Great. Thanks everyone for joining. I'm David O'Connor from the semiconductor team at Piper. It's 25 minutes, so anyone who wants to jump in with a question, please just raise your hand. With that, I'm delighted to welcome Cary Baker, CFO of Impinj, with us this morning. Internet of Everything, RFID leader. That's right. Cary, what's the big picture here on RFID and on Impinj? Yeah. So our opportunity starts everywhere you see a barcode. You might ask, why are you revolutionizing the barcode? Barcodes are free to add, but barcodes are expensive to read. You need to have line of sight, you need to have proximity to the item, and you're reading one at a time. With our ICs, you're reading up to 3 ft away, without line of sight, thousands of items a second. The IC is literally smaller than a grain of sand. It's energy harvesting, which means it's battery-free and has effectively an unlimited lifetime. Awesome. With RFID, how would you size the market? How big is it and how fast is it growing? Yeah. Rough and tough, we see the market opportunity at 10 trillion units, to which we're less than half a percent penetrated today. The four verticals that we focus on primarily are apparel, which is 80 billion units a year, general merchandise, 325 billion units a year, supply chain and logistics, 400 billion units a year, and food, which is multiples larger than all three of those other verticals combined. The industry has been growing since 2010 at a unit CAGR of around 20%-25%. Impinj's CAGR over that time has been 26%. Okay. In terms of RFID adoption in apparel is a big part of the revenue base today, how would you describe that penetration of it? Yeah. Apparel is the most mature market for us today. By volume, we're probably 40% penetrated to that 80 billion units. In supply chain and logistics and general merchandise, we're low single digits penetrated, but we have the largest players in those respective categories moving forward first. In general merchandise, it's led by Walmart. In supply chain and logistics, it's led by UPS. Food is no penetration to speak of today. We're delivering modest volumes into those opportunities with big players, but it's still early days in food. Okay, awesome. In terms of just the life cycle of RFID, that kind of adoption, maybe just talk us quickly through that life cycle from the customer, the kind of ROI decision they make. How long does the rollout take? If you can just talk around high level Yeah. Every timeline across customers is different, but they all share some commonalities. Typically, they start with a single use case. They get that deployed, they get a base ROI earned, and then they start asking, where else can I deploy this RAIN RFID to extract even more ROI? So in apparel, it typically starts with handheld readers checking inventory at the store level. Then once those retailers reach 100% tagged, they unlock a whole bunch of new use cases. They can then go to loss prevention, to self-checkout, to front-store/backstore management, to smart fitting rooms. As they move to those different use cases, they're extracting even more ROI. Okay. In terms of time frame, what have you seen, from when that customer makes that decision to actually deploying, what is the Yeah type of time frame typically? The sales cycles are typically long. They will start out with a single store pilot just to prove out the use case. Then when they have the use case proved out, they go to what we call the controlled deployment. It is a small portion of their overall footprint, where they are proving out the ROI at scale, and they are working out any kinks that they see. Then once they prove out that ROI at scale, they work out the kinks, then they go to a broad rollout, which is typically measured in multiple years. While it is a long sales cycle, what we see is once a customer, any customer, makes a move forward, they never turn back. Okay. Understood. Any anecdotes in terms of the ROI customers got from the apparel, like savings Yeah inventory savings or growth, just any anecdotes you can share. Yeah, for sure. Back in the early days, Macy's had an apparel deployment and a handful of other categories. Macy's was able to take out $1 billion from the inventory because they were able to see down to every item on the store floor. They were also able to achieve nearly 10% same store sales lift because they knew what was on the shelf, and more importantly, what was not on the shelf. That is a pattern we typically see. The base ROI always starts out with labor savings, and then it quickly translates to sales uplift because of the visibility that the RAIN tags provide. Okay. And across logistics, any anecdotes there of where the ROI was driven on the logistics side? Yeah. In logistics, it's a reduction in manual scans. It's a reduction in missed shipments. It will eventually move to a sales uplift as well. You can pull any of the last several earnings call transcripts from UPS, who has deployed RFID throughout their infrastructure, and you can see the immense ROI that they're earning. Okay. Turning to kind of on the growth side of thing, growth markets, you talked about food, freshness. Which markets are you most excited? Which markets should investors be watching from the Impinj growth story? Yeah. I'm excited about all four of the major categories that we're focused on, even apparel. Apparel is the most mature. It's 40% penetrated by volume, but by logo, it is north of 90% penetrated in North America. Most retailers have already