Q1 2025 Impinj Inc Earnings Call
Speaker Change: Welcome to Impinj's first quarter in 2025 Financial Results Conference call and webcast. All participants will be in a listen only mode.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touchtone phone. To withdraw your question, please press star then two. Please note that this event is being recorded. Please note that this event is being recorded.
Speaker Change: I would now like to turn the conference over to Mr. Andy Cobb, Vice President, Strategic Finance. Please go ahead sir.
Andy Cobb: Thank you, Nick. Good afternoon, and thank you all for joining us to discuss incinges 1st quarter 2025 results.
Speaker Change: On today's call, Chris Diorio, Impinj's co-founder and CEO , we'll provide a brief overview of our market opportunity of our market opportunity. Thank you.
Andy Cobb: Gary Baker, Impinj CFO , will follow with a detailed review of our first quarter financial results and second quarter album. We will then open a call for questions.
C.O.O. will join us for the Q&A.
Andy Cobb: You can find management's prepared remarks, less trended financial data on the company's investor relations website.
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 securities litigation reform act of 1995.
Speaker Change: Whereas we believe we have a reasonable basis for making these forward looking statements our actual results could differ materially.
Speaker Change: Because any such statements are subject to risks and uncertainties. We describe these risks and uncertainties in the annual and quarterly reports, we file with the FTC.
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 I will now turn the call over to Chris.
Chris Diorio: Thank you Andy.
Chris Diorio: Thank you all for joining the call.
Speaker Change: At a time of extraordinary macro uncertainty.
Speaker Change: And just long term secular growth opportunity in retail.
Speaker Change: Hi, Jana logistics food and the long tail of other applications remains intact.
Speaker Change: Enterprises use our platform to digitize their operations, where production management supply chain optimization and inventory visibility.
Speaker Change: Those operational needs transcend short term headwinds the cyclicality.
Speaker Change: And fuel enterprise success.
Speaker Change: During COVID-19 enterprises that leveraged our platform outperformed those that didn't.
Speaker Change: I believe that history is poised to repeat itself.
Speaker Change: With enterprises that use our platform today that are able to adapt to tariffs than those that don't.
Speaker Change: Additionally, enterprises use our platform to track and manage the staples people buy regardless of the macro.
Speaker Change: And they add endpoint at Easter products, regardless of whether they source those products from China or from other parts of the world.
Speaker Change: Although retail prices may increase.
Speaker Change: <unk> aren't going to go empty.
Speaker Change: Products that carry our Ics yesterday will still carry them tomorrow.
Speaker Change: Even if sourced from a different geography.
We believe we are in a strong position to win in this market.
Speaker Change: We have number one endpoint IC market share. After we took 85% of the industry's 2020 for unit volume growth.
Speaker Change: And that with most of the M 800 ramp still ahead of us.
Speaker Change: Our balance sheet and operating margins are strong.
Speaker Change: Giving us the confidence to invest in and alongside our enterprise customers.
Speaker Change: Historically, when we lean into times of uncertainty, we emerge on the other side with greater share and a stronger business and we intend to do so again.
Speaker Change: Turning to the first quarter, our execution was solid despite the uncertain environment.
Speaker Change: Steady demand and higher than expected endpoint IC volumes drove revenue and profitability above our guidance.
Speaker Change: We also saw a strong book to bill ratio and solid pipeline activity with enterprise, that's remaining active and engaged.
Speaker Change: We took out a bit less endpoint IC channel inventory than we had expected.
Speaker Change: Primarily due to partner strategically meeting inventory for geographic Optionality and the pace of tariffs.
Speaker Change: We also saw multiple pull and push out cancellation and bookings requests all in the same quarter, which speaks to the challenges our inlay partners, having navigating the tariff uncertainty.
Speaker Change: Looking to the second quarter of tariff in politics induced market whipsaw in Paris unlikely to subside simply because some tariffs our Pos.
Speaker Change: From today's vantage point.
Speaker Change: We see a modest second quarter channel inventory increase that's our inlay partners continue building optionality.
Speaker Change: Which in ordinary circumstances might be concerning.
Speaker Change: That build is measured against enterprises under shipping consumer demand is there.
Speaker Change: Ship U S bound products shipments from China to other geographies.
Speaker Change: That geographic shift represents roughly 15% of.
Speaker Change: Our endpoint Ics.
