Impinj Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
April 23, 2025

There are 10 speakers on the call.

Operator

Welcome to Impinj's First Quarter twenty twenty five Financial Results Conference Call and Webcast. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Mr.

Operator

Andy Cobb, Vice President, Strategic Finance. Please go ahead, sir.

Speaker 1

Thank you, Nick. Good afternoon, and thank you all for joining us to discuss Impinj's first quarter twenty twenty five results. On today's call, Chris Diorio, Impinj's Co Founder and CEO, will provide a brief overview of our market opportunity and performance. Carrie Baker, Impinj's CFO, will follow with a detailed review of our first quarter financial results and second quarter outlook. We will then open the call for questions.

Speaker 1

Hussein Mekhlai, Impinj's COO, 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.

Speaker 1

We describe these risks and uncertainties in the annual and quarterly reports we file with the SEC. We do not undertake and expressly disclaim any obligation to update or alter our forward looking statements except as required by law. On today's call, all financial metrics, except for revenue or where we explicitly state otherwise, are non GAAP. All balance sheet and cash flow metrics, except for free cash flow, are GAAP. Please refer to our earnings release for a reconciliation of non GAAP financial metrics to the most comparable GAAP metrics.

Speaker 1

I will now turn the call over to Chris.

Speaker 2

Thank you, Andy, and thank you all for joining the call. At a time of extraordinary macro uncertainty, Impinj's long term secular growth opportunity in retail, supply chain and logistics, food and the long tail of other applications remains intact. Enterprises use our platform to digitize their operations for production management, supply chain optimization and inventory visibility. Those operational needs transcend short term headwinds or cyclicality and fuel enterprise success. During COVID, enterprises that leveraged our platform outperformed those that didn't.

Speaker 2

I believe that history is poised to repeat itself. With enterprises that use our platform today that are able to adapt to tariffs than those that don't. Additionally, enterprises use our platform to track and manage the staples people buy regardless of the macro. And they add endpoint ICs to products regardless of whether they source those products from China or from other parts of the world. So although retail prices may increase, shelves aren't going to go empty, and products that carried our ICs yesterday will still carry them tomorrow, even if sourced from a different geography.

Speaker 2

We believe we are in a strong position to win in this market. We have number one endpoint IC market share after we took 85% of the industry's twenty twenty four unit volume growth and that with most of the M800 ramp still ahead of us. Our balance sheet and operating margins are strong, giving us the confidence to invest in and alongside our enterprise customers. 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. Turning to the first quarter, our execution was solid despite the uncertain environment.

Speaker 2

Steady demand and higher than expected endpoint IC volumes drove revenue and profitability above our guidance. We also saw a strong book to bill ratio and solid pipeline activity with enterprises remaining active and engaged. We took out a bit less endpoint IC channel inventory than we had expected, primarily due to partners strategically meeting inventory for geographic optionality in the face of tariffs. We also saw multiple pull in, push out, cancellation and bookings requests all in the same quarter, which speaks to the challenges our inlay partners are having navigating the tariff uncertainty. Looking to the second quarter, the tariff and politics induced market whipsaw appears unlikely to subside simply because some tariffs are paused.

Speaker 2

From today's vantage point, we see a modest second quarter channel inventory increase as our inlay partners continue building optionality, which in ordinary circumstances might be concerning, but that build is measured against enterprises undershipping consumer demand as they shift U. S.-bound product shipments from China to other geographies. That geographic shift represents roughly 15% of our endpoint ICs, but our exposure is much less because products from new geographies also carry our endpoint ICs. Assuming consumer demand holds, shipments will catch up to demand. And when they do, we should see channel inventory normalization and bookings growth.

Speaker 2

Returning to first quarter highlights, I'll start with Gen2X, which is showing its prowess. Comparing M830 Gen2X against a competing endpoint IC, Gen2X grew the area coverage of an overhead reading solution by 44%, helping convince a large apparel retailer to launch a major overhead deployment. We believe Gen2X will continue driving share gains and demand for our products. Second, our direct engagements with the two large grocery chains we discussed last quarter continue moving forward. Third, we saw strong e family demand, suggesting ongoing retailer deployments and pushing reader IC revenue above expectations.

Speaker 2

And finally, a partner extended the loss prevention solution we developed for the visionary European retailer to loss analytics, which doesn't need 100% tagging and won a major deployment at another retailer. Overall, we feel good about our market progress and keep pressing forward. In closing, while we're not immune to the tariff shockwaves, I believe we are well positioned to play offense. We lead in endpoint ICs, reader ICs and fixed readers. We create the enterprise solutions that transform our industry.

