Impinj Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 24, 2024

There are 9 speakers on the call.

Operator

Hello, and welcome to the Impinj First Quarter 2024 Financial Results Conference Call and Webcast. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Mr. Andy Cobb, Vice President, Strategic Finance.

Operator

Please go ahead.

Speaker 1

Thank you, MJ. Good afternoon, and thank you all for joining us to discuss Impinj's Q1 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. Kerry Baker, Impinj's CFO, will follow with a detailed review of our Q1 2024 financial results and the 2nd quarter outlook. We will then open the call for questions.

Speaker 1

Jeff Dossett, Impinj's CRO will join us for the Q and A. 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 Securities 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. We describe these risks and uncertainties in the annual and quarterly reports we file with the SEC.

Speaker 1

We do not undertake and expressly disclaim any obligation to update or alter our forward looking statements, except as required by law. On today's call, all financial metrics, except for revenue or where we explicitly state otherwise, are non GAAP. Balance sheet and cash flow metrics are GAAP. Please refer to our earnings release for a reconciliation of non GAAP financial metrics to the most comparable GAAP metrics. Before turning to our results and outlook, note that we will participate in Baird's Global Consumer, Technology and Services Conference on June 4 in New York.

Speaker 1

We look forward to connecting with many of you there. I will now turn the call over to Chris.

Speaker 2

Thank you, Andy, and thank you all for joining the call. 2024 started strong. Momentum we saw exiting 2023 continued through the Q1 with revenue and profitability exceeding both our 4th quarter results and Q1 guidance. Our strategic focus on silicon enterprise solutions help create that momentum while paving the way for multiyear growth tailwinds, while our recent reorganization and legal settlement paved the way for growing profitability. Turning first to silicon.

Speaker 2

The green shooting by sight of the last two quarters continues sprouting. 1st quarter endpoint IC revenue exceeded our expectations, driven by improving demand in both retail apparel and general merchandise, well as the long tail of other applications. Looking forward, we expect 2nd quarter to again deliver solid endpoint IC product revenue growth. We also expect Impinj MH100 volumes to double in the second quarter as our production ramp picks up, albeit still a small portion of our endpoint IC volumes overall. For reader IPs, we expect e family shipments to accelerate in the second quarter as we near the end of our prior generation product shipments, buoyed by a healthy number of design wins and burgeoning opportunities.

Speaker 2

Turning to solutions, the visionary European retailers' ongoing rollout of our self checkout and loss prevention solution is performing nicely. We expect rollout to add additional brands at that customer to drive modest gateway demand through at least the end of 2024. Our tagging ramp, which replaces existing hard tags with embedded tags that use our protected mode for consumer privacy is also on track, driving growing endpoint IC volumes. General Merchandise, a large North American retailer's RAIN tag usage has accelerated, driven by additional products being tagged and new product ordering. We anticipate steady growth in general merchandise tagging for the remainder of the year.

Speaker 2

Finally, in supply chain and logistics, we expect the 2nd large North American supply chain and logistics end user to increase their label consumption in 2024. Taken together, our enterprise solutions efforts are and continue paying clear dividends in endpoint IC volumes. I'd like to now touch on 2 solutions growth opportunities, digital product Passport and food. On DPP, I recently spent a week in the EU speaking with partners and end users on how we together advance Reign as the technology of choice for textile PPP. Reign has the apparel penetration, but TPP also requires consumer engagement.

Speaker 2

I see DPP making the strongest case today for putting Raine reading into the hands of consumers and large enterprises are making that need known. On food, demand is growing at a faster pace than I had expected with several quick service food chains talking openly about using Reign for inventory, shelf life and freshness. The overall food opportunity is so large that any adoption can drive meaningful endpoint IC volumes. On the intellectual property front, in March, we successfully settled our patent dispute with NXP, including a multiyear litigation during which Impinj prevailed in multiple jury trials. As Kerry will detail shortly, NXP agreed to pay Impinj an upfront amount and yearly licensee in exchange for a broad patent cross license.