Speaker Change: But our exposure is much less because products from new geographies also carry our endpoint axes.
Speaker Change: Assuming consumer demand holds ship.
Speaker Change: Shipments will catch up to demand when.
Speaker Change: When they do we should see channel inventory normalization and bookings growth.
Speaker Change: Returning to first quarter highlights I'll start with Gen. Two X, which is showing its prowess.
Speaker Change: Comparing an 830 Gen two acts against a competing endpoint IC.
Speaker Change: <unk> grew the area coverage of an overhead reading solution by 44%.
Speaker Change: And convince a large apparel retailer to launch a major overhead deployment.
We believe <unk> will continue driving share gains and demand for our products.
Speaker Change: Second our direct engagements with the two large grocery chains, we discussed last quarter continue moving forward.
Speaker Change: Third we saw strong E family demand.
Speaker Change: Suggesting ongoing retailer deployments and pushing reader IC revenue above expectations.
Speaker Change: And finally.
Speaker Change: Our partner extended the loss prevention solution, we developed for the visionary European retailer to loss analytics.
Speaker Change: Which doesn't need 100% tagging and won a major deployment at another retailer.
Speaker Change: Overall, we feel good about our market progress and keep pressing forward.
Speaker Change: In closing.
Speaker Change: But we're not immune to the tariff shockwaves I believe we are well positioned to play offense.
Speaker Change: We lead in endpoint Ics reader Ics and fixed readers.
Speaker Change: We create the enterprise solutions that transform our industry.
Speaker Change: We manufacture and deliver our products overseas. So for the most part we are not subject to direct tariffs.
Speaker Change: Our <unk> represent a tiny fraction of the cost of the retail staples that are used on.
Speaker Change: Any tariffs are unlikely to change enterprise decisions to use our Ics.
Speaker Change: And finally.
Speaker Change: We saw the tariff impact earlier than what we saw.
Speaker Change: And quickly began adjusting our business shifting investments away from China and towards the U S and Europe, where we see continued growth opportunities.
Speaker Change: We are managing our business with a steady hand.
Speaker Change: Focused on extending our technology lead market share.
Speaker Change: At four am adoption.
Speaker Change: As always before I turn the call over to Cary for our financial review and second quarter outlook.
Speaker Change: I'd like to again, thank every member of the entity for your tireless effort.
Speaker Change: As always I feel honored by my incredible good fortune to work with you.
Speaker Change: Gary.
Speaker Change: Thank you, Chris and good afternoon, everyone first quarter revenue was $74 3 million down 19% sequentially from $91 6 million in fourth quarter, 2024, and down 3% year over year from $76 8 million in first quarter 2024.
Speaker Change: First quarter endpoint IC revenue was $61 2 million down 17% sequentially from $74 1 million in fourth quarter, 2024, and down slightly year over year from $61 5 million in first quarter of 2024.
Speaker Change: Endpoint IC revenue exceeded our expectations driven by turns orders looking forward, we expect second quarter endpoint IC product revenue to increase sequentially.
Speaker Change: First quarter systems revenue was $13 1 million down 25% sequentially from $17 5 million in fourth quarter of 2024 and down 15% year over year from $15 3 million in first quarter of 2024.
Speaker Change: Systems revenue exceeded our expectations driven by strength in both reader and reader IC sales.
Speaker Change: Looking forward, we expect second quarter systems revenue to decline sequentially, driven by lower reader IC revenue.
Speaker Change: First quarter gross margin was 52, 7% compared with 53, 1% in fourth quarter 2024, and 51, 5% in first quarter 2024.
Speaker Change: Year over year increase was due primarily to lower indirect costs.
Speaker Change: <unk> decrease was driven by lower systems revenue mix.
Speaker Change: Looking forward, we expect second quarter product gross margins to be similar to first quarter.
Speaker Change: Total first quarter operating expense was $32 6 million compared with $33 6 million in fourth quarter, 2024, and $32 9 million in first quarter of 2020 for opt.
Speaker Change: Operating expense was below expectations as we managed spend and benefited from favorable timing.
Speaker Change: Research and development expense was $17 3 million sales and marketing expense was $7 7 million general and administrative expense was $7 6 million.
Speaker Change: Looking forward, we expect second quarter operating expense to be similar to first quarter.