made the decision to move forward with a RAIN deployment. Most retailers are not 100% deployed. So there's a lot of inertia in apparel, even though it's the smallest category. Then there is significant opportunity in general merchandise and supply chain and logistics and food, given it's such early days for those categories. Okay. In terms of freshness market, how big can that be, freshness? We are early in that deployment. You guys recently just started talking about it. Yeah. In the freshness deployment, think of that as part of the supply chain and logistics. Think of freshness- Okay as the food chain or the cold chain within food. We think of that inclusive of the 400 billion units, and that is a component of the overall food opportunity. Okay. Understood. We spoke a lot about the U.S. Where is the U.S. versus international rollout? Is international a big part of the growth story for Impinj, or is it really driven by U.S. adoption of RFID? No, think of it as more of the Western world. Probably 80% of the ICs end up between U.S. and Western Europe, with U.S. larger than Western Europe. The remaining 20%, less than 10% China, Japan, Brazil, other categories that are out there, but mostly in the Western world. Okay. Outside U.S. and Europe, for instance, or other Western markets, any programs or pilots that investors should be keeping an eye on? There's programs across the board. Any big ones? Any big ones. Nothing that is in the public domain right now. Okay. Understood. Maybe turning over to competition in the space. Can you talk a small bit around just around competitors? What are you seeing out there from competition at the moment? Mm-hmm. So in the Endpoint IC market, the two primary competitors are Impinj and NXP. Between the two of us, we have north of 90% market share. Impinj's market share last year was greater than 60%. 60%. And 60% for the last few years is pretty stable? No, it has been growing over the last few years. We gained a significant share over the last couple of years. Okay. And that is in apparel, do you think, or logistics, or across the board? It is across the board. Certainly in apparel, but also logistics. We have a strong share in the logistics opportunities out there right now. Okay. Any Chinese competitors, or you do not really play, as you mentioned, the China market is a bit separate. Yeah. We do see activity coming out of China. Nothing that is quality at scale, nothing that is more than a China-for-China solution. I think it will be hard for Western companies to put a Chinese radio on everything that is important to them in the current political environment. But we do not stop there. That is not what we rely on to maintain our moat. Impinj's competitive advantage is we are the only player that operates on both ends of the radio link. We compete on the Endpoint ICs, and we compete on the read points, the readers and the reader ICs and the gateways and whatnot. That creates an opportunity for us to put functionality in the IC that is engaged by functionality in the reader while still embracing the communication protocol that the entire industry prescribes to. So one example of that is our Gen2X. The base existing protocol for the industry is the Gen2 protocol, and basically it means that every reader can read every IC irrespective of manufacturer. What Gen2X does is it embraces that standard and then extends it based on learnings that we have had over the years to make the IC and the reader more performant. So as an example, in a normal Gen2 reading environment, the tags constantly respond to the reader. They are basically saying, "I am here." That clutters the reading environment. It reduces read range, it reduces read speed. With Gen2X, we give the reader the capability to tell the tag to stop responding once it has been read. That declutters the reading environment and increases read range, it increases read speed. That improvement in performance becomes more important when you move out of apparel and you start moving into logistics or into general merchandise. In logistics, the items going down a conveyor belt are moving very fast, and you only have a split second to read them. When you move into general merchandise, especially the very dense categories or shelf categories like cosmetics, like health and beauty, like OTC pharma, decluttering the read environment becomes very important to a successful deployment. Okay, interesting. Some secret sauce around the RF side of things, no doubt covered by patents, which maybe brings us to the NXP, the licensing deal. So if you could just talk about how investors should see the sustainability of that kind of licensing revenue. Yeah. At the outset, it was a 10-year license agreement or until NXP designs out our IP and stops selling ICs that infringe on our IP. We've always said, or we've said all along that 2028, if they move fast enough, would be the year where the rubber meets the road on the longevity of that license payment. Okay. Understood. And just in the different markets, it's the same products that you sell across different segments of the market. You talk there about different operational efficiencies of different segments. It's the same product that you can cross-sell across all segments? For the most part, yes. The M800, our most performant IC, can work in any apparel, general merchandise, logistics, food opportunity. We've also built for our second-largest logistics customer, a custom IC. Think of that as again, operating on both ends of the