Impinj, Inc.

Good day, and welcome to the impinged second quarter 2021 earnings conference call and webcast. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then 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 touchstone phone. 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 Mr. Andy Cobb. Vice President, Strategic Finance. Please go ahead.

Thank you, Matt. Good afternoon, and thank you all for joining us to discuss Impinj's second quarter 2021 results. On today's call, Chris DiOrio, 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 second quarter 2021 financial results and third quarter 2021 outlook. We will then open the call for questions. Jeff Dossett and Pinch's CRO will join us in the Q&A session. You can find management's prepared remarks plus trended financial data on the investor relations section of the company's website. We will make statements in this call about future expectations in financial performance that are based on our outlook as of today. Any such statements are forward looking under the Private Securities Litigation Reform Act of 1995. While we believe we have a reasonable basis for making these forward looking statements, our actual results could differ materially because any statements we make are subject to risks and uncertainties. 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 applicable law. On today's call, all financial metrics except for revenue, or where we explicitly state otherwise, are non-GAAP. Balance sheet and cash flow metrics are on a GAAP basis. Please refer to our earnings release for reconciliation of our non-GAAP financial metrics to the most comparable GAAP metrics. Before turning to our results and outlook, note that we will participate virtually in the 10th Annual Needham Industrial Technologies Conference on August 9th, the Oppenheimer 24th Annual Technology, Internet, and Communications Conference on August 10th, the Canaccord Genuity 41st Annual Growth Conference on August 12th, the Jeffery Semiconductor IT Hardware and Communications Infrastructure Summit on August 31st, the 2021 Colliers Investor Conference on September 9th, and the Piper Sandberg Global Technology Conference on September 14th. We look forward to connecting with many of you at these events. I will now turn the call over to Chris.

Thank you, Andy, and thank you all for joining the call. Our second quarter results were strong, with revenue and profitability exceeding our guidance. Already strong first quarter 2021 bookings became even stronger in second quarter 2021, setting a record for the third consecutive quarter. Growing rain adoption engendered strong demand for all our product lines. Those record bookings and strong demand, along with record adjusted EBITDA, highlight the underlying strength in our business. Counterbalancing that strength, today's tight wafer supply Our not yet completed 300 millimeter wafer post-processing expansion and short-term reader component shortfalls constrain our ability to fully capitalize on that demand. To best support our partners and end users, we plan to ship much of our remaining inventory in second half 2021, focusing on maximizing total unit volumes. Rolling endpoint IC demand drove record quarterly bookings. The factors we see driving that demand, the need to digitize and virtualize enterprise operations in retail, automotive, logistics, food, aviation, and so many other vertical markets is at or near the top. To help our inlay partners meet that demand, we shipped more of our 200-millimeter inventory than we had planned, and every 300-millimeter wafer we could post-process, pushing revenue above our expectations. Despite those shipments, our inlay partners are running hand-to-mouth, periodically lines down, and consuming what little inventory they still have. And despite our efforts, demand still exceeded shipments by a full 50%. Looking into third and fourth quarters, endpoint IC demand exceeds our 200 millimeter and 300 millimeter wafer supply. For 200 millimeter, we have now shipped essentially all the wafers we pre-built in 2020. For 300 millimeter, which is on the cusp of becoming our volume runner, third quarter deliveries will remain constrained by post-processing capacity. With us doubling net capacity in third quarter and tripling it by year end, fourth quarter 300 millimeter shipments will be limited by wafer supply just like 200 millimeter is today. Absent increased wafer availability from our foundry partner, which some industry veterans predict, but which neither we nor they yet see, we will exit 2021 with very low inventory levels across our ecosystem. We will also exit the year with significant post-processing capacity at both 200 millimeter and 300 millimeter, able to quickly turn any supply upside at either wafer diameter. Second quarter systems revenue exceeded expectations, setting a quarterly record. Our reader IC supply improved faster than anticipated, delivering part of that revenue outperformance. We expect reader IC revenue to continue improving in third quarter, despite lingering packaging challenges and consequent supply constraints. Reader revenue was also a bright spot, with us capitalizing on both strong demand and opportunities that shifted out of first quarter. Reader channel inventory declined again in second quarter, driven by component shortfalls that constrained our reader goals. Those component shortfalls are an ongoing challenge, with some suppliers decommitting near days before a scheduled delivery. Our team has deftly navigated the challenges, delivering upside where they can. we remain constrained on all systems products, reader ICs, readers, and gateways, albeit not as significantly as for endpoint ICs. And like for endpoint ICs, we are focused on maximizing total unit volumes. Looking forward, we expect strong third quarter demand combined with operations execution to grow run rate systems revenue. Like for endpoint ICs, Enterprise digital transformation was a key factor driving reader demand. We again generated meaningful revenue from the self-checkout deployment by a leading global retailer based in Asia for the third consecutive quarter. We delivered modest revenue from the second North American supply chain and logistics customer who continues deploying. And we delivered all remaining units of our rain-based loss prevention engine to the visionary European retailer recognizing essentially the entire $6 million prepayment. For the latter, I am energized by our early success at this terrific opportunity with expansion potential, not only at this retailer, but across the entire retail industry, and increasing endpoint IC opportunities from the 100% tagging required by consumer self-checkout. On the product side, we launched the new and pinch E710, E510, and E310 reader ICs in July, our first new reader ICs in 10 years, and all three with groundbreaking features and performance. The reception has been overwhelming. Our website already showed 17 partner handhelds, fixed readers, modules, wearables, and printers. Unlike our prior reader ICs, these new ICs use standard CMOS, dramatically reducing die size and power consumption. more than five years in the making, and with guidance from partners large and small, they come at a time when so many enterprises are turning to Impinj to identify, locate, and authenticate items they manufacture, transport, and sell. I believe these reader IDs will bring rain to new classes of smart edge devices, especially battery-powered, ushering in a world of ubiquitous reading. I see and feel our vision of a boundless IoT coming to life. On the organizational side, in July we hired an intact RF design team who we believe will greatly increase our IT design velocity. To our new team members, I wish you a warm welcome. In closing, we delivered another record bookings quarter, introduced groundbreaking new products, strengthened our team, and see strong long-term demand from enterprise digital transformation. We've ceded our profitability guidance and delivered record-adjusted EBITDA. But we also face difficult second-half supply constraints that require empathy for and close alignment with our partners, superb execution by us, and for our endpoint ICs, upside from our foundry partners. We have straightened and widened our 200-millimeter and 300-millimeter post-processing pipes and are primed for that upside whenever it comes. And whatever the challenges, I have the utmost confidence in the impinged team's ability to successfully tackle them. I will now turn the call over to Kerry.