Speaker 2

Settlement increases our cash reserves and competitiveness, freeze management bandwidth and removes uncertainty from the industry overall. While we are happy to put this dispute behind us, as the Reign pioneer and innovator, we remain vigilant and committed to safeguarding our patented inventions as well as identifying additional licensing opportunities. In closing, we delivered a very strong Q1 in every respect, financial, organizational and market leadership. We see continued strength looking into the 2nd quarter. Looking further out, we see growing opportunities to drive recurring licensing and services revenue, monetizing our IP, platform and cloud services.

Speaker 2

We continue driving our bold vision to connect every item in our everyday world, confidence in our market position and energized by the opportunities ahead. Before I turn the call over to Carey for our financial review and second 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.

Speaker 1

Gary? Thank you, Chris, and good afternoon, everyone. On today's call, I will review our Q1 financial results and Q2 financial outlook. 1st quarter revenue was 76 $800,000 up 9 percent sequentially compared with $70,700,000 in Q4 2023 and down 11% year over year from $86,000,000 in Q1 2023. 1st quarter endpoint IC revenue was $61,500,000 up 14% sequentially compared with $53,900,000 in Q4 2023 and down 8% year over year from 67,000,000 dollars in Q1 2023.

Speaker 1

1st quarter endpoint IC revenue exceeded our expectations led by retail. Looking forward, we expect 2nd quarter Endpoint IC product revenue to increase sequentially, again led by retail. 1st quarter systems revenue was $15,300,000 down 9% sequentially compared with $16,800,000 in Q4 2023 and down 19% year over year from $18,800,000 in Q1 2023. 1st quarter systems revenue was below our expectations, primarily due to lower channel reader sales. Looking ahead, we expect a sequential decrease in 2nd quarter systems revenue with increasing channel reader sales more than offset by declining project based gateway sales.

Speaker 1

1st quarter gross margin was 51.5 percent compared with 50.9% in Q4 2023 52.4% in Q1 2023. The sequential increase was driven by mix within endpoint ICs. The year over year decrease was driven primarily by lower revenue on fixed costs, partially offset by higher systems product margins. Looking to the Q2, we expect gross margin to increase. Total first quarter operating expense was 32,900,000 dollars compared with $33,000,000 in Q4 2023 $36,400,000 in Q1 2023.

Speaker 1

Operating expense was lower than we anticipated due to strong spend management across all major functions as well as lower litigation costs. Research and development expense was $16,500,000 sales and marketing expense was $7,700,000 general and administrative expense was $8,700,000 including litigation expense of $1,300,000 We expect a slight sequential decrease in 2nd quarter operating expense as litigation expense declines to immaterial levels more than offsetting investments in our base spend. 1st quarter adjusted EBITDA was $6,700,000 compared with $3,000,000 in Q4 2023 $8,600,000 in Q1 2023. 1st quarter adjusted EBITDA margin was 8.7%. 1st quarter GAAP net income was $33,300,000 1st quarter non GAAP net income was 6,200,000 dollars or $0.21 per share on a fully diluted basis.

Speaker 1

Turning to the balance sheet. We ended the Q1 with cash, cash equivalents and investments of $174,100,000 compared with $113,200,000 in Q4 2023 and $164,700,000 in Q1 2023. Inventory totaled $87,800,000 down $9,400,000 from the prior quarter. 1st quarter net cash provided by operating activities was $60,100,000 Property and equipment purchases totaled 6,200,000 Excluding the $45,000,000 income from the litigation settlement, free cash flow was $8,900,000 Before turning to our guidance, I want to highlight a few items unique to our results and outlook. First, NXP paid us a one time 45,000,000 dollars litigation settlement payment in the Q1.

Speaker 1

We recorded that $45,000,000 in our first quarter GAAP financial statements as other income in our statement and as cash on our balance sheet. Next, NXT will pay us an annual license fee each April for up to 10 years unless they design out our IP and exercise an early termination rate. Earlier this month, we received a first $15,000,000 covering the period from April 1, 2024 to March 31, 2025. We will recognize the full value of that payment as 2nd quarter endpoint IC revenue, which is reflected in our 2nd quarter guidance at nearly 100 percent gross margin. Going forward, the payments will increase annually by a modest fixed rate for as long as the agreement is in effect.