radio link that is specifically designed for the features that end customer needs. Okay. So, because that's good for business, custom ICs, more lock-in? It's more lock-in. It increases complexity managing a single SKU for a single end user that we don't have across the rest of our portfolio. But when the opportunity is right, and think of that meaning when the volume is there, but also when we have the deep technical integration with that customer, where we would know what to put in a custom IC, and we can design the IC around their operations, then it makes a lot of sense for us, and we'll continue evaluating opportunities as such. Okay. Very good. Understood. Maybe if you could switch to kind of channel inventory and just talk about the kind of misstep in Q1 on the logistics side of things. Maybe just give an overview of what happened there, and was that a once off, or how would you kind of Yeah what you learned from that. We've had a misstep over the last two first quarters, and both relate to a single customer, our second-largest supply chain and logistics customer. Though the reasons were different from year to year, the crux of the issue is we did not have visibility into how our partners were managing their inventory in support of that end customer. At that time, our second-large logistics customer was using the M800. General purpose SKU, as I mentioned, can go into any apparel, general merchandise, logistics, food opportunity. We didn't appreciate the fact that our inlay partners were building inventory and managing inventory in a way that was dislocated from the seasonality of the package volume of that end customer. That caught us off guard. With the custom IC, we now see that difference in dislocation in managing inventory versus the package volume seasonality that we would have otherwise expected. I believe we have the inventory visibility to manage through that. Now, obviously, after two missteps in a row, we've got to prove it to you in Q1, but I'm increasingly confident that we'll be able to do so. Okay. More aligned to normal seasonality- That is right. Which is what for the business? Normal seasonality for the business, starting in Q2, the quarter we just completed. Endpoint IC is typically up 10%-20% sequentially. In Q3, it is up high single, low double digits, and then in Q4, it is down typically 5%-10%. The reason for that seasonality is we ship in front of the holiday season for apparel retail, which is the bulk of our business. Then in the first quarter, it is typically down low single digit percents. Okay. Understood. Maybe switching over to pricing and costs. Last year you shipped like 29 billion units, I think. Yes, that's right. ASP one penny. Costs are going up. We hear every day costs going up. How are you managing kind of costs and pricing basically, and how is that kind of discussion going with the customer? Yeah. We have felt inflationary pressures like everybody else. We expect that to continue. It's not unique to Endpoint ICs. It's across our entire portfolio of products. What we do when we have inflationary pressures is we first try to engineer around the cost increases. When we can't engineer around, we absorb what we can, and when we can no longer absorb, we pass them on to our end customers in a way that protects the integrity of our margin model. As I mentioned, we're feeling those inflationary pressures now, so we have signaled to our end customers that a modest impending price increase was coming. Think of that as layering in over the back half of the year, and think of it as us maintaining our margin model. Those conversations are never easy. Yeah But I think everyone understands where they come from. Okay. But ASP at a, I mean, it's per unit, but how in RFID, how sensitive are customers to pricing? Historically, they have been, but ASPs have come down. Typically, we see low to mid single digit ASP declines on an an annual basis, Okay that are supported by wafer cost down, so it maintains Okay our margin model. Today, in the most competitive opportunities, the additive cost of an inlay is sub $0.02. We needed to reach that price point for opportunity and food to be unlocked, and that's what we're seeing right now. Okay. Maybe switching over to the business model. Maybe can you just flag kind of the highlights for the business model? You talked about seasonality earlier, but just generally on the kind of, from the margin perspective. Mm-hmm. Starting with gross margin, the M800 is our most performant IC. It is also our smallest IC. We get 20% more die per wafer than our M700. That, we translate in two ways. One is a lower ASP to our end customers, so they get a more performant IC at a lower price. But two, it also drives gross margin accretion. The wafer cost is the bulk of the BOM of our IC. So prior to the M800, our corporate average gross margin was roughly 53%. When the M800 is fully rolled out, reaches its terminal mix, we will deliver 300 basis points of gross margin accretion. So that 53% goes to 56%. We will achieve terminal mix in Q4. Probably will not blend for the whole fourth quarter, but we are still ramping the M800 nicely. You are starting to see that gross margin in the business now. Okay. And the difference on the reader side versus the chip side, or even on a different customer mix, is that any impact on kind of gross margin? Yeah. The systems mix is typically, our systems gross margin is higher than the corporate average. So think of Endpoint IC as just under the corporate