Impinj, Inc.

Q4 2021 Earnings Conference Call

2/9/2022

spk_0: good day and welcome to the impinge fourth quarter and four year two thousand and twenty one earning conference call and webcast all participants will be in a and only moon should you needed that been please ignore conference specialist by pressing the starkey followed by zero after today's presentation there will be an opportunity to ask questions to ask a question you may press door than one one or your touch tone phone and to withdraw your question please post or that you please note that event is being recorded i would now like the turn the converts over to mr and be called by president and strategic finance please go ahead sir
spk_1: baggage job good afternoon and beg you all for joining us to discuss hindu fourth quarter and full year twenty twenty one reason onto they call christie oreo invented cofounder and ceo will provide a brief overview of a market opportunity and performance kerry bigger contingency apple will follow with a detailed review of our fourth quarter and full year twenty twenty one financial results and first quarter twenty twenty two ago we will then open the call for question jumped off it infringes the zero will join us in the and eight thousand you can find management prepared remarks plucked from the financial data on the investor naturalism fetch some of the company's website we will make statements paul about the future expectation and financial performance that on be on our a lot of a sudden any such statements are forward looking under the private securities litigation reform on of nineteen ninety fun while we believe we have a reasonable basis for making the forward looking statements our actual would love to differ materially look at any statements we make today or the subject for risks and uncertainties we describe the risk and uncertainty mean annual and quarterly reports we file would be a pc we do not undertake and it's luckily this claim and the obligation to update or alter or forward looking statements except as required by a clickable on onto they call all financial network except for lebanon where were we to explicitly say otherwise or non job
spk_2: balance sheet and castle metro or out of that basis
spk_1: please refer to our earnings really for reconciliation of are non gaap financial matters to the most comparable job metres before turning to our love and i'll look know that we will participate in the morgan stanley technology and media and oh tom coughlin on march nine and the thirty fourth annual rock on going on march fifteen we look forward to connecting with many of you at the with events and and they're now farm at all over the chris thank you andy and thank you offer joined up joining the call image caption twenty one which record for quarter and full year revenue and bookings despite the disrupted impact of covered nineteen and wait for resupply shortfalls an hour's flight you we ended the year with three consecutive quarters of double digit revenue growth as well as record bookings and three out of four quarters community which record backlog entering twenty twenty two our results were driven by strong and huge execution and enterprise is accelerating their investments and supply chain visibility only kind of of moment and operational efficiencies we delivered our sixty billion and point i see another milestone on our journey to connect every item in our everyday world if not for the way for supply shortfalls we would have delivered even more despite that constraint been orchestrated a strong quarter and a strong year and that strength continues into twenty twenty two
spk_3: fourth quarter and point i'd be revenue exceeded our expectations which record bookings despite as instituting asked pastors starting in october retail demand remain strong with retailers large and small turning to rain or a by the to approve both in store and supply chain inventory disability and to accelerate only channel fulfillment
spk_1: the other son rolling adoption from mainstream supply chain and logistics providers with the key adoption drivers being productivity gains shipment wrapping accuracy and capacity expansion
spk_3: year and point i'd be revenues and an annual record the bureau greater percentage growth at it's highest pace since twenty six team
spk_1: looking forward we see bellwether enterprises broadening their use cases and driving our and point ip demand by for the second or third quarters fourth quarter and point i demand exceeded shipments by more than fifty percent
spk_3: and with our and like partners periodically lines down and both there and our inventory levels measured and beer days we continue to believe they would increase their bookings if we had more supply
spk_1: fortunately as of today we don't our first half twenty twenty two wait supply remains relatively unchanged look two hundred and three hundred movie to wait for like amendments that should allow us to equal or exceed fourth quarter twenty twenty one shipment levels to mid twenty twenty two
spk_3: but those different levels fall far short of a rapidly growing demand
spk_1: and although our foundry partner continues to prioritize that's for upside waiters with both we and they hope of for relief and the process note we use to date that really has not come at least not sized our me regardless we continue expanding our three hundred millimeter post processing capacity to stay ahead of our opportunity even after successfully quinn toppling that capacity and twenty twenty one we will be ready when the waitress finally do come fourth quarter systems ready also exceeded our expectations
spk_3: read or i ip revenue was a bright spot
spk_1: continue in your to recovery from the first half twenty twenty one supply short while we still expect supply of our prior generation in redirect these to catch up to demand first quarter twenty twenty two and supply of our new eat them to read or i seized catch up to growing demand and second half twenty twenty two
spk_3: we have high expectations for the latter now with more than one hundred design wins
spk_1: fourth quarter reader and gateway supply was better than we expected contributing to our strong systems performance that said we continue navigating difficult component shortfalls betting reschedule variability and costs while we wait for key components to complete our product bills we currently do not see supply normalizing or necessarily even improving in the first or second quarters like her fourth quarter we entered first quarter with significant reader backlog that we must fulfill and a constraints supply environment even if demand remained strong
spk_3: on a project from followed orders for our rain loss prevention product for the visionary european retailer contributed makes me to fourth quarter revenue
spk_1: the customers happy with the product performance and what it means for their story the future and we hope will deploy more broadly it's second large north americans fighting the logistics customer continue to flying contributing modest fourth quarter revenue and a broadening a partner that revenue and both retail and supply chain the logistics our to target market with a bright spot and our fourth quarter you're very pleased to see growing beverage from his partner that deals
spk_3: beyond our strong results twenty twenty one was a fantastic your for rain
spk_1: and perhaps most excited by america or suburban launching it's are id tagging service
