Impinj, Inc.

Welcome to the impinged second quarter 2023 earnings conference call and webcast. All participants will be in listen-only mode. If 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 like to turn the conference over to Mr. Andy Cobb, Vice President, Strategic Finance. Please go ahead.

Thank you, MJ. Good afternoon, and thank you all for joining us to discuss Impinj's second quarter 2023 results. On today's call, Chris DiOrio, Impinj's co-founder and CEO, will provide a brief overview of our market opportunity and performance. Terry Baker, Impinj's CFO, We'll follow with a detailed review of our second quarter 2023 financial results and third quarter outlook. We will then open the call for questions. Jeff Dossett, Impinges CRO, will join us for the Q&A. You can find management's prepared remarks plus trended financial data on the company's investor relations website. We will make statements in this call about financial performance and future expectations 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 such statements are subject to risks and uncertainties. We describe these risks and uncertainties in the annual and quarterly reports we file with the FCC. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, except as required by 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 GAAP. 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 in the 12th Annual Needham Virtual Industrial Tech, Robotics, and Clean Tech one-on-one conference on August 4th, the Oppenheimer 26th Annual Technology, Internet, and Communications Conference on August 8th, the Canaccord Genuity 43rd Annual Growth Conference on August 10th in Boston, the Jeffries Semiconductor IT Hardware and Communications Technology Summit on August 29th and 30th in Chicago, the Goldman Sachs Communicopia and Technology Conference on September 6th in San Francisco, the Piper Sandler Growth Frontiers Conference on September 12th in Nashville, and Lake Street Street 7 Conference on September 14th in New York. 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. Second quarter revenue set a new record with record systems revenue more than offsetting weaker than anticipated endpoint IC revenue. The primary driver of the systems revenue strength was the loss prevention deployment at the visionary European retailer. The primary driver of the endpoint IC weakness was larger than anticipated retail apparel inventory destocking. We expect the impacts of that inventory destocking to persist at least through the third quarter. Focusing first on endpoint ICs, second quarter revenue declined sequentially, coming in slightly below our expectations. The magnitude of the retail inventory destocking became apparent late in the quarter, not just to us, but also to our inlay partners, some of whom had requested upside ICs as recently as April. That destocking more than offset sequential IC growth at our second large North American supply chain and logistics enterprise customer, and us seeding several hundred million impinged M775 ICs into multiple authentication applications. Looking to the third quarter, our endpoint IC share at our enterprise customers remains strong. At the same time, We and our inlay partners now anticipate softer than expected third quarter retail demand recovery. Those partners built IC safety stock, anticipating a stronger recovery. And as our wafer supply has grown, they are burning down roughly a month's worth of ICs, primarily in the third quarter, but with a tail into the fourth. Also, the curve of new program launches shifted to the right by the 2022 product shortfalls, created an adoption air pocket that the industry is still working through. Our enterprise wins are insufficient to overcome these headwinds and, as a result, our third quarter endpoint IC revenue will decline sequentially. Importantly, despite these headwinds, we do not know of a single end user who was pulled back from RAIN RFID. Said another way, our long-term opportunity remains strong And we expect growing adoption to drive demand after these corrections are behind us. We also expect greater than 25% 2023 endpoint IC unit volume growth. Turning to systems, second quarter reader and gateway revenue exceeded our expectations, driven by better than anticipated component availability. The additional supply allowed us to deliver more gateways into the visionary European retailer's self-checkout and loss prevention deployment than we had expected, as well as fulfill our prior period reader backlog. It also allows our team to shift their focus to new opportunities for our solutions offerings. Regardless, for the third quarter, we expect a sequential decline in reader and gateway revenue due to delivery timing to the visionary European retailer and our return to typical reader and gateway backlog entering the quarter, the latter after nearly two years of component supply constraints. Our second quarter reader IC revenue remained healthy with robust demand for printer encoders in North America, offsetting weak macro demand in China. Looking to third quarter, we see the printer encoder demand mostly fulfilled while China remains soft. Our Chinese reader partners built indie reader IC inventory ahead of our planned end of life and are today focused on selling indie based product inventory rather than ramping impinge e-family based designs. That indie focus will drive a sequential decline in third quarter reader IC revenue. Like for readers and gateways, our reader IC supply is normalized and we enter the third quarter with typical reader IC backlog. Turning to new products, last week we launched the Impinj M800 series Rain RFID endpoint ICs. The first ICs in the series, the Impinj M830 and M850, are the most advanced in the market, with performance and features designed to help enterprises read the right tag at the right place at the right time. In addition to 25% more dye per wafer than the Impinj M700, the M800 has 30% lower power consumption, allowing businesses to use a single, small tag across a broad range of items. With enhanced tag reliability, manufacturability, and drop-in compatibility with M700 antennas, we expect the M800 to drive additional rent adoption. It is also a key component of our long-term growth and margin targets. Turning to intellectual property, we are the innovation leader in our industry with more than 300 issued and allowed patents. I am pleased to say we successfully defended our leadership position by prevailing in two separate trials. In June, a federal jury in Washington found that impinged endpoint ICs do not infringe an NXP patent. In July, a federal jury in California found that NXP end-point ICs do infringe when PINJ patents won willfully. The California jury awarded in PINJ approximately $18.9 billion in damages and lost profits, and we have asked the court for injunctive relief. We now turn our attention to the upcoming Texas trials against NXP. In closing, from today's vantage point, we see several headwinds driving lower third quarter revenue. At the same time, our long-term opportunity remains strong and we see some green shoots in retail apparel. We as a company have been through industry cycles before and have come through those cycles stronger. With confidence in our growing opportunity and our leading position in it, I have no doubt we will do so again. Before I turn the call over to Kerry for our financial review and third quarter outlook, I'd like to again thank every member of the Impinj team for your constant effort driving our bold vision. I feel honored by my incredible good fortune to work with you. Kerry?