average, and systems above the corporate average. And within the systems business, the reader IC is our highest gross margin product. Okay. Understood. From EBIT margin targets, cash flow targets, what should investors think about that? Yeah We've got a massive opportunity in front of us, and we're going to continue investing in that opportunity. R&D is the primary focus of investment, but even in the R&D line, we expect leverage. There's more leverage in the sales and marketing line, because we leverage a partner network to take our products to market. And then obviously, there's significant leverage in the G&A line. Our internal goal is for incremental revenue to flow through to the bottom line at a rate greater than 30%. Okay. 2027 converts, what should we think about, are they refinanced? Yeah. We actually addressed the 2027 converts. These are our one and one-eighth notes maturing in May of 2027. We addressed that last week. We went in the open market and repurchased the remainder, almost all of the remainder. We couldn't grab the last $1 million of it. But of that convert, as we've typically done in the past, we addressed it in the most dilution-friendly way we could. So we retired the principal, which was a little over $55 million. $56.3 million. Thank you. $56.3 million in cash, and we've settled the upside with shares. Okay. M&A in the space, RFID, any kind of tokens, any holes in the portfolio on the systems side or on the reader IC side? Yeah, we are always looking for M&A opportunities. The reality is it is a niche market, so some of those are hard to find, but we kick the tires all the time. We have a pretty high bar to clear. This is a big opportunity. We are a small team, a little over 450 people, so we all need to be focused and working hard to capture this opportunity. Any M&A opportunity that we see has to meet a high threshold. Okay. Understood. Maybe the last couple minutes, any questions from folks listening? Okay. Cary, any closing thoughts that you want to leave with investors about the business? Yeah. I think one closing thought. One of the first questions I get meeting with investors about the food opportunity, which is massive, and I completely understand that. We are working with three of the five largest grocers in the U.S. that are either piloting or actually in a deployment, as in the case with Kroger. We are working on four different use cases across food right now, so there is a lot of pull from food. But I would encourage investors, don't sleep on general merchandise. There is a lot of work going on behind the scenes on general merchandise, and I think, especially in the near term, that is going to be a major driver of growth from Impinj and for the industry. Okay. And proof points for investors to watch out for, to double-click on the story or just to see Yeah that you guys are on track? Focus on where we start talking about customers that have moved from proof of concept or pilots into deployments. Okay. And there will be public announcements? There should be. Typically, we start talking about end customer deployments once they're into the pilot stage. Okay. We don't always name our end customers, and typically, we don't name our end customers, but we'll start talking about the progress and the timeline that those customers will have. Okay, awesome. One very last question, my side. What are you most worried about that keeps you up at night? We always focus internally on execution. How do we get all of the employees in the same boat rowing in the same direction? That will always be a focus of mine. I also focus on the timeline of these programs, how quickly they can roll out, and how to make sure that we manage expectations appropriately. Okay. Maybe just one last one again on my side, just on the competition side of things. It's yourselves and NXP, basically, essentially own the market. You guys, as you mentioned, 60% share. Them, kind of the remainder. What drives that design win for you guys versus NXP? Is it kind of you're focused on different markets? Is it a software thing? As you talked about, maybe it's some magic patent on the RF side of things. What really kind of gets you that design win versus the competitor? Yeah. I think it comes down to performance. Especially in categories as we move past apparel and the base use case deployment for apparel, where performance matters, but there's not enough of a differentiation for it to matter in that category. But when you start moving away from handheld readers into fixed or autonomous readers, where you no longer have a human in the loop, the accuracy threshold goes very high, and that's where our competitive advantage shines through. By being able to tune both ends of the radio link, we can increase the performance level to unlock those use cases. Okay. Does that play to the markets you're more excited about as we talked about food freshness? Yes, absolutely. Okay. In food and freshness and logistics especially, but also in apparel and then eventually general merchandise, where they move beyond the base use case. Handheld readers, we're going to compete, and earn our fair share on that. But when you move to self-checkout and loss prevention, when you no longer have a human in the loop, when you're dealing with customer cash, we think our accuracy and our performance is very compelling. Okay. Awesome. Well, thank you- Yeah. Thank you Cary Baker. Thank you very much for joining us today and Impinj CFO, and thanks everyone for joining. Thank you.