Impinj, Inc.

Good day and welcome to the NPING third quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. If you would like to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ellen Hayes-Roth, Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon, and thank you all for joining us to discuss Impinj's third quarter 2020 results. On today's call, Chris DiIorio, 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 third quarter 2020 financial results and fourth quarter 2020 outlook. We will then open the call for questions. Jeff Dossett, Impinj's Chief Revenue Officer, is also on the call and will join Chris and Kerry in the Q&A session. Management's prepared remarks, along with trended financial data, are available on the investor relations section of Impinj's website. Before we start, please note that we will make certain statements during this call that are not historical facts, including those regarding our plans, objectives, or expected performance, the expected or potential impact of COVID-19 on our business, operating results, financial condition, or prospects, and the expected or potential response of government authorities, customers, partners, and the company to COVID-19. To the extent we make such statements, they are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements represent our outlook only as of the date of this conference call. While we believe any forward-looking statements we make, including concerning COVID-19, are reasonable, our actual results could differ materially because any statements based on current expectations are subject to risks and uncertainties. Please see the risk factors in the annual and quarterly reports we file with the SEC and risk factors in the Form 10-Q we filed today for more information about these risks. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. During today's call, all financial numbers we discussed, except for revenue or where we explicitly state otherwise, are non-GAAP financial measures. Balance sheet and cash flow metrics are on a GAAP basis, except for net cash used in operating activities. Free cash flow is a non-GAAP measure. Before turning to our results and outlook, I'd like to note that the company will participate in the Ross Technology Virtual Conference on November 12th and the 23rd Annual Needham Growth Conference on January 13th. We look forward to connecting with many of you at these upcoming events. I will now turn the call to Chris DiOrio, Insignia's co-founder and chief executive officer. Chris?

Thank you, Ellen. Thank you all for joining our call. I hope you and your loved ones are and remain safe and well. Third quarter revenue improved sequentially driven primarily by rebounding retail apparel volumes that drove endpoint IC sales. Many of our market segments remain impacted by COVID-19, so total revenue remained below third quarter 2019. Regardless, we remain excited about our opportunities in both endpoint ICs and systems as we look forward into 2021. Endpoint IC revenue increased sequentially in the third quarter, aided in part by customer requests to reschedule second quarter 2020 backlog to second half. Year-to-date endpoint IT revenue was up 2.6%, marked by first quarter strains from market demand and customer expedite requests, second quarter weakness due to shutdowns, and third quarter demand recovery tempered by inventory reduction at our inlay partners, the latter essentially normalized by quarter end. Looking to the fourth quarter, we anticipate sequential revenue growth despite typical seasonal declines. We shipped more than 100 million impinged M700 endpoint ICs in the third quarter and now, with multiple inlay partners receiving approvals from Auburn University's testing lab, we see our opportunities expanding. We anticipate more certifications in the fourth quarter and accelerating M700 adoption and volume growth. Third quarter systems revenue declined sequentially, with COVID-19 impacting demand in retail, automotive, and consumer-facing use cases such as travel and sports. Compounding that reduced demand, our reader and reader IC distributors continued reducing their inventory to match the new demand, fulfilling orders where they could from inventory on hand. We anticipate further fulfillment from distributor inventory in the fourth quarter obscuring continued improvements in sales out to our solution and reseller partners. Supply chain and logistics remained a bright spot in the quarter, with revenue increasing sequentially, primarily from our shipping additional gateways to the North American supply chain and logistics end user we discussed on prior calls. We do not expect shipments to that end user in the fourth quarter. We also generated modest third quarter revenue from shipments of our impinged R700 readers into our second large North American supply chain and logistics end user, and we anticipate modest revenue from that end user again in the fourth quarter. That opportunity, as we said last quarter, is large, but the deployment timing and pace remain uncertain. Looking to the fourth quarter, systems revenue will remain constrained as we balance puts from improving demand and the second North American supply chain and logistics end user beginning its ramp against takes from ongoing channel inventory reductions and the first large North American supply chain and logistics end user continuing its transition to an operational phase. With our recent announcement of R700 general availability and the new opportunities the R700's enterprise class capabilities open in the supply chain, we remain excited about our system's prospects ahead. COVID-19 has fundamentally altered end-user business operations, suppressing demand for fixed readers in the near term, but we believe engendering a demand of rebound when those businesses have clarity to COVID-19's end. In some verticals, we already see green shoots of recovery. Looking first at retail, with foot traffic down, retailers in the near term are focused on the imperative for omnichannel fulfillment using mostly labor-intensive but quick-to-deploy handheld readers. Consequently, we see growing fourth-quarter demand for endpoint ICs and, to a lesser extent, for reader ICs, the latter because retailers have fewer fulfillment centers than they do stores. Our pipeline of retail fixed reading opportunities remains strong, especially in loss prevention and self-checkout, but omnichannel investments remain paramount. We also now see retailers driving two distinct go-forward paths to rain-based loss prevention and self-checkout. One is entirely rain-based and uses rain-enabled exit gates, rain tags, and rain self-checkout terminals. The other combines rain and traditional RF EAS. Its combination allows retailers to use their legacy EAS exit gates with merged RAIN and RF EAS tags and RAIN self-checkout terminals. The former requires more readers and gateways, whereas the latter promises quicker deployments. Both afford significant opportunities for us. In supply chain and logistics, we also see traction in two go-forward paths. One path focuses on identifying tagged pallets transitioning through dock doors. The other focuses on identifying tagged cartons on conveyor belts. The former drives gateway sales and pallet tags. The latter drives reader sales and carton tags. Both are in our platform sweet spot, and both leverage our experience from our North American end user deployments. Like for retail, here again we have a strong pipeline The deployments have been slowed by COVID-19 impacting our partners' installation teams and users pacing reader installations when they are operating at peak volumes or both. Regardless, with our first large deployment transitioning to its operational phase and a second large deployment just starting, we are only scratching the surface of the total supply chain and logistics opportunity. In closing, revenue rebounded in the third quarter with underlying strength in our core markets, but the effects of COVID-19 remain. Regardless, we remain focused on exiting the other side of COVID-19, a stronger company in a stronger market position than when we entered it. We also remain focused on the big picture, on the strong underlying secular trends evidenced by our business strength prior to COVID-19 and on our opportunity to use rain to deliver the digital transformation our end users want and need. With a strong balance sheet, game-changing new products, and a platform and vision that sits squarely in the center of that digital transformation, the opportunity in front of us is more compelling than ever. We will continue focusing on leading apparel retailers and on leading supply chain and logistics companies, driving operational improvements for them and business opportunities for us. We will do so even as we keep a close eye on expenses, charting a path to adjusted EBITDA breakeven on the other side of COVID-19. Be safe and be well. I will now turn the call over to Kerry for our detailed financial review and fourth quarter outlook.