Speaker 1

As a reminder for calculating our quarterly diluted earnings per share, when quarterly non GAAP net income exceeds 12,000,000 dollars you should add the 2,600,000 shares underlying our convertible debt into our diluted weighted average shares. And you should remove the corresponding $1,200,000 of interest expense from our net income. Finally, first half of twenty twenty four marks a turning point in our operating margin profile. We added high margin licensing revenue and reduced operating expense by removing litigation spend and reorganizing our reader and gateway channel business. As you can see in our Q2 guidance, those actions drive substantial earnings per share accretion and they will also drive significant free cash flow.

Speaker 1

Furthermore, these margin improvements accrue before the M800 drives additional leverage. Turning to our outlook. We expect 2nd quarter revenue between $96,000,000 $99,000,000 compared with $76,800,000 in Q1 2024, a 27% quarter over quarter increase at the midpoint, including the license fee payment and a 7% quarter over quarter increase at the midpoint, excluding it. We expect adjusted EBITDA between $23,900,000 $25,400,000 On the bottom line, we expect non GAAP net income between $21,700,000 $23,200,000 reflecting non GAAP fully diluted earnings per share between $0.72 $0.77 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.

Speaker 1

MJ?

Operator

Thank you very much. We will now begin the question and answer Today's first question comes from Harsh Kumar with Piper Sandler. Please go ahead.

Speaker 3

Yes. Hey, first of all, guys, huge congratulations, the settlement of the litigation and then also just the turn in the business. Chris, what a big difference 6 months can make. Okay. There's a lot of interesting stuff in your comments.

Speaker 3

I wanted to start with general merchandise. I wanted to start with the large North American retailer that you highlighted in your comments. I wanted to ask you how this is going. You obviously obviously talked about some pickup there. Maybe you could just provide us some additional color.

Speaker 3

And then what is the implication of this implementation succeeding? Is there is this like a big thing that the entire retail industry is waiting for? Does this have huge implications for adoption for the rest of the retail? And I've got a follow-up.

Speaker 2

Harsh, I appreciate it. I'm going to let Jeff lead in here because he's very close to the customer side obviously. And so Jeff?

Speaker 4

Thank you for your question Harsh. Our tagging ecosystem partners who serve this large North American retailers tagging needs have signaled steady gains in the tagging of additional general merchandise categories as well as a modest uptick in overall consumer demand. Some of the general merchandise categories are progressing more quickly than others, but we are optimistic that the progress will continue in the year ahead.

Speaker 2

And Hart, I'll add that, historically that end user has significantly led our industry and others have followed their moves. Of course, there was a setback during the years from 2013 basically to 2019 associated with the Round Rock litigation. That's well behind us now. And so although we don't have firm data to date, it's my expectation that this customer being a bellwether for many other large customers and for our industry overall has proven historically and either size going everything they do going forward. I would put into place at the benchmark for other companies to follow-up.

Speaker 3

Very well. Question then for my follow-up guys, I wanted to ask about logistics. Again, the second customer that is ramping, do you think you're in a position to be able to say that this customer will grow with you every quarter steadily for the rest of the year? And when do you think you might reach the point where you are sort of, call it, 100% penetrated at this customer in tagging?

Speaker 4

So I'm going to start here, and I'm going to

Speaker 2

let Jeff jump in. We only got 1 quarter at a time. And with any of these large deployments, there are always teething issues as we go along. We work with the customer and our partners work with the customer to get through those teething issues. So there's always a little bit ups and downs along the way.

Speaker 2

So it's difficult for me to say that at any given quarter things are going to be consistently up. What we do see is strength of that customer, a commitment, a real commitment to go forward and to digitize the entirety of their operations And a commitment to not only Agile Adams, they transport and move, but also to substantively change how they run their business. And so we see multiple opportunities with this customer. And then hopefully with them again, it's a bellwether for the overall supply chain of logistics industry and others will follow.

Speaker 3

Great. I'll get back in line. Thank you.

Speaker 1

Thanks, Harsh. Thanks, Harsh.

Operator

Thank you. The next question comes from Jim Ricchiuti with Needham and Company. Please go ahead.