spk_3: to my knowledge there launched markets first time a major corporation is sharing information about their rain tagged items with people you and me unconstrained i think back to the many years had championed a vision of digital twins for physical items would it means for the internet of things howard rain a disability and every person's hand available information about every connected item a massive influx an opportunity and i can see it materializing i am absolutely thrilled
spk_1: twenty twenty one was marked by other big stories as well for example the ceo of the world's largest package delivery company announced a plan to at rank hags to all their packages to drive efficiency and eliminate mean billion manual and that day and accenture report stated that maybe three percent of north american rituals or piloting are deploying writing
spk_0: and we know that feel of those retailers are fully deployed signaling huge opportunities ahead
spk_1: despite covered nineteen and the operational challenges and the stress we all feel
spk_0: i do believe sunday we'll look back and say twenty twenty one was a big year for appendage and put it rained market overall
spk_3: and the organizational site we make two major announcements last week first i would like to congratulate you said mcelroy on his promotion from executive vice president of engineering
spk_1: the chief operating officer engineering and operations now reporting to him the past three years same championed the development of the pins platform delivering groundbreaking and protect the it's reader i seized readers and gateways most recently he spearheaded growing our operations capacity across our product ones and graduations the same and i'd like that that current director steve sandy was agreed to serve as impinges next or chair
spk_0: good at our upcoming general meeting
spk_1: steve's experience as microchips long term ceo and current executive chair brings an extraordinary level of knowledge and insight to and hinge
spk_3: also i like to welcome your around the just joined our board
spk_1: euro was previously the appellate monolithic power systems and she brings significant executive and born level experience to unhinge steve
spk_0: thank you and mira welcome
spk_3: finally long time board members peter van up and a teresa weiss have decided not to stand for reelection this year
spk_1: we will continue benefiting from their guidance for the remainder of their terms i want to express my heartfelt appreciation to both peter answer reason for their support and guidance to be personally as well as for their many contributions to impinge over the years
spk_3: i will miss them on our board and i wish them both the very best
spk_0: before close i'd like to thank every member of the a pinch team for their incredible ever everyday of twenty twenty one
spk_1: your spirit and dedication and the fate of called the ninety the unparalleled supply chain disruptions and inadequate products supply amazes me
spk_3: our record results are a testament to your grace under pressure
spk_0: so to each and every pinch team member i'd like to get my heartfelt thank you
spk_1: in closing twenty twenty one with a solid you're driving our bold vision
spk_3: we delivered record bookings revenue and adjusted ebitda we're launching he new products investing in our team building are three hundred millimeter post processing capacity and accelerating our and seven hundred series ram
spk_1: as we continue working side by side with our ecosystem partners to navigate both growing demand an ongoing supply chain disruption the main confidence in our market position and energized by the opportunity to him i will now trying to call over to carry or our detailed financial review and first quarter outlook gary chris good afternoon everyone i want to start by taking a moment to reflect on twenty twenty one on the surface but with a fantastic your photos be delivered record revenue adjusted to the dark and bookings with revenue of profitability significantly they're our expectations you saw strong bookings momentum throughout the year have to buy a record for or below the surface however our team radicals with probably ninety supply chain challenges and wait for sort of frustrating our ability to own capitalized on record i can only imagine how much stronger twenty one one would have been with more supply today more than ever are energized by about of opportunities and with the strength of team i'm optimistic well capitalize on our record backlog when the for life history fourth quarter revenue was thirty two point six million of sixty percent of the consulate compared with forty five point two nine a third quarter twenty twenty one and up forty four percent year over year or birds with one for me the fourth quarter twenty one fourth quarter and quality revenue was thirty eight point four million of twenty percent the consulate he compared with thirty two billion a third quarter twenty twenty one adults thirty five percent year over year twenty point five million was worth twenty one quarter over quarter and point i love and grow significantly lp typical little decline our specialty an industrial park mixed poodle richer than original of his time in revenue upon our expectations looking forward we expect first quarter twenty twenty two and when i love new to the climb flooded with the consciously driven by a smaller percentage special the industrial i've been fourth quarter systems revenue was fourteen point two million up some percent of the consulate compared with thirteen point two million a third quarter twenty twenty one and up southern life percent year over year from seven point nine nine and fourth quarter twenty twenty systems revenue exceeded all expectations due to our contract manufacturer delivery readers earlier than we expected on a quarter over quarter basis reader as a gateway revenue increased while real relative decline or europa your a reader reader and can way revenue all recruits we expect first quarter twenty one too distant relative to follow little him the funny like the queensland twenty twenty one revenue was one hundred money on for you know a thirty seven percent year over year compared with one hundred thirty eight point nine million and twenty two thousand and one like be rather than thirty six percent of the over your children by strengthen our fulfillment new deployment experiences of existing deployments and called the nineteen with
spk_4: covered
spk_1: systems revenue thirty nine percent year over year driven by loss prevention and brought them as publishers and gamers fourth quarter gross margin was defeated point two percent compared with thirty three point three percent the third quarter twenty twenty one and fifty point four percent in fourth quarter twenty one the corner of a quarter increase was driven by underlying part margins partially offset by a smaller contribution from they also own reserve inventory the european increase was driven by under one point margin and product next beyond the margin rich industrial and special because the and seven hundred series became more on rather providing a gross margin tailwind in the fourth quarter the fourth quarter twenty twenty one benefit from some food result inventory was one hundred thirty points