Speaker Change: First quarter, adjusted EBITDA was $6 5 million compared with $15 million in fourth quarter, 2024, and $6 7 million in first quarter 2024.
Speaker Change: First quarter adjusted EBITDA margin was eight 7%.
Speaker Change: First quarter GAAP net loss was $8 5 million first quarter non-GAAP net income was $6 3 million or <unk> 21 per share on a fully diluted basis.
Speaker Change: Turning to the balance sheet, we ended the first quarter with cash cash equivalents and investments of $232 5 million compared with $239 6 million in fourth quarter, 2024, and $174 1 million in first quarter 2024.
Speaker Change: Inventory totaled $98 5 million down 900000 from the prior quarter.
Speaker Change: First quarter capital expenditures totaled $1 9 million free cash flow was negative $13 million driven primarily by unfavorable working capital timing, which we expect to reverse in second quarter.
Speaker Change: Before turning to our guidance I want to highlight a few items specific to our results and outlook.
Speaker Change: First as Chris noted due to partners changing their inventory strategies for geographic Optionality, our first quarter endpoint IC channel inventory declined by only one week.
Speaker Change: From today's vantage point, we see partners, maintaining higher end point IC inventory balances for the foreseeable future.
Speaker Change: Second first quarter product gross margin exceeded our expectations, partially driven by reader IC revenue strength.
Speaker Change: We anticipate similar product gross margin in second quarter, even as our high margin reader IC revenue declines.
Speaker Change: Looking to the second half product margins will benefit from higher M 800 mix improved production yield and lower cost wafers.
Speaker Change: Finally, I am proud of our operational execution in the first quarter, we tightly managed operating expenses inventory and margins delivering adjusted EBITDA well above our guidance looking ahead, we will align our investments to our revenue profile staying agile in this uncertain environment.
Speaker Change: Turning to our outlook, we expect second quarter revenue between 91, and $96 million compared with $74 3 million in first quarter 2025, a quarter over quarter increase of 26% at the midpoint, including the license fee payment and 4% excluding it.
Speaker Change: We expect adjusted EBITDA between 23, five and $26 million on the bottom line. We expect non-GAAP net income between 28, and $23 3 million, reflecting non-GAAP fully diluted earnings per share between <unk> 68, and 76 cents.
Speaker Change: In closing I want to thank the pinch team our customers our suppliers and you our investors for your ongoing support.
Speaker Change: I'll now turn the call to the operator to open the question and answer session Nick.
Nick: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Nick: If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
As a courtesy to others, we ask that you limit yourself to one question and one follow up 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: And your first question today will come from harsh Kumar with Piper Sandler. Please go ahead.
Harsh Kumar: Yeah, Hey, guys first of all congratulations on very good results and what I would describe as an extremely uncertain environment.
Speaker Change: Gary I had one for you.
Speaker Change: You're aware of tariffs there changing if you will I guess my question is if these tariffs do hedge.
Speaker Change: Or even if they are maintained at the level that they are maintaining that one would expect.
Speaker Change: Some sort of a demand falloff I guess, how are you thinking about this aspect of your business.
Speaker Change: Maybe for historical context, if you've seen anything like this in the past 10 15 years, if we could talk about what you saw last time and how are you preparing for this.
Speaker Change: Potential possible you know possible demand drawdown.
Speaker Change: Okay, Alright, I'll do my best to answer your questions you might need to interject, one or two times says.
Speaker Change: If I if I missed part of it first I want to start by saying. Thank you for your pretty nice words at the beginning.
Speaker Change: I'm going to answer the second question first just have we seen a scenario like this previously.
Speaker Change: I can't recall anything like this we struggled during the 2008 downturn, but that was a long time ago whenever it was still a small private company, obviously COVID-19 was quite a whipsaw for the business, but it was materially different.
Speaker Change: We're in uncharted waters here.
Speaker Change: At the same time.
Speaker Change: Truly feel that we've got the strongest team in our company's history.
Speaker Change: The strongest financial.
Speaker Change: Backdrop in terms of our.
Speaker Change: Cash strength operating margins product portfolio everything else, we need to weather the storm.
Speaker Change: Very strong enterprise customer base and we've got a very dedicated set of partners. So as I said in my prepared remarks I believe it's.
Speaker Change: We'll benefit from it.
Speaker Change: Investing in the opportunities where we see it.