Speaker 2

We manufacture and deliver our products overseas. So for the most part, we are not subject to direct tariffs. Our endpoint ICs represent a tiny fraction of the cost of the retail staples they are used on, meaning tariffs are unlikely to change enterprise decisions to use our ICs. And finally, we saw the tariff impact early, said what we saw, and quickly began adjusting our business, shifting investments away from China and toward The U. S.

Speaker 2

And Europe, where we see continued growth opportunities. We are managing our business with a steady hand, focused on extending our technology lead, market share and platform adoption. As always, 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 tireless effort. As always, I feel honored by my incredible good fortune to work with you. Terry?

Speaker 3

Thank you, Chris, and good afternoon, everyone. First quarter revenue was $74,300,000 down 19% sequentially from $91,600,000 in fourth quarter twenty twenty four and down 3% year over year from $76,800,000 in first quarter twenty twenty four. First quarter endpoint IC revenue was $61,200,000 down 17% sequentially from $74,100,000 in fourth quarter twenty twenty four and down slightly year over year from $61,500,000 in first quarter twenty twenty four. Endpoint IC revenue exceeded our expectations driven by turns orders. Looking forward, we expect second quarter Endpoint IC product revenue to increase sequentially.

Speaker 3

First quarter systems revenue was 13,100,000 down 25% sequentially from $17,500,000 in fourth quarter twenty twenty four and down 15% year over year from $15,300,000 in first quarter twenty twenty four. Systems revenue exceeded our expectations driven by strength in both reader and reader IC sales. Looking forward, we expect second quarter systems revenue to decline sequentially driven by lower reader IC revenue. First quarter gross margin was 52.7% compared with 53.1% in fourth quarter twenty twenty four and fifty one point five percent in first quarter twenty twenty four. The year over year increase was due primarily to lower indirect cost.

Speaker 3

The sequential decrease was driven by lower systems revenue mix. Looking forward, we expect second quarter product gross margins to be similar to first quarter. Total first quarter operating expense was $32,600,000 compared with $33,600,000 in fourth quarter twenty twenty four and $32,900,000 in first quarter twenty twenty four. Operating expense was below expectations as we managed spend and benefited from favorable timing. Research and development expense was $17,300,000 Sales and marketing expense was $7,700,000 General and administrative expense was $7,600,000 Looking forward, we expect second quarter operating expense to be similar to first quarter.

Speaker 3

First quarter adjusted EBITDA was $6,500,000 compared with $15,000,000 in fourth quarter twenty twenty four and $6,700,000 in first quarter twenty twenty four. First quarter adjusted EBITDA margin was 8.7%. First quarter GAAP net loss was $8,500,000 First quarter non GAAP net income was $6,300,000 or $0.21 per share on a fully diluted basis. Turning to the balance sheet. We ended the first quarter with cash, cash equivalents and investments of $232,500,000 compared with $239,600,000 in fourth quarter twenty twenty four and $174,100,000 in first quarter twenty twenty four.

Speaker 3

Inventory totaled $98,500,000 down $900,000 from the prior quarter. First quarter capital expenditures totaled 1,900,000 Free cash flow was negative $13,000,000 driven primarily by unfavorable working capital timing, which we expect to reverse in second quarter. Before turning to our guidance, I want to highlight a few items specific to our results and outlook. 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. From today's vantage point, we see partners maintaining higher endpoint IC inventory balances for the foreseeable future.

Speaker 3

Second, first quarter product gross margin exceeded our expectations, partially driven by reader IC revenue strength. We anticipate similar product gross margin in second quarter even as our high margin reader IC revenue declines. Looking to the second half, product margins will benefit from higher M800 mix, improved production yield and lower cost wafers. 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.

Speaker 3

Looking ahead, we will align our investments to our revenue profile, staying agile in this uncertain environment. Turning to our outlook. We expect second quarter revenue between 91,000,000 and $96,000,000 compared with $74,300,000 in first quarter twenty twenty five, a quarter over quarter increase of 26% at the midpoint, including the license fee payment and 4% excluding it. We expect adjusted EBITDA between $23,500,000 and 26,000,000 On the bottom line, we expect non GAAP net income between $20,800,000 and $23,300,000 reflecting non GAAP fully diluted earnings per share between $0.68 and $0.76 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 3

Nick?