spk_5: oh you're twenty one one gross margin for and or record and fifty four point two percent compared with forty nine percent in two thousand and twenty one the increase due primarily to lower your nose charges sales of only was built in the toy and higher underlying product launches but twenty twenty one benefit from some southern borders or inventory was one
spk_1: hundred fifty basis points oh what corner operating expense was twenty five point three million thirty one twenty four point four million and burn quarter on twenty one and twenty one point five million in fourth quarter twenty twenty research and development expense was twelve point three million sales and marketing and expense of six point eight million general and administrative expenses were six point two million twenty one one operating expense total ninety four point one million compared with seventy nine point lead and twenty twenty fourth quarter of judgment the dog was a profit of five point three million compared with a lot of four hundred thousand and third quarter twenty twenty one and a lot of good point one billion the fourth quarter twenty twenty twenty twenty one are just the be put up with a profit of nine point one million compared to a lot of other point five million it's one it's one one corner doubt not lot was twenty fourth quarter non gaap net profit was four point three million to think that's for sure isn't a weighted average to share counter point six point eight thousand shares twenty twenty one yeah that was was fifty one point three like twenty twenty one non gaap net profit was just one for me you are twenty five pounds per show even a weighted average that would ensure our forty five point nine million shares are you have a balance you get of the fourth quarter with cash out to put one and is that investment got two hundred seven point six million compared with one hundred percent point three million and first quarter twenty twenty one and one hundred six point one the in fourth quarter twenty one in fourth quarter twenty twenty one we issue one point one two five percent converted those two november twenty points dublin generate two hundred eighty seven point five billion in gross proceeds and ninety four point two million in that person after being and retire and almost ninety percent of our two percent convertible notes do december twenty countries inventory told one to go million of one point five million the prior quarter with increase primarily for systems
spk_5: fourth quarter that cash news that already like to the news was three point nine property of couldn't purchase twenty two point one that free cash flow because there has been one for the boy you're not cast provided by offered an activity was six point five made property the other coaches total sixty one two motion for each aswell was that
spk_1: of nine point eight money before trying to first quarter guys i want to highlight items you need to fourth quarter they give it up there are a few of us producer delicious first in march and which he makes of industrial and specialty and pornography combined with the benefit from selling for resolving praetorian and and seven hundred volume new not going to have a record was cornered most part we expect a slightly left little mix of industrial and specialty and point i things and first quarter charlie marching down to constantly in second quarter twenty one incident with spoke benefits to normalize patrick back and for inviting me to conserve cash we can begin or instead of compensation to one hundred percent stop since then spread the knockouts and and twenty thousand one delivered records adjusting the dog in two thousand and twenty two wouldn't have an artist but of compensation back to convince the chasm song we have reflected the increase in auburn extent that our first quarter twenty twenty two guys
spk_4: third we delivered business model leverage in an environment where read that would the plight spray selling a justin bieber not records and fourth quarter and for or twenty twenty one
spk_1: even as we continue attacking the not business and twenty twenty two we were very focused on delivering adjusted even numbered even better finally we expect first and second quarter revenue to be supply constraints with those constraints like richardson will grab one it's wanting to from today's vantage point the as far outstrips or supply
spk_4: or into our our we expect first quarter revenue to be between fifty and fifty two million a potent prosper yielding your increase at the point of the rates compared with forty five point two million in fourth quarter twenty twenty one
spk_1: the back and a job to the a our profit between one hundred thousand and one point six million on the bottom line respect non gaap net income for from the lot of one point one million and an author of four hundred thousand reflect non gaap earnings per share of putting a lot of part of a profit of one point on a weighted average to lose your job between twenty four point nine million and twenty seven point two natures
spk_0: in involving i want to thank our his team or customers or saltwater are you are investors for your ongoing support i'm allowed from the to be operated the open the question and answer session shot thank you he will now begin the question and answer session do you ask a question you may press or than one are you touch tone phone if you're using a speaker phone please pick up your headset before pressing the keith if at any time your question has been addressed and you will like to withdraw your question please press starting to as a courtesy to others we ask that you please limit yourself to one question and one follow up if you have a day original questions please reach you and we will get we would take as many questions a time allows at the time will pause momentarily to assemble roster
spk_6: and the next quarter in the first question excuse me will come from tokyo have party with goldman sachs please go ahead hi guys congratulations on a very strong year and and thank you for taking taking the question i guess to start off i had two questions i'm chris i was hoping you could elaborate a little bit more on you know higher thinking about supply and twenty two me nobody split on your comments it's pretty clear you're going to be supply dated for at least the first half and and potentially second half as well but as we think about you know how to model twenty two on on a sequential basis i'm a both for the and point i see business and because was the systems business has we think about the cadence
spk_3: which usually sort of gain additional supply throughout the year
spk_1: okay thank you get to an next minute thanks for your comments so on and and can preference for comics best by saying that are demand entering a twenty twenty two is it is very strong arm we have as i said it had prepared remarks on visibility to our wait for supply of that allows us to maintain
spk_3: constant or by be increasing and quantity binds the first second course as year we are working closely with our foundry partner to get upside wafers on the process knows we are in are very to eat out there for example shared by automotive and others and dumb to date that supply has been short and coming at least relative to the outside magnitude of our demand
spk_1: and i want to make that point the argument is is is large our opportunity is growing rapidly on and with that record backlog hundred and twenty twenty two the and down the strength of the men were steam we and family partner working closely together to deliver into that opportunity but today we don't have the supply that allows us to me that
