. Thank you.
Speaker Change: Okay, I'm going to start Terry and Hussein feel free to jump in.
Speaker Change: So we're putting a very significant effort into solutions.
Speaker Change: And and.
Speaker Change: And the systems that enabled our solutions, including our fixed readers our reader Ics.
Speaker Change: Software and cloud services.
Speaker Change: We typically don't cite anything publicly until the end customers themselves set something publicly.
Speaker Change: But as I noted in my prepared remarks, the pipeline is fairly large and our pipeline is additional fortune 500, Fortune 100 enterprise, who are coming to enterprises, who are coming to us with unsolved unmet business needs.
Speaker Change: Those business needs can be inbound inventory parcel sortation dock doors food just many many use cases.
Speaker Change: I can't give you a number we didn't set a number.
Speaker Change: I can't tell you how soon we are going be able to go public but I can say is that given the size of those enterprises.
No adoption doesn't happen overnight.
Speaker Change: But given the enthusiasm of conveying I feel really good about the solution space and I'll say, one more thing and then I'll see if the other gentlemen, I want to add anything yet.
Speaker Change: I've said multiple times over.
Speaker Change: Over the past year step.
Speaker Change: In our industry really what it takes for an industry to move forward.
Speaker Change: Still have one giant and user take the lead.
Speaker Change: So.
Speaker Change: We had in the early days.
In retail apparel, that's how we got off the ground with the catalog marks and Spencer at Macy's.
Speaker Change: And later years, the second large north American supply chain, and logistics and new service points supply chain logistics across the line.
The large in our north.
Speaker Change: The large north American.
Speaker Change: Enterprise that's for general merchandise, that's pulling that forward now.
Speaker Change: Now we've got a very large grocer very very large grocer Stephanie.
Speaker Change: And in it.
Speaker Change: That's my experience is one one big one to galvanize an industry moving so I'm incredibly excited about the solutions opportunities in front of us today and just stay tuned.
Speaker Change: Scott This is carrying to your question on system seasonality. It is a little more.
Speaker Change: Variable just given project timing, but generally what we see is Q4 is the strongest for the reasons I mentioned previously and then Q1 is down in the 10% to 20% range.
Scott Searle: Hey, Thanks, so much guys and congrats on the quarter.
Speaker Change: Thank you. Thank you.
Speaker Change: The next question is from Mark <unk> with Evercore. Please go ahead.
Mark: Hi, Thanks for taking my question.
Speaker Change: When you when you mentioned earlier in the script and I forgot the exact language you use that other retailers are piggyback piggybacking on the large retailer.
Speaker Change: Can you just give us a sense of what that means maybe talk about the design cycle.
Speaker Change: When a big program like what are the steps in.
Speaker Change: Does this mean that you've got a bunch of companies on the sidelines just watching and.
Speaker Change: Doing chickens or they start to do working on designing their systems or business processes for view if you can provide.
Color on that or the design cycle and where some of these guys are that I think that'd be helpful. Thank you.
Speaker Change: Yeah, Thanks, Mark and I'm happy to.
Speaker Change: It's actually fairly simple so at least for retail store inventory inventory is driven by handheld count.
Speaker Change: Store employee carries a handheld around they can read 100 items per secondary even faster and making quick inventory in our stores make let's call. It twice a week.
Speaker Change: And so the difference between retail apparel and retail general merchandise introducing somebody over to the general merchandise category.
Speaker Change: What's difficult or what.
Speaker Change: <unk> has historically been difficult as getting the tags on the items.
Speaker Change: Because there wasn't the infrastructure to put tags Thomas gigantic range of items everything from stationary toys to.
Car batteries and all these things and so that's where the real work effort is the tank car better.
Speaker Change: And he put it on a small stationary items without degrading the look of the stationary and put in a box like think of a box at the toys and when there is no other stickers on the box.
