Impinj, Inc.

Welcome to the impinged third quarter 2021 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 your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now send the conference over to Mr. Andy Cox, Vice President, Strategic Finance. Please go ahead.

Thank you, Grant. Good afternoon, and thank you all for joining us to discuss Impinges' third quarter 2021 results. On today's call, Chris Fiorio, Impinges' co-founder and CEO, will provide a brief overview of our market opportunity and performance. Kerry Baker, Impinges' CFO, will follow with a detailed review of our third quarter 2021 financial results and fourth quarter 2021 outlook. We will then open the call for questions. Jeff Dossett, Impinges CRO, will join us in the Q&A session. You can find management 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 and financial performance that are based on our outlook as of today. Any such statements are forward-looking under the Private Security 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 report 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 a reconciliation of 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 Roth 10th Annual Tech Conference on November 17th and the Raymond James 2021 Technology Investors Conference on December 7th. We look forward to connecting with many of you at those events. I will now turn the call over to Chris.

Thank you, Andy, and thank you all for joining the call. Our third quarter results were strong, with revenue and profitability exceeding our guidance. Demand was also strong, driven by enterprise needs for omnichannel fulfillment, supply chain visibility, environmental sustainability, and process digitization. At the same time, COVID-related manufacturing and shipping disruptions compounded our ongoing product shortfalls, accentuating our difficulty meeting that demand and constraining our third quarter revenue. Third quarter also brought wafer, component, assembly, packaging, and shipping cost increases that are now too large for us to absorb. We began passing those increases to our customers in fourth quarter. Despite those increases, we still enter the quarter with demand greatly exceeding our supply. All told, our fourth quarter outlook is strong, bullied by those costs, pass-throughs, and that demand, albeit with insufficient product supply that continues to disappoint our customers. Input IC revenue grew sequentially, driven by accelerating impinged M700 sales. Despite regional factory shutdowns due to COVID-19, we doubled our 300 millimeter post-processing capacity in a quarter and plan a further 50% increase in fourth quarter. By year end, we will be wafer supply limited rather than post-processing limited, able to quickly turn any 200 or 300 millimeter upside wafers we receive from our foundry partner. Regardless of the cause, Our wafer short flow means our inlay partners continue running hand-in-mouth, periodically lines down, and with critically low inventory. Like for last quarter, third quarter endpoint IC demand exceeded shipments by more than 50%. In September, our endpoint IC foundry partner gave us first half 2022 wafer supply commitments that should allow us to equal or exceed fourth quarter 2021 shipment levels through mid-2022. Like us, they recognize the mission-critical importance of rain to the global supply chain, and they have prioritized us for more wafers. Inopportunely, in October, our wafer costs increased. Even as we began passing those cost increases to our inlay partners, demand remained so strong that they would layer additional bookings onto our order backlog if we could procure more wafers. Third quarter systems revenue exceeded expectations, with strong reader and reader IC shipments partially offsetting the decline in loss prevention engine shipments. Reader revenue set a quarterly record, even as channel inventory declined further, with component shortfalls again constraining our reader production. Although we expect modest improvement in reader build quantities in the fourth quarter, we also expect some of those readers to come too late to ship in quarter. We had significant reader backlog entering fourth quarter, and we expect to have backlog again entering first quarter, with our supply normalizing in first quarter at the earliest. Third quarter reader IT revenue continued recovering from our first half 2021 supply shortfall. We expect supply to finally catch up to demand in first quarter 2022. Excitingly, we booked significant orders for our new reader ITs, as we grow the partner base building products with those ICs. With more than 75 design wins to date, we expect those reader ICs to be a key driver of RAIN adoption. Like for endpoint ICs, third quarter brought significant cost increases for our systems products. Also like for endpoint ICs, we began passing those increases to our systems partners. Demand remains strong even with those increases. On the project front, for the fourth consecutive quarter, the Asia-based global retailer drove meaningful reader revenue from their self-checkout deployment. The Europe-based global retailer began transitioning from deployment to the operational phase of their loss prevention rollout. And the second North American supply chain and logistics customer further advanced their deployments. Each project progressed nicely, and we continue to see strong opportunities ahead. I'd like to now say a few words about environmental sustainability, which I always expected to be a driver of rain adoption, which we are now seeing. Rain helps enterprises digitize and virtualize their operations, providing real-time data that can improve operational efficiencies and reduce waste. As one example, our partner, Linkso Systems, upgraded Norway Post's rain infrastructure using the Impinj platform. improving real-time package visibility, and helping Norway Post identify process improvements that will reduce fuel consumption, cut CO2 emissions, and meet their sustainability goals. Before I close, I'd like to say a few words of thanks to the Impinj team. With incredible effort and grace under pressure, they, over the past 18 months, launched and ramped new products across every Impinj product line migrated to a new ERP system and transitioned to a largely work-from-home environment, all during an unprecedented global pandemic with unparalleled supply chain disruptions. To call their effort Herculean doesn't do justice to what they have accomplished. So to each and every PIMMS team member, I'd like to give my heartfelt thank you. In closing, we exceeded our third quarter revenue and profitability guidance accelerated our M700 production, navigated unprecedented challenges, and see strong long-term demand from enterprise digital transformation. By year end, we will have sufficiently straightened and widened our endpoint IC post-processing types that we will be well-primed for upside wafers whenever they may come. Until then, we continue working side by side with our ecosystem partners to navigate today's supply chain challenges so both we and they emerged stronger on the other side of COVID-19. I will now turn the call over to Kerry.