Speaker 5

Hi, thanks. Just maybe on that second logistics customer, as you know, I'm sure, they discussed moving into this Phase 2 implementation where presumably it sounds like they're going to be putting readers RFID readers in the hands of their drivers. And I assume that's going to help your reader IC business. But Chris, maybe as we think about their deployment, it moving now into their vehicles, what is the significance of this? Or is this all part of their grand plan that you guys were always kind of aware of?

Speaker 2

I'll let Evan and let Jeff take the lead here and then I'll circle back on the impact of silicon.

Speaker 4

I think first, Jim, I want to reiterate that we prefer to have our existing and prospective end customers speak to their own programs and deployments. But what I will say is that I think we have platform opportunities with this particular customer going forward and importantly multiple silicon touch points in those opportunities.

Speaker 5

Got it. And thank you. A follow-up question. Chris, I want to go back to your comment about the food applications and moving faster than you expected. How should we think about this?

Speaker 3

When could this potentially be

Speaker 5

a perhaps a more meaningful incremental driver for the endpoint IC business? I mean, it's I'm sure dwarfs yes, everything else dwarfs this, but you seem pretty excited about what you're seeing.

Speaker 2

I am Jim. So if you look back in time, what I said is that food opportunity is so large that it's hard to see it moving really quickly. And what I'm actually seeing or what I'm feeling is that it's moving a bit faster than I had expected. And when we see some of the fast food chains talking openly about inventory shelf life and freshness. And we see other opportunities out there on the market on the food front.

Speaker 2

We saw progress bringing in food opportunities. Overall, for me, it's a little bit of a surprise. It's just it's got a cliff pace to it and I wasn't expecting that. Now part of the reason to simply be that with retail adopting Reign so successfully that technology is proven, the use cases are proven and it kind of paved the way. But I still thought things were going to take a little longer.

Speaker 2

So I'm rather excited about the opportunities and where they are right now. And as we learn more going forward, we'll bring other opportunities and insights to your attention.

Speaker 5

Thanks. Congrats on the quarter, guys.

Speaker 2

Thank you. Thank you.

Speaker 5

And the settlement.

Speaker 2

Thank you very much.

Operator

Thank you. The next question comes from Mike Walkley with Canaccord Genuity. Please go ahead.

Speaker 6

Great. Thanks. My congrats on everything too. I guess, Chris, just on the strong intellectual property and your comments about protecting it. What has been kind of the feedback from the RAIN RFID industry post your settlement with NXP?

Speaker 6

And are there additional opportunities to license your technology?

Speaker 2

I'm going to start with the latter part of the question, first, Mike. And there are additional opportunities out there for licensing overall. So there's opportunities on our IP front, cloud services front for our platform overall. We've got we just got a lot of strength and capabilities in

Speaker 1

the things that we're doing.

Speaker 3

Furthermore, we see opportunities to integrate with

Speaker 2

our partners and make more partners out of the market and try additional licensing opportunities to generate recurring revenue. So on that front, we feel good, which is why I cited it in the prepared remarks. Although obviously, we didn't give any further details because we can't really cite anything until we have any further details. And licensing is core to our strategy going forward. In terms of the industry reaction to settling with NXP, the industry was for the most part relieved.

Speaker 2

There was a cloud of uncertainty hanging over the fact that there was litigation ongoing between the 2 largest endpoints and suppliers. And the fact that

Speaker 3

that overhang to the industry is removed,

Speaker 2

I'm guardedly think that it will help the industry continue to move forward and it takes away any concerns or any concerns about potential impairment going forward. On top of that, of course, we Carrie said in the details of the settlement and we feel the outcome is good for us and good for the industry overall. Great. It's helpful.

Speaker 6

And for my follow-up, Kerry, just on gross margins, obviously, next quarter will be a high gross margin quarter with the licensing payment. But as we kind of back that out and think about gross margin trends for the rest of the business with M800 ramping and potentially a stronger mix of systems later in the year? How should we just think about gross margin trends for the business?

Speaker 1

Yes. Thanks for the question. I think as you know, looking to the Q2, we expect gross margins to increase with a strong benefit from the license revenue. If you were to remove that, we're modeling gross margins at a product level to be about a flat quarter over quarter. Currently, we're running below our target of 53% to 54% range for a few reasons.