Speaker Change: That we see to invest in and coming out the other side stronger.
Speaker Change: That answered the first part of your question about them.
Speaker Change: About tariffs so I'll go through a couple of points of care, you'll need to jump in here and see what I Miss bookings were strong in the first quarter and we are still seeing bookings.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: That is different from for example, what we saw in the Covid timeframe.
Speaker Change: And the second time, we did not see material pull ahead in the first quarter and we're currently not seeing them in the second quarter set another way, we're not seeing pull for our products driven by the enterprise end user pulling.
Speaker Change: Pulling ahead demand for endpoint Ics, we see fairly consistent endpoint IC shipments volumes across the quarter.
Speaker Change: We do see a shift in geographic shifts from where the end users are sourcing their products out of China.
Speaker Change: Newer geography different geographies.
Speaker Change: Pause some shipments as a result of that shift. So we currently believe that enterprise end users are under shipping demand.
Speaker Change: At the same time, we see some channel inventory build as our label partners build their inventories to have geographic optionality to fulfill for those enterprise end users as they need the labels. So net we think those two kind of wash out as I said in my prepared remarks is.
Speaker Change: We expect to see some normalization of bookings return is.
Speaker Change: Enterprise and usually begin fully shipping into that demand.
Speaker Change: So Ned will fear for navigating the tariff situation, okay, and and we'll keep driving to the future. Yeah go ahead harsh.
Harsh Kumar: No no that was it I wouldn't ever seen I'm, saying. Thank you that was a very complex question. Thank you for all the clarity and the points you made.
Speaker Change: Let me ask my second question Krish.
Speaker Change: You talked last quarter about some inventory in one of your larger customers and one of the segments.
How are you and you said now customers seemingly wanted to maintain a high level of inventory how are you thinking about your business.
Speaker Change: As you get past.
Speaker Change: Yes.
Speaker Change: Slightly increased level of inventory that your customers want to maintain we do you think that 2025 could be a lot like 2024, where you see decent demand and decent growth Bolton endpoint IC and systems are using something different happening because of all the confusion.
Speaker Change: Well, we don't think channel inventory is high relative to consumer demand. We are seeing a wobble right now in the in the second quarter associated with our production shifting to different geographies.
Speaker Change: In terms of what we see looking out.
Speaker Change: That's harder I mean, we guide one quarter at a time and giving the given the macro dynamics that are going on right now and the uncertainty.
Speaker Change: It's it's really hard to predict the future in fact, I'm reticent to really say anything about it.
Speaker Change: Demand holds.
Speaker Change: Our products go on Staples and they go on go on shoes, and socks and childrens clothing. They go on medical shipments in shipping packages. They go on government I D and food products I mean, it gone like lumpy things that people buy regardless.
Speaker Change: So we feel good about our position doesn't mean that if there's a major downturn, we won't feel it.
Speaker Change: We will feel the same way the macro feels it but.
Speaker Change: Right now we don't see that downturn, we see like I said, a wobble in the second quarter as production shifts to different geographies I'll turn it over to Karen anything you want to add Kerry yes.
Speaker Change: So I would add that we entered the quarter in a little bit elevated channel inventory position and some of our partners made really good product progress reducing that channel inventory, while others did not but in the end towards the end of the first quarter and certainly into the second quarter the strategy around.
Speaker Change: <unk> is changing partners are flexing their geographic footprint and they're trading off regions that have higher transit time for lower tariff risk. So that's putting inventory strategically purposely and rationally into the channel.
Speaker Change: And that's why they are telling us that they think they're going to hold this level of inventory for the foreseeable future. So it's a really interesting dynamic right now but for today from today's vantage point, we feel like we're in pretty good position.
Speaker Change: Fair enough guys. Thank you so much I'll get back in line.
Harsh Kumar: Thank you harsh.
Speaker Change: And your next question today will come from Scott Zeller with Roth Capital. Please go ahead.
Scott Zeller: Hey, good afternoon, thanks for taking the questions nice job guys in an incredibly difficult if not schizophrenic environment.
Speaker Change: Thank you.
Speaker Change: So Christian and Gary just to follow up on Hershey's questions here. It sounds like where you know when we entered the year you talked about elevated inventory being at weeks and you say, it's come down by about one week, but now we might be in a new equilibrium given the geographic distribution I just want to clarify that comment is that what youre, saying, so that we're not going through some further.