spk_3: opportunity for the year so we could be working with them they are prioritized that's for upside you will work hand in hand with them to try deliberate or opportunity and can capture everything that we see in front of us
spk_6: i did i answer your question adequately to feel
spk_1: yes and the on the system side chris were there any other i yelena dynamics at play yeah and the system side and as i mentioned in a prepared remarks some on for example for our readers specifically and we we do have supply store thousand some critical components we are where you kidding ahead in order to basically we have our kids belt of those those components come in on and we do see supply constraints and first and second course we are optimistic that this consensual mediate and that in the year and latter part of the year but it's still too early to tell the our in the reader i expect to catch up to our supply to get up to demand and first quarter this quarter or eat family the new readers use for which we have more than one hundred and nine wins we expect to fly to catch up to growing demand in the second half of the year
spk_3: overall even a out on a systems i just i can't honestly say strong demand really strong demand growing opportunity that the market driven by enterprises kind of reinventing results on a channel for broadening their use cases on and supply chain and logistics are increasing their after operational efficiency to driving past improvement although some of those enterprise
spk_1: just driving rapid demand growth
spk_6: and on causing us to have to stranger to meet the needs of the market and we're doing our arrest from an operational plan of operational perspective and with our foundered partner and with are other suppliers on the market to to at to meet that demand
spk_7: got it and then i guessed chris based on those comments would it be further assume sort of below fifty million dollar revenue number for obviously for to one given your guidance but also for que to and that a potential step change to the upside and que three to four at a high level is that kind of the right way to think about
spk_1: that the year yeah i just do this is kerry others because they don't think that one from chris so get bogged down in this point of fifty one million in in first quarter as i look through into the second quarter the infinity the situation hasn't changed much as we continue to be modest upset
spk_8: labor's ah but we're still in the pocket of of shipping kind of fortune bubble units through one you and institute you are our mid twenty twenty two there will be a little bit of an impact from you reduce the mix on industrial and specialty projects so that role hi revenue how gross margin
spk_1: engine for that next will tell off a little bit in she won and dental normalized in june two from the from the system live in a priest really highlighted word will navigating the never changing list of comports a short shortfalls in and we do our best to solve those and then the next quarter out of with another list of are challenging projects so that i think that kind of that was up for fairly consistent for consistent performance on the systems obviously however
spk_3: you know any time we're talking about our systems rabbit in line you know the kind of implies a large projects and by afternoon it will keep you up to speed on on how that progressive and and to say i get some just and at that
spk_1: our the environment where and we are supplied not demand and it it demands are supply said so on to the extent we get upset supply and know we will deliver into that demand and supply remains constraints then will we typed so it's just
spk_3: it's it you know we only got one quarter at a time and it's especially difficult right now for us to talk to him beyond the turn the corner where and what we're guiding because we're strictly supply and supply constraints and is is very significant right now and we're doing our best cross the company and everywhere we can't to deliver women that's fly but it requires
spk_6: a lot of things require support from our partners or as an incredible excuse fire team and records visibility and were displayed markets in ago so on would keep talking about supply is five bruce wayne's it will will will deliver it got it and then sorry as my second question just on gross margins i guess this one's probably for you carry i mean a great job and and to for you talked about a slight decline and que en and and further normalization and in nixon and to too if you can kind of speak to hire thinking about he knows some of the the swing factors if you will be and seven hundred
spk_1: you no cost inflation yeah he talked about passing through some of the cost increases your customers starring in october but if you if you can walk through the person takes and and how we should think about normal gross margins for your business going forward that would be great thank you thanks to set up a great question and one one filled the whole lot of nuance so you do for resources were obviously very strong that the driver of that strength was a particularly strong makes ah of industrial and special been products this is the second time in my time year that we've seen a similar strong mix of industrial specialty was the last time was about eighteen months to go in to to of why and in that quarter to get twenty we delivered thirty one point four percent of gross margin and we had also benefited by about two hundred eighty two hundred twenty babies born from a full numbers are available or actually we had a negative impact of two hundred twenty basis points from an eternal by law so in that quarter to three or two to twenty we had a lot of fifty three point five percent normal goes and all of that lived above our then typical fifty percent average is really attributed to the strong mix of specialty industrial cities and i look at you for result of that makes was even a little bit stronger than it was eighteen months ago in into june twenty of if it's worth it's also worth noting that fortune benefited from the reversal of those you know ah right ask around twenty points where we sold for the that fully preserved inventory and benefited by one hundred and thirty basis points so normalize those two factors that out and you can start understand what the benefit of the and stuff congress is ever look into want you are wanting to i expect a a weakening mix of industrial specialties use but still stronger than normal will get a little bit of a live in one she's on that but nowhere near the cyclist with ya
spk_9: or you twenty one and then by the time we get an incentive to do to i expect us to be kind of on normalized run rate where are you know with are strong mix of them seven hundred supported
spk_0: thank you and he next election
spk_10: the next question will come from mike walk lee what canaccord genuity please go ahead
spk_3: right to expect my questions and congrats on the a strong traits what anyone execution despite the a challenging a year ago the begley first question chris it just ah on a high level with a tight labor market and then all the efficiencies he has so many industries
spk_11: could benefit from adopting rain