Speaker 1

First, we remain a little subscale, but are closing that gap quickly. And then second, as has been the case historically, the systems business recovery typically lags the endpoint IC's recovery. This has caused our endpoint IC revenue to grow as a percent of our total revenue. Endpoint IC carries a gross margin of slightly lower than our corporate average. And then finally, our lowered margin 200 millimeter volume running SKUs are slightly higher as a percent of revenue in 2Q and will likely be so again in Q3.

Speaker 1

That product line is 2 generations old at this point and we're moving it before the M800 ramps. We'll know more about that pace of the M800 ramp in the quarter or so, but the Q2 volumes remain small from a mix perspective and we really not have any physical impacts to our gross margin. So overall, though, we remain confident in the gross margin targets that we outlined at our Investor Day.

Speaker 6

That's very helpful. Thank you very much.

Speaker 4

Thank you.

Operator

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

Speaker 7

Hey, thanks for the question. The digital product Passport, I think you talked to it regarding textiles as well. Can you tell us a little bit more about that, the applications, maybe the economics associated with it and how big do you think it can ultimately be?

Speaker 2

So, Chris, the application really is the EU has passed a set of regulations that basically require traceability of textile items, cradle to grave before manufacturing all the way through shipment sale, consumer use and recycling. Those regulations are really begin kicking into 2027 and full life cycle traceability and the key thing is the EU wants to give the consumers ability to an item's province. So the consumers make an informed choice around item sustainability and informed choice about the products that they're buying. And doing so, providing the data about the items to the consumers and then like I said, recycling and end of life. So the key here for us is that I believe DPP will drive significant opportunities for consumer engagement.

Speaker 2

Now, Brainarvity is not a shoe in for DTP because there are other data carriers. What we, our partners and our enterprise end users want is to make the tags that are already on the retail apparel items and more and more embedded in the items via data carrier for DPP. In order to get there, we need consumers to be able to read those items, which is the impetus for putting readers into mobile phones. And I personally think that RAIN reading in mobile phones opens up a world of opportunities and actually is a new and transformative use case for the mobile phone suppliers. So I am hopeful, but I can't go beyond hopeful.

Speaker 2

I'm hopeful that this increased pressure or increased impetus for putting Ring Reading in mobile phones, maybe will put us over the edge over the top in terms of getting the readers in the phones, which would open up a wealth of opportunities beyond DTP. So that really is that is the core focus. The text already going on items. We need to get consumers to be able to read them. And when they can, it opens up a whole new set of opportunities

Speaker 5

post point of sale.

Speaker 7

That's very interesting. Just a quick follow-up there. Would you be selling ICs into the mobile market for that? Or could they use some sort of existing function there? And then just a housekeeping on the licensing, is there a volume component to royalties for future payments and how dependent on volumes are those payments?

Speaker 2

So the I'm taking the latter question first, the payments of fixed amount increasing by a modest amount each year. So, and as we've said with regards to the licensing payment. Going to the former, it's too early to say whether there is an opportunity for us in silicon in the mobile phones or not. But putting that aside for a minute, if you think of our platform that has the endpoint ICs, reader ICs, we're pushing more into some of the services around it. We already have enterprise level engagements.

Speaker 2

We see a large opportunity for our platform, whether or not it's actually our silicon that ends up in the phones. Of course, we'll try and get our silicon in the phones. But even if we don't, we're going to be pushing forward with opportunities that leverage our platform, the benefits our platform brings. And we want to be there side by side with the retailers and the phone providers and the manufacturers to be part of the overall solution. Thanks, Chris.

Speaker 2

Thank you.

Operator

Thank you. The next question comes from Scott Searle with ROTH MKM. Please go ahead.

Speaker 8

Hey, good afternoon. Thanks for taking the questions. Nice to see the continued recovery in the core business and the outlook of those key customers. Maybe quickly on that front, on the retail apparel front, it sounds like that drove the upside for endpoint ICs in the Q1 and striving the outlook of the upside into the Q2 as well. Chris, is the retail apparel market now normalized as we get to the Q2?

Speaker 8

Are we still recovering and working through some in line inventory in there or these new design wins and ramp up in unit volumes, etcetera?