Operator

Thank you. We will now begin the question and answer session. And your first question today will come from Harsh Kumar with Piper Sandler. Please go ahead.

Speaker 4

Yeah. Hey, guys. First of all, congratulations on very good results and what I would describe as extremely uncertain environment. Chris and Carrie, I had one for you. Obviously, you're aware of tariffs.

Speaker 4

They're changing, if you will. I guess my question is if if these tariffs do hit, or if even if they are maintained at the level that they're maintained at, one would expect some sort of a demand fall off. I guess, how are you thinking about this aspect of your business? And then maybe for historical context, if you've seen anything like this in the past ten, fifteen years, we could talk about what you saw last time. And how are you preparing for this, potential possible, demand

Speaker 3

drawdown?

Speaker 2

Harsh, I'll do my best to answer your questions. You might need to interject one or two times as if miss part of it. First, I want to start by saying thank you for nuts words at the beginning. I'm going to answer the second question first, just have we seen a scenario like this previously? I can't recall anything like this.

Speaker 2

We struggled during the two thousand and eight downturn, but that was a long time ago when we were still a small private company. Obviously, COVID was quite a whipsaw for the business, but it was materially different. We're in uncharted waters here. But at the same time, I truly feel that we've got the strongest team in our company's history. We've got the strongest financial backdrop in terms of our cash strength, operating margins, product portfolio, everything else we need to weather the storm.

Speaker 2

We've got a very strong enterprise end customer base, and we've got a very dedicated set of partners. So as I said in my prepared remarks, I believe it's we will benefit from investing in the opportunities where we see that we see to invest in and coming out the other side stronger. That answered the first part of your question about tariffs. So I'll go through a couple of points. And, Carrie, you'll need to jump in here and see what I missed.

Speaker 2

Bookings were strong in the first quarter, and we are still seeing bookings. That is kind of different from, for example, what we saw in the COVID time frame. At the second time, we did not see material pull aheads in the first quarter, and we're currently not seeing them in the second quarter. Said another way, we're not seeing pull for our products driven by the enterprise end user, pulling ahead demand for endpoint ICs. We see fairly consistent endpoint IC shipment volumes across the quarter.

Speaker 2

We do see the shift, the geographic shift, from where the end users are sourcing their products out of China to newer geographies to different geographies and have paused some shipments as a result of that shift. So we currently believe that enterprise end users are undershipping demand. At the same time, we see some channel inventory build as our label partners build that inventory 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. And as I said in my prepared remarks, as we expect to see some normalization in bookings return as enterprise end users begin fully shipping into that demand.

Speaker 2

Net of it, we'll feel like we're navigating the tariff situation, okay? And we'll keep driving to the future. Yes. Go ahead, Harsh.

Speaker 4

No. No. That was it. I was I was gonna say thank you. That was a very complex question.

Speaker 4

Thank you for all the clarity and the and the points you made. Let me ask my second question, Chris. You know, you talked last quarter about some inventory at one of your larger customers in one of the segments. How are you and you said now customers seemingly want to maintain a high level of inventory. How are you thinking about your business as you get past this slightly increased level of inventory that your customers wanna maintain?

Speaker 4

Do you do you think that 2025 could be a lot like 2024, where you see decent demand and decent growth both in endpoint IC and systems? Or do you see something different happening because of all the confusion?

Speaker 2

We don't think channel inventory is high relative to consumer demand. We're seeing a wobble right now in the second quarter associated with production shifting to different geographies. In terms of what we see looking out, that's harder. I mean, we guide one quarter at a time. And given the macro, dynamics that are going on right now and the uncertainty, it's really hard to predict the future.

Speaker 2

In fact, I'm reticent to really say anything about it other than that if consumer demand holds, our products go on staples. And they go on shoes and socks and children's clothing. They go on medical shipments and shipping packages. They go on government ID and food products. I mean, they go on to things that people buy regardless of the matter.

Speaker 2

So we feel good about our position. It doesn't mean that if there's a major downturn, we won't feel it. We'll feel it the same way the macro feels it. But 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.

Speaker 2

I'll turn it over to Carey. Anything you want to add, Carey?

Speaker 3

Yes. Harsh, I would add that we entered the quarter in a little bit elevated channel inventory position. And some of our partners made really good progress reducing that channel inventory while others did not. But the end towards the end of the first quarter and certainly into the second quarter, the strategy around inventories is changing. Partners are flexing their geographic footprint, and they're trading off regions that have higher transit time for lower tariff risk.