Speaker Change: The inventory reduction as we go into the second half of this year from a channel perspective, and also if you could clarify I think theres been some concern or speculation in terms of your end product mix exposure right with I think the last numbers you guys had talked about a 70% in retail slash apparel, but a lot of that is seasonal so if you had any.
Speaker Change: Other color on that front in terms of what is seasonal and therefore goes through that seasonal replenishment as opposed to sneakers that could sit on the shelves et cetera for months if not quarters.
Speaker Change: Hey, Scott. This is Kerry thanks for the question I'll take the first half of it and then I'll hand over to Chris.
Speaker Change: We don't think channel inventory is high right now.
Speaker Change: Not high versus the the evolving production strategies that our inlay partners have and not high for the fact that we think we are under shipping in consumer demand in this environment.
Scott Zeller: Yes, Scott So I'll do my best to answer your question.
Scott Zeller: Our business has become more diversified over the past couple of years in terms of our endpoint Ics are used we currently ship a good portion of that into our supply chain logistics, which is significantly in the U S and are those volumes seem to be holding reshaped into not only retail apparel, but retail general merchandise the general merchandize tends to be more.
Scott Zeller: Kind of staples stores that weren't that I used to in our prepared remarks.
Scott Zeller: If you just look at retail apparel on its own.
Scott Zeller: I don't think we've actually sat down and quantify it for our investors what percentage.
Scott Zeller: Of our overall business is currently retail apparel, nor what once you have it is seasonal versus not.
Scott Zeller:
Scott Zeller: But you're really asking is what part is discretionary and what part is necessary.
Scott Zeller: And we think that the significant majority of our endpoint Ics go on products that are staples are necessary not discretionary discretionary consumer demand is way down on discretionary comes down we'll feel it at the macro feels it but we feel pretty good about.
Scott Zeller: What we can today, where our products are growing and the diversification we have seen over the past couple of years.
Scott Zeller: Okay very helpful. Thank you and if I could just looking to the second half there are a lot of different levers that you've had out there in terms of big box retailers are piggybacking off of Walmart.
Speaker Change: Migration into smartphones with Qualcomm I'm wondering if you could update us on a couple of those initiatives and what you would expect to possibly hit in the second half of this year I think in your opening remarks, you talked about engagement with two grocers that that continues to progress any color on that front would be helpful. Thanks.
Terry: Yes, Scott this is Terry I would say that.
Speaker Change: While none of those projects are showing any signs of slowing down in this environment today is highly uncertain.
Terry: And we're not experts are predicting tariff policy.
Terry: We do believe enterprises are under shipping consumer demand as they wrestle with optimizing their production footprints.
Terry: And with resolution to that production strategy or resolution to the tariffs strategy or both we could see bookings growth in the back half of the year, assuming consumer demand holds but until we have more clarity, we're going to stick to our policy of only guiding one quarter at a time.
Terry: And I'll say it.
Terry: In our prepared remarks, my prepared remarks.
Terry: Right now we see enterprises engaged.
Terry: We haven't seen the enterprise just pulled back.
Terry: And because we see enterprises engage.
Terry: Because we saw strong reader IC volumes, which indicates that enterprises are buying readers.
Terry: Because of the belief that I have.
Terry: That those enterprises that use our platform will end up on the winning side of the ledger.
Terry: Through this tariffs dynamic.
Terry: We are investing.
Terry: Rationally, but investing in our enterprise opportunities.
Terry: In this market believe it's the prudent thing to do we're going to do it prudently, but we also think it's the prudent and smart thing to do.
Terry: You come out the other side stronger.
Speaker Change: Great great. Thanks, so much and a great job on the quarter again.
Great. Thank you Scott.
Speaker Change: And your next question today will come from Jim Ricchiuti with Needham and company. Please go ahead.
Jim Ricchiuti: Hi, Thanks, Good afternoon, I'll Echo what others have said about the.
Speaker Change: Nice job.
Jim Ricchiuti: Interesting.
Jim Ricchiuti: <unk>.
Jim Ricchiuti: Thank you Sir you may begin.
Jim Ricchiuti: Just wanted to go back to what you were saying about.
Speaker Change: The reader IC business, and maybe how that ties into what I think Gary you said leasing script youre expecting lower reader IC revenue.