spk_3: what do you see as potential for some new industries that are interesting long term and a could potentially cross the chasm as you put it in terms of brought adoption like we seen that retail and now the logistics markets yeah thank you make to the question on and guess i'm gonna start i answer the question by saying you're seeing broad based adoption in derry any verticals which seeing it in course recounts like you you're injured logistics seating opportunities and automotive we're seeing opportunities to to see industrial manufacturing electronics or me just very broad based adoption and you know what the most harrisburg an announcement him in pharmaceuticals culture and we the company are significance be focused on retail because with bit early adopter in the summertime to air and supply chain a logistics with smothered very significant assignments it doesn't mean that would work nor and as other opportunities neither spaces but we are significantly counting our partners to deliver against i'm at the name of the pride labor market and we're we could see and further significant reduction and accidents recasts crossing the chasm not really gonna be able to hazard a guess right now is so much movement happening and so many so many verticals your some of our partners fucking bought a significant opportunities and food and you know and and food of course it's a huge opportunity
spk_1: and you hear other stuff for example talking about automotive benefit years he comes back there's no there's still radiation opportunity to i think that the the key point i want to make is that talk about at would rain really does it as companies to
spk_3: track every item they manufacture transport themselves gives them visibility to we're those items arts and of as a function of time
spk_10: to increase their efficiencies reduce their operational costs reduce mistakes track items better deliver more efficiently
spk_3: it it it really allows enterprises to transform how they run their businesses and fundamentally i don't see any other technology today or on the horizon that does back to our future is incredibly bright will focus on archon target verticals for now and as we make more progress will open up to a third but those are definitely out
spk_12: there
spk_3: that thanks and i think it's my fault question just how it the large project pipeline and of the industry shortage of rain i see it that causing a pause in terms of the timing of large product will lock you're worried about getting the and point eventually where's the pipeline still strong just get another use cases you just laid out this is just i'll take that one first of all in terms of the pipeline i think as reflected in our prepared remarks and and christmas earlier answers that they demanded by a strong are pipeline is strong and to build on what chris has commented on the diversification of that demand a geographically and across different industries that sectors ah yes
spk_1: is exciting ah and it includes a range of side projects of course but the component which is large project
spk_3: is growing and a it reflects the digital transformation projects that initiatives of the lead and industry leading ah enterprises and so the that pipeline a strong now to the second part of your question which relates to how's the supply environment
spk_2: interacting and customer projects
spk_8: yeah we work in close collaboration with our partners and and customers and ah in the planning on either the expansion of existing projects or the introduction of new projects
spk_1: with a view of trying to
spk_10: and sure we optimize the timing and pace of those expansions and new projects according to their supply disability
spk_13: so i think we and our partners are staying continued growth in demand
spk_0: and a need to thoughtfully plan supply meeting that growing demand
spk_14: next five cents at helpful thanks a take my question bunch of that going to que and you like there's one the next question will come from harsh kumar with piper sandler please go ahead
spk_1: yeah hey guys first of all congratulations the san and you know great job getting stephen meet are we know steve songs from microchip covering that company and both of these guys in a bloated both of them are amazing get says as board members but the first question can you want to go back to the to to she has question earlier and and try and for lack of a better word pin you down a little bit on what the margins can be normalized and to q so i think what you told us is one thirty bets is reserved inventory that was written off and maybe know i'm assuming you've got may be a bip some makes so is that fair for us the things that we take fifty eight percent and we should i take off to fifty bets and that would be a good number for us to think about for margins going forward and the benefits you're getting in and starting college to get three you and and on bikes good so ours is that the scared thanks to the question and appreciate the opportunity to all a lot because gross margin is incredibly nuanced and for army
spk_14: let's go into one that will still be new wants to in in june one so of of the fifty eight point two percent and we reporters were to for you're absolutely right one hundred basis points were related to settle for reserved our items that that won't repeat again in can choose to take that off on the peace where the google under his on the the mix benefit from the specialty an industrial scale when i was twenty bucks to do to it's want to the last time we had that strong banks we we weren't vertical the back into the strength of that makes been about three hundred and fifty basis points includes you are wanting this quarter i think that that is that
spk_3: is even strong for their specialty and a openings so that's how i would back out to what i think about is a normalized gross margin and and that normalized gross margin is or and seven hundred doubling from she was boring okay very helpful and and takes a lot of far question i'm sure that investors had and chris maybe i'll ask you a question on you know on the last called you touched upon the supply chain guys on this call you touched upon a little bit more your increasingly talking about this topic i know that
spk_1: you know from from talking to you guys are undoubtedly the implementation a detail and guys but the larger and can read the temperament a have to come to call a three and a half to four years where do you think we are and that cycle when you know you get one of these winds and and and you're able to talk about it so am i a and are correct me if i'm wrong but i think you get to questions one is just kind of that that supply an impact as fly in the second one is that our ability talk about specific deployments ah yes song on supply chains iraq thanks christian balance patch inside specifically yeah i'm so
spk_15: i think we have pointed out and least from the vantage point we have today twenty twenty two is going to be significant we supply chain dominated our demanded is varies from if we get more supply and we are working as they said before woodworking really close with our partners to tend to really i like or need the opportunity in the market and the criticality of our asses
spk_3: plot so as we get supply and i'm optimistic we we get more i can count on it until it comes as we get splice together to deliver into that demands and done and we will continue trying to get their a in over you and all of our investors we don't have this ability to fate i'm barely because and knows that we operate again for and on eighties are still significantly impacted by are stronger than have very strong demand coming from none of the bunch of articles and of course there's limited supply upturn environments we will be we will continue talking about supply will give you and our investors an update on the next column and down to peer pressure the situation as we see it which is no demands very strong in terms of supply chain lot because vertical
