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spk01: Good day and welcome to MPinge fourth quarter and full year 2020 earnings conference call and webcast. 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 a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would like to turn the conference over to Ellen Davis, Investor Relations. Please go ahead.
spk00: Thank you, Operator. Good afternoon, and thank you all for joining us to discuss Impinja's fourth quarter and year-end 2020 results. On today's call, Chris DiOrio, Impinja's co-founder and CEO, will provide a brief overview of our market opportunity and performance. Kerry Baker, Impinja's CFO, will follow with a detailed review of our fourth quarter and year-end 2020 financial results and first quarter 2021 outlook. We will then open the call for questions. Jeff Dossett, Impinja's CRO, 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 the company'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, the expected or potential responses of government authorities, customers, and partners, and the company to COVID-19, and the availability, production, and adoption of our products. 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 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 discuss, 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 Goldman Sachs Technology and Internet Conference 2021 on February 11th, the Morgan Stanley Technology Media and Telecom Conference on March 2nd, and the virtual 33rd Annual Roth Conference on March 16th. We look forward to connecting with many of you at these events. I will now turn the call to Chris DiOrio, Impinj's co-founder and CEO. Chris?
spk02: Thank you, Ellen. Thank you all for joining the call. Our fourth quarter results kept a strong close to a turbulent year. Significantly exceeded our fourth quarter revenue guidance, despite the ongoing impact of COVID-19 on our core markets, finishing the year with two quarters of sequential revenue growth. That momentum continued into the new year, and today we announced a company milestone, shipping our $50 billion endpoint IC. As I think back to Impinja's early days and our vision of connecting everything, Reaching a 50 billion unit milestone is an incredible achievement for which every Impinj employee can be proud. As is the growth pace, doubling from 25 billion units just three years ago. It is, I think, to the future and our opportunity to connect trillions of items per year. I know that we have only just scratched the surface of our amazing opportunity. That opportunity is far more incredible than any of our achievements to date, and it's there. in our grasp, just begging us to realize it. That future starts with the achievements of today. On this call, I will highlight our momentum in both endpoint ITs and systems, including record annual endpoint IT revenue, healthy supply chain and logistics opportunities, and a marquee retail design win. I will also highlight why I believe COVID-19 has amplified RAINN's value proposition will impinge well-positioned to capitalize on the opportunity. Fourth quarter endpoint IC revenue exceeded our expectations, with orders for shipment in the quarter proving significantly more robust than we had originally anticipated. We were especially pleased to see endpoint IC revenue return to year-over-year growth in the fourth quarter, despite retail apparel facing continued COVID-19 headwinds. Pandemic-related star closers crystallized retailers' and brand owners' needs for omnichannel fulfillment, and for an increasing number of retailers, RAINN is the foundation for an effective omnichannel solution. That dynamic became apparent not only in our revenue growth rate compared to the overall retail apparel market, but also in our conversations with partners and end users. Full-year endpoint AC revenue topped $100 million for the first time in our history, setting an annual record. Looking forward, we continue to see ample growth opportunities for endpoint ICs. Today, semiconductor foundries are experiencing widespread wafer shortfalls. We anticipated those shortfalls back in mid-2020 and built 200-millimeter wafer inventory in the depths of the pandemic. We also accelerated our strategic investment in our impinged M700 endpoint ICs that use 300-millimeter wafers. Regardless, we enter 2021 with limited 200 millimeter inventory on our balance sheet and tight 200 millimeter foundry capacity focused on accelerating adoption of 300 millimeter M700 ICs to maximize our unit output. In first half 2021, we are navigating the crossover between our declining 200 millimeter inventory and our ecosystem's efforts to ramp the M700 left needing to accelerate that transition. The N700 has the structural advantage of more than twice as many dye per wafer as our competitors. 2021 will press that advantage by accelerating our capital investment in 300-millimeter wafer post-processing technology and capacity with the goal of producing most of our ICs on 300-millimeter wafers by year end. Even with that capital investment, our cycle times while reduced, will still exceed a quarter, requiring us to build inventory to respond to dynamic demand changes. Fourth quarter systems revenue returned to quarter-over-quarter growth, with strength in readers and reader ICs capping a volatile year that saw our retail partners and end users navigating store closures and other COVID-related challenges. Continued improvement in sales out of our solution and reseller partners allowed our distributors to normalize their inventory positions, and we exited 2020 with lean channel inventory levels. In supply chain and logistics, our first large North American end user continues transitioning to an operational phase with success, a prerequisite for further deployments. That transition drove an expected quarter-over-quarter decline in gateway revenue. Our second large North American supply chain and logistics end user generated modest reader revenue in the fourth quarter, and we expect similarly modest reader revenue in first quarter 2021, but that opportunity remains large despite an uncertain deployment pace and timing. On the retail side, we achieved two milestones. The first was a significant self-checkout deployment by a global brand based in Asia, generating modest fourth quarter revenue which highlights the leverage that our partner network can drive with a compelling solution. The second, a win for us and a key partner and a marquee account, is for rain-based retail loss prevention, and we received a $6 million prepayment for our loss prevention engine for that opportunity. We will deliver against that prepayment in second quarter 2021. I believe this latter one represents a defining opportunity for our platform, potentially unlocking the loss prevention opportunity that, a decade ago, retailers identified as their most important use case after inventory visibility and one that broadly enables consumer self-checkout. Consumer self-checkout, in turn, drives 100% retail tagging.
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