Speaker 2

I'm going to start by saying thank you. And then I'm going to hand off to Jeff because I think Jeff can provide some commentary there. Jeff?

Speaker 4

Well, we are seeing some restocking taking place in both apparel footwear and general merchandise to better match to an uptick in consumer demand. Whether or not that trend continues, it's too early to call and probably not for us to call that. But overall, the partners who engage with those retailers signal some strength into the 2nd quarter and optimism cautious optimism for the second half, but are awaiting more confirmation of the sustainability of that uptick in demand.

Speaker 2

And then I'll layer a little bit more on here. So we see multiple drivers as we look out. We see embedded tagging, which replaces some hard tags with soft labels and our activity, the soft labels don't. So we see some tailwinds on that embedded tagging. Obviously, general merchandise, we already talked about that going forward.

Speaker 2

And so we see some tailwinds from general merchandise, as Jeff just highlighted, the retail revise. And then our reference around solutions, driving solutions in the market and our strength in those solutions accounts, all factors are, we believe, are tailwinds that are driving our N. C. Volumes.

Speaker 8

Got you. And if I could follow-up on the DPP front, Chris, it's a huge opportunity there. I'm wondering if you could walk us through what the process and some of the milestones that look like over the next couple of years. You're talking a lot about retail apparel, the traceability to engage consumers on that front, but I thought we were going to see tires and batteries kind of starting for some of those recyclable items, more so than we think about textiles. Is that changed in terms of the implementation of different product categories?

Speaker 8

Or is it just because the retail apparel is just such a large unit opportunity and drives incremental feature sets from Impinj? Thanks.

Speaker 2

Yes. So from my understanding of where DPP is today and not only are the regulations kind of being ironed out, but the implementations being ironed out. Batteries are going first from my understanding, but also from my understanding that it's strict out the gate, DBB carrier for those batteries is QR codes. Textiles is the next one to come along. It's a much bigger category and the data carrier is not decided yet.

Speaker 2

So it could be multiple things, it could be RAN RFID, it could be QR codes, it could be NFC RFID, it could be a bunch of different things and it's not decided in fact there's Committee is working on and figuring out what the data carriers are. RIN RFID is a big benefit that item visibility is great. It's already on the apparel items. That's great. It's being embedded into the access.

Speaker 2

That's great. But we're not in mobile phones. So that's why I highlighted the opportunity in the mobile phones and that there are now large enterprises in Europe that are pushing and letting our needs be known that we need RAIN readers in mobile phones. And so, whether that push will be enough is to be determined, but it's the first time we've really had a real push from the leaders in the market, from the enterprise in the market saying we need this capability. And so I think that your first indicator will be over the next, call it 1 to 2 years, whether Rynus is classified as a data carrier for DPP and we hope to make it soon.

Speaker 5

Great. Thank you.

Speaker 2

Thank you.

Operator

Thank you. The next question is a follow-up with Harsh Kumar from Piper Sandler. Please go ahead.

Speaker 3

Hey, guys. So a lot of us are going to probably be struggling with this as we model. So I thought I would just ask this openly. What should be the expected OpEx level going forward? In other words, I know you were spending $4,000,000 $4,500,000 in legal.

Speaker 3

Is that a fair number for us to take out? And then I'll just ask the second one that's on my mind too. Do you want us to model the next year's payment in some manner as it will come through in the Q2 of 2025? Or do you think it's just appropriate to see what that number is and that it could change dramatically? Just love some thoughts on this.

Speaker 1

Yes. Hey, Harsh, this is Carey. So from an OpEx perspective, our Q2 OpEx or what we've embedded in our Q2 guide is pretty clean. There is immaterial litigation spend and the business is normalizing following the reorganization that occurred in Q1. As I looked in the second half, I would assume modest growth.

Speaker 1

We're going to continue investing in this business and in front of this opportunity. But you've got a pretty good picture of our OpEx right now.

Speaker 3

Okay. And then what about the expected payment next year?

Speaker 1

Good question. That one is it's early. There is an ability for NXP to design out, but that is not something that's easily done. So I don't expect a huge increase in that payment, but I think it is fair to model that at this point and we'll keep you up to date on where that might grow.