Jim Ricchiuti: Q2.
Jim Ricchiuti: Can you maybe square that.
Jim Ricchiuti: For us in terms of what that might indicate.
Jim Ricchiuti: Yeah, It is really timing of orders and.
Jim Ricchiuti: Specifically, we had higher in the reader IC revenue in Q1 than we anticipated. This is a product that our prior generation that we have end of life.
Jim Ricchiuti: It continues to sell in our last production runs we got higher yield than we anticipated. So we had more units than the last time orders so were letting those or those excess units. If you will flow in and Thats what benefited.
Jim Ricchiuti: Q2, or Q1 excuse me.
Jim Ricchiuti: In Q2, we're seeing strong growth with our <unk> family reader Ics, but on a sequential basis, it's down because I don't anticipate as much in the reader sales in the second quarter, yeah, but either way Jim strong E family growth in the first quarter, we're expecting strong E family demand in the second quarter and.
Jim Ricchiuti: We wouldn't see strong E family reader IC demand if people weren't planning to deploy readers and so you're not going to deploy readers. If you don't have to deploy that into so we actually see enterprises continuing to press forward deploying readers in this environment.
Speaker Change: Okay got it.
Jim Ricchiuti: The other question I had was.
Speaker Change: And.
Speaker Change: I'm not sure if you've mentioned this but how how we should be thinking about the.
Speaker Change: 800 ramp, particularly in the current environment and maybe if you could remind us of the <unk>.
Speaker Change: <unk>, we could see.
Speaker Change: The ramp on margins.
Speaker Change: Yeah, VM 800 continues to ramp nicely.
Speaker Change: First quarter was strong we expect growth in the second quarter.
Speaker Change: And at some point this year. If we continue following this path, which I believe is typical path, we could see the MA <unk> hundred as a as our volume run or I don't think it blends for the full year, but I think at some point this year it turns into a volume runner when it blends as our volume runner I expect a 300 basis point.
Speaker Change: <unk> margin benefit so not that full benefit in the second half, but we will see start to see some of the benefit to gross margin in the second half and Jim I'll, let Jim <unk> natively implemented in RM 800 Ics.
Speaker Change: Which means that all you need to do is use the reader to turn it on and you get the benefit. So I just wanted to say I gave in our prepared remarks with a significant increase in X square foot coverage.
Speaker Change: And in overhead deployment at a leading retailer. That's just one example of some of the benefits that we're seeing out there in the market from 100, which just has gentex natively built into it. So we see not only an opportunity to drive that 800 overall as a greater portion of our overall business, but actually to enable enterprise solutions that previously we could.
Speaker Change: And that's we believe Gen <unk> in combination with Yum 800 is a game changer.
Speaker Change: Got it if I can just.
Squeeze one another one and you mentioned this other major deployment at another retailer is that occurring now what's your timeline on that.
Speaker Change: It's it's coming into the back half of this year, yes, it's occurring now and it's it's it's essentially a loss analytics or law Senate identification deployment, where they're not 100% tag, but by deploying readers at store exits a variety of store exits. They can see what's going on at the store and they can get they can get some.
Speaker Change: Ideas of where that is happening what's happening the timeframes everything its just a full loss analytics deployment.
Speaker Change: It doesn't give you all of the benefits of a full loss prevention deployment, obviously, but it's easier and self check out, but you can start but a retailer can start without entrepreneur.
Speaker Change: Got it thanks very much thanks, guys.
Speaker Change: Okay. Thank you.
Speaker Change: Your next question today will come from Christopher Roland with Susquehanna. Please go ahead.
Christopher Roland: Hey, guys. Thanks, Thanks for the question.
Christopher Roland: So I just wanted to confirm that I that my understanding is correct here so for.
Christopher Roland: First of all you guys don't see lower retail volumes from your customers related to tariffs as we move through the year and then secondly, you believe we're generally out of the woods in terms of inventory you had two to three extra weeks last quarter you burned one.
Christopher Roland: But the one to two extra weeks is the new kind of state of normal here and will stay indefinitely did I get those two parts right.
Speaker Change: Chris. Thank you and this is Chris let me start and then I'll hand off to carry on the first part of your question.
Speaker Change: We definitely both in our prepared remarks, and some of the comments really want to highlight that there's definitely a wobble in the second quarter associated with tariffs as we see enterprises pausing some of their shipments.