Speaker 3

So that's putting inventory strategically, purposely and rationally into the channel. And that's why they're 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 4

Fair enough, guys. Thank you so much. I'll get back in line.

Speaker 2

Thank you, Harsh.

Operator

And your next question today will come from Scott Searle with ROTH Capital. Please go ahead.

Speaker 4

Hey, good afternoon.

Speaker 5

Thanks for taking the questions. Nice job, guys, in an incredibly difficult, if not schizophrenic environment.

Speaker 2

Thank you, Scott.

Speaker 5

So Chris and Carrie, to follow-up on Harsh's questions here, it sounds like we're 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 you're saying so that we're not going through some further inventory reduction as we go into the second half of this year from a channel perspective? And also if you could clarify, I think there's been some concern or speculation in terms of your end product mix exposure, right?

Speaker 5

With I think the last numbers you guys have talked about is 70% in retailapparel, but

Speaker 1

a lot

Speaker 5

of that is seasonal. So if you had any 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, etcetera, for months, if not quarters?

Speaker 1

Hey, Scott. This is Carey. Thanks for

Speaker 3

the question. I'll take the first half of it, and then I'll hand over to Chris. We don't think channel inventory is high right now. Not high versus the evolving production strategies that our inlay partners have and not high for the fact that we think we are undershipping end consumer demand in this environment.

Speaker 2

Yes. And Scott, so I'll do my best to answer your question. We our business has become more diversified over the past couple of years in terms of where our endpoint ICs are used. We currently ship a good portion of them into supply chain and logistics, which is significantly in The U. S, and those volumes seem to be holding.

Speaker 2

We ship into not only retail apparel but retail general merchandise. The general merchandise tends to be more of a kind of staple, the words that I used in our prepared remarks. If you just look at retail apparel on its own, I don't think we've actually sat down and quantified for our investors what percentage of our overall business is currently retail apparel nor what which of it is seasonal versus not. What you're really asking at is what part is discretionary and what part is necessary. And we think that the significant majority of our endpoint ACs go on products that are staples or necessary and not discretionary.

Speaker 2

Discretionary consumer demand goes way down and discretionary comes down, we'll feel it as the macro feels it. But we feel pretty good about what we tag today, where our products are going and the diversification we've seen over the past couple of years.

Speaker 5

Okay. Very helpful. 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 piggybacking off of Walmart, migration into smartphones with Qualcomm. I'm wondering if

Speaker 4

you could update us on

Speaker 5

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, talked about engagement with two grocers, that, that continues to progress. Any color on that front would be helpful. Yes.

Speaker 3

Scott, this is Carey. I would say that while none of those projects are showing any signs of slowing down, this environment today is highly uncertain, and we're not experts at predicting tariff policy. We do believe enterprises are undershipping consumer demand as they wrestle with optimizing their production footprints. And with resolution to that production strategy or resolution to the tariff 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.

Speaker 2

And I'll say, in our prepared remarks, my prepared remarks, right now, we see enterprises engaged. We haven't seen the enterprises pull back. And because we see enterprises engaged, because we saw strong reader IC volumes, which indicates that enterprises are buying readers, because of the belief that I have that those enterprises that use our platform will end up on the winning side of the ledger through this tariff dynamic, We are investing rationally, but investing in our enterprise opportunities in this market. We believe it's the prudent thing to do. We're going do it prudently, but we also think it's the prudent and smart thing to do to come up the other side stronger.

Operator

And your next question today will come from Jim Ricchiuti with Needham and Company. Please go ahead.

Speaker 6

Thanks. Good afternoon. I'll echo what others have said about a nice job in these interesting times.

Speaker 4

Thank you, Kim. Maybe just

Speaker 6

wanna go back to what you were saying about the the reader IC business and maybe how that ties into what I think, Carrie, you said at least in the script, you're expecting lower reader IC revenue in Q2. Can you maybe square that for us in terms of what that might indicate?

Speaker 3

Yes. It is really timing of orders. And specifically, we had higher Indie reader IC revenue in Q1 than we anticipated. This is a product that our prior generation that we've end of lifed, it continues to sell. In our last production runs, we got higher yield than we anticipated.

Speaker 3

So we had more units than the last time orders. So we're letting those excess units, if you will, flow in. And that's what benefited Q2 or Q1, excuse me. In Q2, we're seeing strong growth with our e family reader ICs. But on a sequential basis, it's down because I don't anticipate as much indie reader I sales in the

Speaker 2

second quarter. Yes. But either way, Jim, strong e family growth in the first quarter. We're expecting strong e family demand in the second quarter. And we wouldn't see strong e family reader.