Speaker 3

Of course. Thank you.

Speaker 2

Thank you.

Operator

Thank you. The next question is a follow-up from Jim Ricchiuti with Needham and Company. Please go

Speaker 5

ahead. With the litigation uncertainty behind you and the growing cash position. What I'm wondering is you guys have periodically looked at M and A as a means of accelerating parts of the business, growth in parts of the business. The The Voyantica acquisition sounds like it was a nice acquisition for you, small but I think provides some benefits. I'm wondering if we might see a pickup at all or if you're looking at opportunities that might accelerate the growth in some of the newer markets?

Speaker 2

Yes, Jim. I'll do my best to answer that. And obviously, I can't speak to any particular opportunities or anything that might be coming our way. Bloantica was an opportunity for us because what they offered was well aligned with our platform. Essentially, they're at the front end of the inlay manufacturing for inlay testing, quality assurance and some data services around the inlays, which of course these are our ICs and leverage our ICs for the inlay.

Speaker 2

So it was a natural addition to our platform that I think will stand us in good stead going forward. We are always open to other areas that strengthen and augment our platform. And if some was to come along, we'd be interested. And we keep our eyes open all the time. I don't think the additional cash is going to say, oh, we're actually going to it's going to make a huge difference either way.

Speaker 2

It's really identifying an opportunity that makes sense for us as a company. The additional cash is nice because it's easier for us to finance it. But the key thing is we see an opportunity, it's good for us, we'll pursue it. And absent that, we won't.

Speaker 3

Okay. And one final question, if I may. Just, Carey,

Speaker 5

I think you alluded to the M800 volumes still being relatively small. But is there any way I think you touched on this at the Investor Day, but has your thinking around the impact on gross margins as that scales? Has that changed at all? And maybe you could just remind us of the impact as it becomes a bigger part of the overall volume?

Speaker 1

Thanks, Jim. So the M800 benefits from a lower cost basis. And that lower cost basis will translate into approximately 300 basis points of gross margin accretion as the M800 ramps and becomes the volume runner in our business. Now an endpoint IC ramp when we typically launch a new IC takes multiple years to achieve, call it, volume running status. We're certainly pleased with where we are.

Speaker 1

As Chris alluded to in his prepared remarks, the M800 is ramping into Q2, but the volumes are still small and the impact on gross margin is not visible at this point. We're in the early days of the ramp. It's really too hard to project a precise timing of that ramp. We're encouraged with where we are and we'll keep you up to date as we progress in that ramp and throughout this year.

Speaker 5

Okay. Thanks a lot.

Speaker 2

Thank you.

Operator

Thank you. To Co Founder and CEO, Chris Diorio for any closing remarks.

Speaker 2

Thank you, MJ. Thank you very much. I'd like to thank all who were on the call today for joining us. Thank you for your ongoing support. Bye bye.

Operator

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

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Key Takeaways

  • Impinj reported Q1 2024 revenue of $76.8 million, up 9% sequentially, with endpoint IC revenue of $61.5 million (up 14% sequentially) and provided Q2 guidance of $96–99 million, reflecting a ~27% sequential increase including the NXP license payment.
  • The company settled its long-running patent dispute with NXP, receiving a $45 million upfront payment plus a recurring annual license fee, which bolsters cash reserves, eliminates litigation overhang and accelerates profitability.
  • Demand for Impinj’s enterprise solutions continues to drive endpoint IC volumes, led by ongoing rollouts of retail self-checkout and loss prevention in Europe, accelerated general-merchandise tagging at a major North American retailer, and two large supply-chain/logistics deployments.
  • New growth opportunities are emerging in Digital Product Passport for textile traceability—pushing for RAIN reader integration in smartphones—and in quick-service food chains for inventory, shelf-life and freshness tracking.
  • Financial discipline and product transitions support improving margins: Q1 gross margin was 51.5%, operating expenses declined by $1.5 million year-over-year, and the upcoming M800 IC ramp is expected to add ~300 basis points of gross margin leverage over time.
A.I. generated. May contain errors.
Earnings Conference Call
Impinj Q1 2024
00:00 / 00:00