Speaker Change: And shifting their suppliers to different geographies.
Speaker Change: So we believe that currently those enterprises are under shipping consumer demand as they transition their sourcing geographies.
Speaker Change: In terms of further out third quarter or basically the back half of this year number one we only guide one quarter at a time number two well.
Speaker Change: We're probably not the best one is best positioned to.
Speaker Change: Really guide on what consumer demand is going to be but what we said is it's consumer demand holds.
Speaker Change: We expect channel inventory to normalized and we expect to see bookings growth now that if it is the key.
Speaker Change: A key word in there if consumer demand holds but as of right. Now we believe enterprises are under shipping consumer demand.
Speaker Change: And Chris This is carried to your to your question on channel inventory.
Speaker Change: We entered a little bit elevated we made some of our partners made good progress against that but.
Speaker Change: The strategies of how much inventory to carry have changed as a result of tariffs and we're seeing not all partners, but some carry a little bit more than they normally would.
Speaker Change: And in some cases, it's because they're adjusting their production footprint and leaning heavier on locations that have higher transit times in order to avoid areas that have higher tariff costs or higher potential tariff risk and that's naturally causing them to carry a little bit more inventory.
Speaker Change: I think that maintains and they tell us that this is the new reality and this this level of inventory will stay for the foreseeable future.
Speaker Change: But we're continuing to watch it closely we think overall the weeks of channel inventory will normalize as the as the demand comes back, but I don't know that that means the volumes go down.
Speaker Change: That's clear. Thank you and then your main competitor has suggested that its gaining some momentum and some market share since their legal settlement with you guys would you agree that that's the case is this just a near.
Speaker Change: Term dynamic.
Speaker Change: And and then Chris I, often ask you. This but you know what do you see as the biggest needle moving driver in terms of new opportunities for 25 or 26, even as it is it still food or or are you seeing some cool new opportunities.
Speaker Change: Emerge as well thank you.
Speaker Change: Okay. So first.
First Chris I'll start with that.
Speaker Change: With the legal settlement and going back there so.
Speaker Change: Pinch took 85% of the industry's 2020 for unit volume growth.
So we saw so that translates into a very significant share gain in 2024, obviously, we cant project 2025 until we get the rain alliance data at the end of the year, but we're going to do our best to gain share again.
Speaker Change: In terms of.
Speaker Change: Where the market's habit.
Speaker Change: Food is a significant opportunity it will be small volumes in 2025, they won't be really material.
Speaker Change: Seafood is a 'twenty six 'twenty seven type opportunity just because good opportunity. So large deployments our largest everything is big and it takes time to think forward.
Speaker Change:
Speaker Change: The bigger picture.
Speaker Change: We see an expansion of the market.
Speaker Change: Handheld driven are not solely but significantly handheld driven inventory counting and retail stores.
Speaker Change: Two fixed reading.
Speaker Change: Difficultly in supply chains, and don't just think supply chain and logistics thinks supply chains retail supply chains.
Speaker Change: Reading items from my point of manufacturing tracking into the supply chain into distribution center out of the distribution center and to a store and then out the store exit at point after point of sale.
Speaker Change: That retail opportunity.
Speaker Change: Not just in our retail apparel retail general merchandise and includes shipping and supply chain and logistics and it uses significantly sixth Street, we think that growth opportunity is a place where we can excel.
Speaker Change: Our platform is needed it's used we're innovating in that space, So expect us to keep focusing and doubling down on opportunities around fixed reading and that's the opportunity for the next couple of years.
Speaker Change: Looking out beyond that.
Speaker Change: You can start to see assuming you can get into mobile phones consumer opportunities to layer in the consumer opportunity is further out in time, it's fun to talk about it it's exciting could truly change our industry, but it's not going to happen in 'twenty five 'twenty six it's going to be further out in time and in the meantime.
Speaker Change: Look at the solutions that we're delivering to enterprise end users to solve their pressing thorny problems.
Speaker Change: Thanks, so much for other questions.
Thank you Chris.
Speaker Change: And your next question today will come from Guy Hartwig with Freedom capital markets. Please go ahead.
Guy Hartwig: Hi, good afternoon guys.
Speaker Change: Good afternoon.
Speaker Change: I know you touched on it I wonder if you could just give us a bit of an update on the situation would be.