Speaker Change: The large north American retailer has cracked a lot of those nuts and the tanks are going on items to that so what we're seeing now is other general merchandise retailers basically as a place RF skus for products in the coming year as youre, saying the product need to come to act.
And it's nothing more than that they are displacing our UCITS send this category of products with Samsung.
Speaker Change: And then they go and do the inventory and expand the inventory in their stores. So that piggybacking is actually a very fast payback.
Speaker Change: Does that help earn.
Speaker Change: Yes.
Speaker Change: Did I answer yes.
Speaker Change: Yeah, and if I may just have a follow up on that because that's very very helpful.
Speaker Change: So so they place RF queues to their supplier is that the products need to be tagged.
Speaker Change: But it seems like Theres also a process of making the decision to flip the switch.
Speaker Change: And.
Speaker Change: What does that involved I mean, I imagine that they need to redesign business processes.
Speaker Change: That takes some kind of effort also so.
Speaker Change: You could if you could just help us understand how that next step plays out thanks.
Speaker Change: Thank you, yes, so think about it this way if you've got a if you got an enterprise.
Two people and customers and they are ready using.
Tag apparel items.
Speaker Change: And they already have the business processes in place.
Speaker Change: So they just say okay. We were doing first apparel, then we move to footwear and we just added categories and how we're adding this other category in this other category in this other category so flipping the switch.
Speaker Change: Not instantaneous but.
Speaker Change: Way faster than anything.
Speaker Change: Kind of opening are creating a whole new market or something like that because they already know the processes for apparel and footwear. So theyre just to add some additional care categories, there and they already have the employees and the store employees with handhelds in the stores.
Speaker Change: So essentially the ability to leverage those tax is already built out and so it is a quick process.
Speaker Change: To add additional items, if youre already.
Speaker Change: Using tags on apparel and footwear.
Speaker Change: Gotcha, Alright, that's very helpful. Thank you.
Speaker Change: Okay. Thank you Mark.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: The next question is a follow up from harsh Kumar with Piper Sandler. Please go ahead.
Harsh Kumar: Hey, guys. Thanks for letting me ask a follow up Chris and Carrie I want I did want to ask about you mentioned that you had you will have some are 10% to vacation type opportunity come through for you in the fourth quarter related to Asia.
Harsh Kumar: Could you just talk about is this the start of something big that <unk> been talking about last year or you think this is just one time in nature, how should we look at this opportunity.
Harsh Kumar: So harsh.
Speaker Change: Had this Asia opportunity for awhile, and and what we're seeing now some replenishment into that opportunity and so we're happy to see those replenishment.
Speaker Change: I will say two things are about about our authentication opportunities.
One.
Is <unk>.
Speaker Change: I believe it's.
Speaker Change: Critically important going forward should not just to us but to the market overall in fact, I'd say, it's a central.
Speaker Change: As you think about.
Rain going into consumer mobile devices today.
Speaker Change: Today tags, just exposed the number and makes sense Blaine taxed and Theres no protection around it.
Speaker Change: I don't know of any other.
Speaker Change: Wireless technology in a mobile device that doesn't have protection and security built into it. So I firmly believe that the authentication is absolutely necessary and that's why we introduced our product line on our cloud service associated with it that.
Speaker Change: That said the pace of adoption has been slower than we had originally hoped for and we will be redoubling our efforts going forward.
Speaker Change: To ramp.
Speaker Change: Dedication and additional security efforts to drive adoption.
Speaker Change: So that we're ready for that consumer opportunity from a consumer perspective as it comes.
Speaker Change: Understood. Thank you so much.
Speaker Change: Thank you harsh.
Speaker Change: This concludes our question and answer session.
Speaker Change: I'd like to turn the conference back over to Kristy Oreo for any closing remarks.
Kristy Oreo: Thank you Gary.
Kristy Oreo: To thank all of you for joining our call today and thank you for your ongoing support bye bye.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: [music].