Impinj, Inc.

inch first quarter 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please email 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 and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the conference over to Ms. Ellen Hayes-Roth, Investor Relations. Ma'am, please go ahead.

Thank you, Operator. Good afternoon, and thank you all for joining us to discuss Impinges' first quarter 2021 results. On today's call, Chris DiIorio, Impinges' co-founder and CEO, will provide a brief overview of our market opportunity and performance. Kerry Baker, Impinges' CIPA, will follow with a detailed review of our first quarter 2021 financial results and second quarter 2021 outlooks. We will then open the call for questions. Jeff Dossett and Pinju Ciaro is also on the call and will join Chris and Carrie in the Q&A session. Management's prepared remarks, along with the trended financial data, are available on the investor relations section of the company's website. 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, 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 from 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. Free cash flow is a non-GAAP measure. Before turning to our results and outlook, please note that the company will participate in the Oppenheimer 6th Annual Emerging Growth Conference on May 11th and the 16th Annual Needham Virtual Technology and Media Conference on May 19th. and Baird's 2021 Global Consumer Technology and Services Conference on June 9th. We look forward to connecting with many of you at these events. I will now turn the call to Chris Di Iorio and Pinch's co-founder and CEO. Chris.

Thank you, Ellen, and thank you all for joining the call. Our first quarter results were strong with revenue and profitability exceeding our guidance. Already strong fourth quarter 2020 bookings became even stronger in first quarter 2021, setting another quarterly record. High demand, record bookings, and terrific progress on our retail loss prevention engines highlight underlying strength in the business. But even as those bookings grow, limited wafer supply constrains our ability to fully capitalize on the opportunity. We know that wafer headwinds will abate, but we remain uncertain when, So today we are carefully managing our partners' needs and those of the growing rain market against that limited wafer supply. Influent IC demand surged in the first quarter. Revenue and bookings exceeded our expectations and set quarterly records, driven in part by enterprises accelerating their digital transformation. At the same time, worldwide wafer demand also surged, restricting our wafer upside. Leveraging that strong demand and tight supply, we sold a significant amount of fully reserved endpoint IC inventory in the first quarter. Despite us shipping record endpoint IC volumes, our inlay partners are, for the most part, operating hand-to-mouth, having consumed their own inventory. Recall we anticipated today's wafer shortfalls back in mid-2020 and built 200-millimeter wafer inventory in the depths of the pandemic. In hindsight, we didn't build enough. We shipped that pre-built inventory in first quarter 2021 at a pace that significantly exceeds our quarterly 200 millimeter wafer supply. Also recall our newly introduced Impinj M700 ramped more slowly in 2020 than we hoped as our partners focused on existing volume runners, even as we invested in additional 300 millimeter wafer post-processing capacity. In hindsight, we didn't invest soon enough. First quarter 2021 M700 demand was many times larger than third quarter 2020, outstripping our current 300 millimeter post-processing capacity. With our capacity expansion scheduled to begin coming online in third quarter, for now, we are maturing the capacity we have. Looking into second and third quarters, endpoint IC demand far exceeds our wafer supply. And until our M700 post-processing capacity expansion is fully operational later this year, our 300 millimeter output remains constrained. We spoke last quarter about navigating the crossover between our declining 200 millimeter inventory and our ecosystem ramping the M700. But with today's constraints, our focus is simply total unit volumes. Short of a significant wafer increase from our foundry partner, We do not expect endpoint IP revenue to grow in the second quarter despite 2021 orders already exceeding total unit shift in 2020. We plan to moderate our inventory burndown at least for the next two quarters to stretch our IP supply through 2021. In so doing, we recognize our product shipments will not satisfy customer or market demand, and we will need to prioritize those shipments. First quarter systems revenue declined quarter over quarter. Delays at our packaging subcontractor restricted our reader IC supply, causing a revenue shortfall that exceeded increased revenue from improved reader sales. We expect those packaging delays to moderate in second quarter, but reader IC supply will remain below demand, and we expect to carry significant backlog in the third quarter. Like for endpoint ICs, our reader IT partners are operating hand-to-mouth. Reader revenue increased, bucking typical seasonal quarter-over-quarter declines, with green shoots and partner-led outdoor opportunities driving reader strength in supply chain and logistics. But here again, demand exceeded supply, with temporary component shortfalls limiting our reader production and causing some opportunities to shift into second quarter. Also, our partner channel reduced their aggregate inventory with certain reader products at very lean levels. We anticipate the component shortfalls to moderate and supply to normalize in second quarter. In retail, we shipped the first production units of our rain-based loss prevention engine, recognizing modest first quarter revenue. we expect to largely deliver the remaining units against the $6 million prepayment from the visionary European retailer in second quarter. For the second consecutive quarter, we also generated meaningful revenue from a self-checkout deployment by a leading global retailer based in Asia, with that retailer now looking at rain-based loss prevention. Today, I am even more convinced that self-checkout and loss prevention represent a terrific opportunity for our platform with the potential to grow our long-term endpoint IC opportunities via the 100% tagging required by touchless consumer self-checkout. On the organizational side, we're thrilled to welcome Steve Sange to our board of directors. Steve brings with him a wealth and depth of operational and business insights and is already providing valuable input to our business. I look forward to Steve's advice and help in the months and years ahead. We are also thrilled to announce that Brian Wong, a four-time private company CEO, will join Impinj in early May as our Chief Product Officer. Brian brings 35 years of technical and business expertise in emerging technology markets, as well as deep semiconductor know-how. Brian, welcome to the team, and happy birthday today. In closing, we delivered a record bookings quarter, strengthened our team, and see strong demand and growth opportunities ahead. We exceeded our profitability gains, delivered positive adjusted EBITDA, and positive free cash flow. We also face IC supply constraints that require empathy for and close alignment with our partners, as well as superb operational execution by us. With the utmost confidence in the Impinj team, I am energized by the opportunities ahead and our efforts to deliver against them. I will now turn the call over to Terry.