Speaker 2

See demand if people weren't planning to deploy readers. And so you're not going to deploy readers if you don't have something to deploy them into. So we actually see enterprises continuing to press forward deploying readers in this environment.

Speaker 6

Okay. Got it. The other question I had was, and not sure if you mentioned this, but how we should be thinking about the M800 ramp and particularly in the current environment? And maybe if you could remind us of the tailwinds we could see from the ramp on margins.

Speaker 3

Yes. The M800 continues to ramp nicely. First quarter was strong. We expect growth in the second quarter. And at some point this year, if we continue following this path, which I believe is typical path, we could see the M800 as our volume runner.

Speaker 3

I don't think it blends for the full year, but I think at some point this year, it turns into our volume runner. When it blends as our volume runner, I expect a 300 basis point gross 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.

Speaker 2

And Jim, I'll add that Gen2X is natively implemented in our M800 ICs, which means that all you need to do is use a reader to turn it on, and you get the benefit. So as one example I gave in our prepared remarks was a significant increase in x square foot coverage in an overhead deployment at a leading retailer. That's just one example of some of the benefits that we're seeing out there on the market from M800, which just has Gen2X natively built into it. So we see not only an opportunity to drive M800 overall as a greater portion of our overall business, but actually to enable enterprise solutions that previously we could not do. And that's we believe Gen2X, in combination with the M800, is a game changer.

Speaker 6

Got it. If I can just squeeze one other one. And you mentioned this other major deployment at another retailer. What's is that occurring now? What's the time line on that?

Speaker 2

It's occurring in the back half of this year. Yes, it's occurring now. And it's essentially a loss analytics or loss identification deployment where they're not 100% tagged. But by deploying readers at store exits, a variety of store exits, they can see what's going out of the store, and they can get some ideas of where theft is happening, how it's happening, the time frames, everything. It's just a full loss analytics deployment.

Speaker 2

It doesn't give you all the benefits of a full loss prevention deployment, obviously, which you can self checkout, but you can but a retailer can start without 100% tagging.

Speaker 6

Got it. Thanks very much. Thanks, guys.

Speaker 2

Okay. Thank you.

Operator

Your next question today will come from Christopher Rolland with Susquehanna. Please go ahead.

Speaker 4

Hey guys, thanks for the question.

Speaker 7

So I just wanted to confirm that my understanding is correct here. So 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.

Speaker 7

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 2

Chris, thank you. And this is Chris. Let me start, and then I'll hand off to Carrie on the first part of your question. 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 and shifting their suppliers to different geographies. So we believe that currently, those enterprises are undershipping consumer demand as they transition their sourcing geographies.

Speaker 2

In terms of further out third quarter and basically the back half of this year, number one, we only guide one quarter at a time. Number two, we're probably not the best the ones best positioned to really guide on what consumer demand is going to be. But what we said is if consumer demand holds, we expect channel inventory to normalize, and we expect to see bookings growth. Now that if is the keyword in there, if consumer demand holds. But as of right now, we believe enterprises are undershipping consumer demand.

Speaker 3

Chris, this is Carey. To your question on channel inventory, we entered a little bit elevated. We made some of our partners made good progress against that. But 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 3

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. I think that maintains and may tell us that this is the new reality and this level of inventory will stay for the foreseeable future, but we're continuing to watch it closely. We think, overall, the weeks of channel inventory will normalize as the demand comes back, but I don't know that, that means the volumes go down.

Speaker 7

That's clear. Thank you. And then your main competitor has suggested that it's 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 term dynamic?

Speaker 7

And then, Chris, I often ask you this, but what do you see as the biggest needle moving driver in terms of new opportunities for '25 or '26 even? Is it still food? Or are you seeing some cool new opportunities emerge as well? Thank you.

Speaker 2

Okay. So first, Chris, I'll start with the legal settlement and going back there. So Impinj took 85% of the industry's 2024 unit volume growth. So we saw so that translates into a very significant share gain in 2024. Obviously, we can't 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 2

In terms of where the market's headed, Food is a significant opportunity. There will be small volumes in 2025. They won't be really material. We see food as a '26, '20 '7 type opportunity just because food opportunity is so large. The deployments are large.