Speaker Change: Large or second largest north American supply chain logistics customers.
Speaker Change: And what is this.
Speaker Change: The flow of trade to the U S is going to maybe exacerbate that issue or maybe it doesn't just maybe you could give us a bit of an update on how the inventory situation areas.
Speaker Change: Yes.
Speaker Change: No go ahead Chris.
Speaker Change: So we continue supporting that customer.
And all that they're doing you see them continuing to deploy.
Speaker Change: We see 'twenty.
Speaker Change: We see growth this year over last year and.
Speaker Change: And overall, we see a very positive dynamic engaging them.
Speaker Change:
We haven't seen further push outs and we will support them as they go forward Cherokee thinks that you can add yeah, I would say that that there remains a lot of consistency consistency with that end customer.
Speaker Change: And we've made good progress in the channel inventory perspective, but as I mentioned earlier the channel inventory dynamic has changed and some partners are increasing channel inventory for different reasons for strategic reasons.
Okay. Thank you.
Speaker Change: Sure. Thank you guys.
Speaker Change: Again, if you would like to ask a question. Please press Star and then one and your next question today will come from Troy Jensen with Cantor Fitzgerald. Please go ahead.
Speaker Change: Hey, gentlemen, congrats maybe a couple of quick questions here for carry kind of kind of my question is for me the.
Speaker Change: Q2 gross margins Harry.
Speaker Change: And if we assume kind of midpoint of revenues and I think you said keep opex relatively flat it implies like a really really high 50% type of gross margin in Q2.
Speaker Change: Am I thinking about that correctly.
Speaker Change: Yes, you're thinking about it remember Q2, we have the benefit from the annual license payment, which all flows to revenue in Q2.
Speaker Change: So that is a high bar, that's a high margin revenue stream for us as you might imagine.
Speaker Change: Okay, Perfect and then also Bonnie.
Speaker Change: <unk>.
Speaker Change: Hey, Troy real quick on a product basis, I would expect product gross margins. So that is excluding the license payment to be similar to Q1 gross margin.
Speaker Change: Okay, Perfect Alright, and then I will just say if we look at second half.
Speaker Change: You talk about just I mean, assuming some growth and assuming that the 800 kind of takes over I mean safe to say second half gross margin should be above Q1 gross margins.
Speaker Change: I anticipate.
Speaker Change: The second half product gross margins to benefit from.
Speaker Change: And the continued M 800 ramp from.
Speaker Change: Proved yields that our ops team has been able to generate and then also lower cost wafers flowing through right.
Speaker Change: All right perfect Okay.
Speaker Change: And how about just last question I should know this but can you just give us the details on that.
Speaker Change: Conversion price and the due date.
Speaker Change: The conversion price was about 111.
Speaker Change: Stock price and it is may 2027, so we've got plenty of time on that.
Speaker Change: Okay.
Speaker Change: <unk> value to $87 5 billion.
Speaker Change: We also and then the last thing I would add Troy as we still have the capped call from the initial convertible debt we raised in 2019.
Speaker Change: Just short of $50 million of accretive to us if the stocks over 50 to $54 in 'twenty and.
Speaker Change: End of 2026.
Speaker Change: Okay. Good enough. Thank you.
Speaker Change: Yep.
Speaker Change: Thank you Troy.
Speaker Change: And your next question will come from harsh Kumar with Piper Sandler with a follow up. Please go ahead.
Speaker Change: Hey, gentlemen, I wanted to follow up on something that I heard in response to one of the answers that you might have mentioned and make sure that I get this correctly.
Speaker Change: Are you, suggesting that your logistics customer.
Speaker Change: Large logistics customer will be up in 2025 or 2020 forward. Despite the inventory issues that happened in my view is that is that the correct me if I'm wrong to think about it.
Harsh Kumar: Well harsh remember that the inventory was that the channel partner level. So we would anticipate that end customer still having label growth yeah.
Any change to the macro that has a flow through effect, notwithstanding but that was our assumption going into the year. Thanks Gary.
Harsh Kumar: Understood. Thank you.
Gary: Okay. Thank you harsh.
Gary: This concludes our question and answer session I would like to turn the conference back over to Kristy Oreo co founder and CEO for any closing remarks.
Speaker Change: Thank you very much Nick.
Speaker Change: I'd like to thank you all for joining the 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].