spk_0: some of them we believe what we feel that some of the recent announcements you you have seen you and others seen you know when when we cited i'm just and that prepared remarks about them was largest selection a logistics company highlighting putting on rain have some our packages and seven twenty million mannion scans today it's those kind of announcements
spk_3: that can really galvanized and industry and porn industry across the chasm
spk_0: and that can say we're there yet but the excitement that we feel some of these announcements some of these projects about much would have taken years to cannot build and grab a until a few very good about the spike and logistics vertical which is why we talked about of a while and while it keep investing in helping our and customers deploy and network on why we keep focusing very significantly on it
spk_16: i don't know like that i can answer your question any more detail than that we actually start talking about actual deployments totally understood christian you and graduations thank you are a first
spk_1: the next question will come from troy jensen with the lake three capital please go ahead hey i can got gentleman or maybe too quick question to victory you mentioned or costs pass throughs is wearing quantify that and and also with the any ten percent as losing keeper that so i'm from are caught after so we're in october of last lap october in the as a response to our cost or caught increasing we began the process the passing through those costs onto our customer we did it in a way to maintain the integrity of on march march and model so think of that this preserving everything goes and plays in a margin model fire to it so not only that the can
spk_16: the fifty percent corporate average gross margin do the had but also be ambitions and them seven hundred driving margin accretion to the business all of those tenets of that margin model were maintain in our in our to our costs about philosophy
spk_3: and then in terms of ten percent customers on an annual basis that will be included in our ten k which a file early next week look at understood nobody said could follow up or maybe one for chris here you know other and that a volatile and new products i could start earning capacity gets tight customers can double order to try to get more allocation of which currently getting so it is curious how can your confidence that those was massive booking said you get it had throughout the year really reflects into man versus customers we're just trying to you get more the and capacity to moment
spk_17: yeah thanks try so on you know that there's always a risk of with ordering in a two step distribution model that we've got that our team is pretty decent on it out of order to not cancel our of and it will contact directly with a lot of end users so our visibility into put our partners inventory levels or end users sector in between levels and there
spk_4: eat and the fact that i'm a drug partners are frequently lines down on gives us good confident that the demand we're seeing is true demand
spk_0: come and yet real
spk_18: right or diligently to go to it
spk_16: thanks right right
spk_18: the next question will come from derek daughter bird with collier's please go ahead
spk_1: hey guys out there to protect my questions i'm carried just gone back to gross margins again you know not gonna take some time to sort of fully realized the to no benefit of the and seven hundred am i guess you know why can we expect the am seven hundred to achieve this you know this sort of long term target gross model that you guys have said internally you know which hour are you guys in around achieving that in gross margin benefit for holy you know how i'm gonna take to it's a target ethics there it is a good question for sauce think of them seven hundred as a as a platform and the ship them were selling today is the first check in in arctic talk strategy and there's going to be more innovation that the team's working on to both increase productivity added feature soon or capabilities to it as well as dried cost out so as i'm looking at the and seven hundred today in que three we reached the crossover point think of that as during late in the corner which began shipping more and seven hundred product or three hundred millimeter products then we do not try generation and monza are specs and or six p on to and of the we're in team or and seven hundred became the volume runner egypt for the volume nearly doubled relative to to accuse three we're getting at a very strong mic into for of the seven hundred as a percentage of arsenals and us
spk_18: team that benefit in our strong gross margin yeah it's gross margin benefited from industrial specialties used a we have a sign that impact ah yes we have benefited from the sale and organiser reserved inventory but underlying both of those are continue to increase in our are smart run directly driven by the and seven hundred and i mean i have i look forward to next year i mean that the overarching comment is supplied can add to have an impact on our and seven hundred next and where we are ready and waiting for any way for we can get whether that be two hundred and three or three hundred millimeter products and we will or whatever when we get will turn into
spk_3: the product comes down to our customers
spk_1: got it got it that's helpful and then press your high level you guys talked about salary demands on the past you've talked about where that demand israel it's just fly was wondering if you can
spk_3: update on that and you know besides that and i'm wondering at once this way for supplied does come online you know given the dynamics of the and seven hundred and performance size and coming up a larger wait wait for ah you got you know the expect to game marketshare from your largest competitor i'm in
spk_19: that sort of your think in there
spk_3: yeah thanks dad i'm so as i said and prepared remarks and yet again and fourth quarter demand exceeds supply them more than fifty percent and down so that is rewriting against them but my son of a catastrophic in environment and and and you know as i just answered the question from troy and oh how how we feel about that i'm at how real is it is a double buccaneers around and we look into build our partners and are and customers the opportunities at are driving yen customer needs especially around on each half of moment i mentioned earlier ages energy we truly believe that them and israel that we're seeing an ad at just at the significant home for the
spk_18: products deliver and i'm i'm going to save it's actually last one is worth what we're delivering out more and more as platform some solutions built on entirety our platform or into actually to redirect redirected greeters gateways delivering a complete solution that with our partner classes to the novel product
spk_20: ah as we look forward
spk_0: you know at in terms of the share opportunity we have an opportunity to gain share else have an opportunity to catch leading on for to go the other way it really depends on who gets black version of our primary competitor we're doing everything we can to to try get that's supply first of i can predict which way it's gonna go but we were going to do everything in our