Speaker 2

Just everything is big, it takes time to think forward. In the bigger picture, we see an expansion of the market from handheld driven or not solely, but significantly handheld driven inventory counting in retail stores to fixed reading significantly in supply chains. And don't just think supply chain and logistics. Think supply chains, retail supply chains, leading items from point of manufacturing, tracking them to the supply chain into a distribution center, out of the distribution center and to a store and then out the store exit after point of sale. That retail opportunity, not just in the retail apparel, it's in retail general merchandise.

Speaker 2

It includes shipping and supply chain and logistics, and it uses significantly fixed reading. We think that growth opportunity is a place where we can excel. Our platform is needed. It's used. We're innovating in that space.

Speaker 2

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. Looking out beyond that, 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.

Speaker 2

It's exciting. It could truly change our industry, but it's not going to happen in 'twenty five or 'twenty six. It could be further out in time. And in the meantime, look at the solutions that we're delivering to enterprise end users to solve their pressing thorny problems.

Speaker 4

So much, Chris.

Speaker 2

Other questions? You, Chris.

Operator

And your next question today will come from Guy Hardwick with Freedom Capital Markets. Please go ahead.

Speaker 8

Hi, good afternoon guys.

Speaker 2

Good afternoon.

Speaker 8

I know you touched on it, but I wonder if you could just give us a bit an update on the situation with the your large or second largest North American supply chain logistics customer and whether this 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 inventory situation there is.

Speaker 2

Do you want to start? No. Go ahead, Chris. So we continue supporting the customer in all that they're doing. We see them continuing to deploy.

Speaker 2

We see growth this year over last year. And overall, we see a very positive dynamic engaging them. We haven't seen further push outs, and we will support them as they go forward. Carey, do you have things that you can add?

Speaker 3

Yes. I would say that, that there remains a lot of consistency with that end customer. 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.

Speaker 8

You.

Speaker 2

Sure. Thank you, guys.

Operator

And your next question today will come from Troy Jensen with Cantor Fitzgerald. Please go ahead.

Speaker 9

Hey gentlemen, congrats. Maybe a couple of quick questions here for Carrie, kind of common questions for me. But Q2 gross margins, Carrie, if you 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. Am I thinking about that correctly?

Speaker 3

Yes. You're thinking about it. Remember, Q2, we had the benefit from the annual license payment, which all flows to revenue in Q2. That is a high margin revenue stream for us, as you might imagine.

Speaker 2

Okay. Perfect.

Speaker 9

And then also just on

Speaker 3

Thomas On a product basis, I would expect product gross margin, so that is excluding the license payment, to be similar to Q1 gross margin.

Speaker 9

Okay. Perfect. All right. Then how about just like if we look at second half, you talk about just I mean, assuming some growth and assuming the 800,000,000 kind of takes over, I mean, safe to say second half gross margin should be above Q1 gross margins?

Speaker 3

I anticipate the second half product gross margins to benefit from the continued M800 ramp from improved yields that our ops team has been able to generate and then also lower cost wafers flowing through.

Speaker 9

Great. Perfect. Okay. And how about this last question? I should know the split deck.

Speaker 9

Can you just give us the details given the debt, just the conversion price and the due date?

Speaker 3

The conversion price is about $111 stock price, and it is May 2027. So we've got plenty of time on that. The notional value, 287,500,000,000.0. We also and then the last thing I would add, Troy, is we still have the capped call from the initial convertible debt we raised in 2019. Just short of $50,000,000 accretes to us if the stock's over $54.2 in end of twenty twenty six.

Speaker 9

Okay. Good to know. Thank you.

Speaker 2

Yes. Thank you, Troy.

Operator

And your next question today will come from Harsh Kumar with Piper Sandler with a follow-up. Please go ahead.

Speaker 4

Yeah. Hey, gentlemen. I wanted to follow-up on something that I heard in response, to one of the answers, Chris, that you that you might have mentioned and make sure that I get this correctly. Are you suggesting that your logistics customer, the large logistics customer, will be up in 2025 over 2024 despite the inventory issues that happened in in 1Q? Is that is that the correct way for me to think about it?

Speaker 3

Well, Harsh, remember that the the inventory was at the channel partner level. So we would anticipate that end customers still having label growth. Yeah. You know, the Any change to the macro that has a flow through effect notwithstanding. But that was our assumption going into the year.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Chris DiOrio, Co Founder and CEO, for any closing remarks.

Speaker 2

Thank you very much, Nick. I'd like to thank you all for joining the call today, and 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.

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Earnings Conference Call
Impinj Q1 2025
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