spk_14: our to get placement be as canada and or hundred partner to win this huge opportunity in a note that big these to the average the they know what is most of the doing with agenda support us but as i said before they are very technical strength
spk_1: got it like said
spk_4: a thank you dad
spk_1: the next question will come from gym or shooting with need up in company please go ahead i thank you i'm just couple of questions i joined a little late carry that was wondering if you can comment on the sequential declining je ne
spk_8: i'm in the quarter to snow snowy light of everything we're hearing about wage inflation and wondering how we think about that going forward and then i have a follow up
spk_18: i just a silly question that sequential decline of dna was to driven by a freshman or anything like that was really the non wage line was more time than anything else you know have a broader statement
spk_3: well as little as two attrition your performed really well given the natural factors that have worked lady and twenty twenty one
spk_18: so we haven't seen it yet we're obviously taken very seriously
spk_11: in inbound evaluating what what we can get you to do plan on voice but so far we've we've been able to navigate the challenge is pretty well
spk_3: okay in existence oh i should really a relates to i think comic chris you might have made about being prioritize for upside of a i think that was true last year as well and the your sadly partner came back i think in queue for with it with additional way supply chance i'm wondering you know what the to be u p s comments and other high profile reports like the ones we seeing relating to walmart and maybe you know rip your use cases get are accelerating that were not aware of it yeah help for the your cause simple answer gym yes i mean it's an answer when i speak to the fact that were pregnant are of partners frightening as for outside you share information with our foundered birthday dinner on diligence they see it as well
spk_21: and yet they look eternally in see how tight the artificial to demand like a metric from automotive and other industries in the process note we use the come back and told us that we are prioritized for outside and a can help us as they can they love they also explain to us the constraints that they're facing you know on some some of these bad enough i was the founders how many different notes that in some of
spk_22: the know some capacity such supposedly it started to free up for example some of the more advanced know some of the notes for example the ones were and remain tight just universe problem and other articles that have very significant needs
spk_0: it's my hope that with that fire decision that we're getting from our time retired and the that significant heard about the statements that that a large companies are making we will be able to get a supply but i frankly we're going to get it
spk_11: if either the market situation improves some other industry slow down a little that or the founders able to have been up for example increased or out that it's it's not very tough situation as well so i think you just have to take it at face value they prioritize as resupply the opportunity after and marcus real we will continue trying to get that supplied if we are able to
spk_10: that a lot
spk_12: and thank you jim
spk_23: the next question will come from mark look at this with jeffries please go ahead
spk_3: hi up patrik take my question of a i guess i'd want progress and want to carry chris i'm i just wouldn't make sure i understood that the statements of you can reconcile own and he said that you you had demand for the and seven hundred plan on products but you also with said bad no it appears there is a risk that if you're come competition comes up with supply earlier that that you could you could do that you know that demand could fall off so i guess i i i wanted to make sure i understood so on the you are you have the view that your customers are ordering specifically for her and when i see that or the and seven hundred because they have a particular functionality that been a that maybe your competitor doesn't have or is is this more nope can have a first come first serve like if somebody produced the capacity than the are there is certainly i'm a real less that the the backlog that you have that kind of disappears on and then i had a fall after the okay great the park in distress and our readers the question and it will be up to clarify their and
spk_10: but i speak to platform wins in those platform which ones were recovering at a the flat one in general we are optimized for me to the system to use our entire platform and as we get supply were actually were prioritizing delivering into those platform ones of not all of the when
spk_3: we have the market or platform and said she take about the retail space combat where she can outrun inventory counting on were just in a competitive dynamic with our with our armored editor out there on the market there is an ability to substitute teacher think of the market has been driven reasons we have two elements for us
spk_1: one is that when of some use cases that are that can use both our and our competitors and when and for which we compete directly and then head to head and other set of opportunities where we deliver our entire platform and the system either has he capabilities are performs better because we deliver our entire platform of
spk_8: course when we have this platform whims we are prioritizing delivering are and when i see into those opportunities so what will be fighting for share and we'll be looking for outside wafers is in the lead differentiated opportunity to that the market which gets to my point of our our competitor comes up was your first they'll take a greater portion of those undifferentiated opportunities
spk_1: gotta catch em it makes that that's very clear thank you and for for carry appreciate your comments on about shifting the incentive portion of the compensation expense two more of a mix of stock based comp and and ash i abide by heard correctly pink can you qualify that little bit on how should we think about the the op back through the year and like the mix so
spk_10: you how we think that stock based compensation expense to the air and than and then kind of the total aggregate line up of stock based camp and then and then regular ah up operating expenses thank you
spk_3: yeah so as to face with the question mark i think of you don't look at the the effect impact for making the shift to the log back to a mix of cash and and or and some compensation i think about impact as about seven hundred eight hundred k per quarter in in new op
spk_1: dax that wasn't there last quarter if you will on the the on us on the stock based compensation we have included that in on one team died
spk_10: it's a little bit hard to project for the full year and yes we will have he were shares related to a better compensation issue but it really depends on what the stock price does
spk_24: sure sure got it by the i get some so i guess the question with that we'd like you say all things being equal with the do you have a full quarter of this new as compensation of up and in compensation plan or or will we have arm of the i will they have a partial quarter that
spk_6: it's quarter and then a full quarter next quarter thanks but i really can't help it i'm sick next that was around get okay got i understand your questions so thick of it as seven hundred and eight hundred a pop warner so that seven hundred okay reflects the full impact and key one and in on assuming would have a similar full impact and you zero
spk_1: obviously there are performance attainment accelerators of a bonus of we start over performing or estimate for about a cool will increase but you really you we will be able to tell you when that happens bachelor thank you mark things mark the next question will come from scott cyril with rod capital please go ahead a good afternoon thanks for taking my questions they carried just quickly wanted to clarify on the gross margin comments in the current quarter there is no benefit from our inventory that was previously written off and then the comment about the three hundred basis points
spk_18: plus benefit included both specialty and and seven hundred is that correct
spk_25: so many kurds are both of those so the was one hundred and thirty based on benefit from selling fully reserved and and already are not expected to repeat and then the i highlighted you know using out of the last time we had a strong industrial specialty mix which was to queue of twenty
spk_1: zach impact was about three hundred fifty basis points to the quarter
spk_2: i the the impact to cure for was larger than that was was a stronger or even stronger industrial specialty mixed with you for the remaining up that benefit as you can think of the remaining a gross margin left over our normal fifty percent is what you can think about the cumulative impact was that the current impact of
spk_25: the am seven hundred we've been ramping up and seven hundred as a percentage of on next from five quarters now and really heavily in the last two quarters it became he caught reach the possible point and shoot threes and it became the volume runner in june fourth and ancient world
spk_18: nearly doubled on volume of them seven hundred gems okay to carry just a follow up on those the the gross margin outlook and for the rest of the year and he is it an expectation in terms of what the makes will look like exiting the sheer i note subject to lot of factors but a best guess at this point time and given the price increases i've gone through are they expected to be pie
spk_6: permanent to the year or do you have a give back at some point
spk_11: we saw let me laugh into the last one first we made the decision to pass through costs when we were we were speed cost increases on our part about that was the driving factor behind it advocates for me to speculate why we would do in the future if the is
spk_3: often environment change how that would impact on pricing of but i don't have a it i just don't see that happening right now i expect elevator costs dropped off at one a given a sharp wit as as christmas given the from regular supply and and believe that market and and you know it i personally will be surprised at the founders actually dropped a wrinkle pricing and a be happy some material change ah them are given up you know that would be disruptive them kind of it and much broader wife's income a christian it and then of target by the nazis got know i was i was going to have been to follow up on on just the outlook in terms of supply demand coming back into balance you know you're under shipping by about fifty percent now on the and point i see front
spk_1: and as it stands today chris do you have visibility through your way for supplier that she would ever be able to get to a number that would satisfy demand that you saw in the current quarter i know it's a moving target or did you expect man continue to increase throughout the year but as it stands today that incremental twenty million or so is that on the table to be
spk_3: able to service or have this ability to that at the current time you know third quarter fourth quarter the here are some time in twenty twenty three and still am
spk_1: an unfortunate scott i don't and became an answer that question becomes the detail that sure like know how much upsets are we going to get it on the table i constantly things in economic direct earth or of my puts a direct and indirect answered your question everyone is we shared the information about market opportunity with our founding partner
spk_3: they know what against and that the you know they have a other said constraints on and i working with us and and if the if supply comes free we've been prioritized to get some obsessed by doesn't come free you know we're not gonna get the upside is it didn't come free so it's it's really that simple of an environment they know the name and dumb and so am i am i
spk_6: i hope for the future but as i said i'm in a prepared remarks you know in terms of such supply as today we don't have touch on flounder trap
spk_18: can i just want to add one more dangerous ogre time with emphasized to hundred partner
spk_11: the fact that our products need to be is available as paper
spk_3: because our and customers are using our products to track the items they manufacture transport and sound so longer term we actually need to have good availability we can't be any supply environments because it has such a great impact on supply chain and logistics across the globe so there's another way of thinking about things going forward is that the demand we have in the market actually in order to get the and customers to apply we actually need to be able to deliver today and for a long term as we focusing on that kind of topic for next year many years without you know a can so critically important go have a cut you off oh no not out by christians following up on that point and i guess which makes question earlier you know has that he you know some some new verticals are starting to come into play more through some of your your partner's particular things when you mention and markets like food so is to the pandemic go change the price points for adoption here working in the past he talked about self checkout food you know the all in cost
spk_1: have a tag be in one to have sense now is that a higher number that drives the adoption earlier subject to available supply in the next couple years or is it still looking at those kind of price points whether it's three years out of five years out hasn't moved everything forward by couple years thanks
spk_3: yeah
spk_26: i am gonna answer from my god which is that a pandemic has amplified the value of and and supply chain disability and amplified the founding of on the channel fulfillment and amplified value and driving efficiencies
spk_0: and to increase has study in think you can begin supply chain and logistics and with those amplified values i find it difficult to believe that they hire price points still sold the times higher price points go up and can't quantify
spk_3: how much does points points and in have gone up at know and prosper different verticals but my gut says they at just because the value of rain are by the it's so much greater right now and it's i learned so much by the pandemic i mean if you just look at the central report wrathfully the number of retailers
spk_0: are adopting rain prepared never post pandemic is don't brush numbers ninety three percent now the north american retailers are opting for deploying rain on friday at a huge growth in just two
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