Good afternoon, and welcome to the Impinj First Quarter 2017 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, we will conduct a question-and-answer session. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Maria Riley with Investor Relations. Please go ahead.

Thank you, Operator. And thank you all for joining us to discuss Impinj's first quarter 2017 results. On today's call, Chris Diorio, Impinj's Cofounder and Chief Executive Officer will provide a brief overview of our performance in market. Evan Fein, Impinj's Chief Financial Officer will follow with a detailed review of our first quarter 2017 financial results and second quarter 2017 outlook. We will then open the call for questions. Impinj's President and COO, Eric Brodersen is also on the call and we'll join Chris and Evan in the Q&A session. Please note that management's prepared remarks along with quarterly financial data for the last eight quarters are available on the company's Web site. Also we will consider questions received via email prior to the call and will address some of these questions in the Q&A session on this call. Before we start, note that we will make certain statements during this call that are not historical facts, including those regarding our plans, objectives and expected performance. To the extent we make such statements, they are forward-looking within the meaning of the Private Securities Litigation Reform Act of 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 are reasonable, our actual results could differ materially because any statements based on current expectation are subject to risks and uncertainties. Please see the Risk Factors section in the annual and quarterly report we filed with the SEC for additional 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. Also during today's call, all statements of operations results with the exception of revenue or where we explicitly state otherwise are non-GAAP financial measures. Balance sheet metrics and cash flow metrics are on a GAAP basis. I will now turn the call to Chris Diorio, Impinj Cofounder and Chief Executive Officer. Chris?

Thank you, Maria, and thank you all for joining the call. I'm delighted to be here with you today. We delivered a strong first quarter, with revenue growing 47% year-over-year, to $31.7 million, just above the top end of our guidance. All layers of our platform delivered solid results. Importantly, the momentum we see in our business today is strong. I will begin this call by briefly reviewing Impinj's vision and mission. I will then discuss that strong momentum, starting with the themes that provide context for it. I will close by reviewing Impinj's platform strategy, which I firmly believe positions us to win this enormous market opportunity. Impinj's vision is digital life for everyday items. Our mission is to wirelessly connect those items to applications. We are literally extending the reach of the internet by a factor of a hundred everyday items, and delivering to the digital world each items' unique identity, location, and authenticity, which we call Item Intelligence. Our platform enables that connectivity, and delivers that Item Intelligence to a broad and diverse range of business and consumer applications. My view of the RAIN market today is strong growth with enormous potential. Starting with that strong growth, recall on our last earnings call we guided our 2017 endpoint IC volumes to be between 7.8 billion and 8 billion units, 32% growth over 2016 at the midpoint, roughly equivalent to one IC for every person on the planet. That prior guidance, which represents growth of nearly 2 billion units over 2016, remains unchanged. I will touch on the drivers of that growth next. Then I will turn to that enormous potential, which to me paints a picture of a very bright future. Starting with today's strong growth, retail apparel has been an important driver, both for us and…

Thanks, Chris. Before I review our first quarter 2017 financial results, I want to remind you that with the exception of revenue or unless explicitly stated otherwise that a statement of operations is on a non-GAAP basis of balance sheet and cash flow metrics are on a GAAP basis. A reconciliation between our non-GAAP and GAAP measures as well as how we define our non-GAAP measures is included in our earnings release available on our website. As Chris mentioned, we delivered a strong first quarter with revenue of $31.7 million representing 47% growth over the first quarter of 2016. That growth was driven primarily by the team's strong execution and the market continued adoption of our platform. Our gross margin for the first quarter was 54.2% compared with 52.6% in the first quarter of 2016. This 160 basis point year-over-year improvement reflects continued adoption of our newest Monza R6 endpoint IC family. Total operating expense in the quarter was $17.0 million or 53.4% of revenue compared with $16.3 million or 48.5% of revenue in the prior quarter. R&D expense was $6.6 million or 20.7% of revenue, sales and marketing expense was $6.6 million or 20.8% of revenue. G&A expense was $3.8 million or 11.9% of revenue, we ended the quarter with 261 employees and 42 open position compared with 245 employees at the end of last quarter. We delivered $246,000 and adjusted EBITDA in the quarter or 0.8% of revenue. As a reminder in 2017, we plan to maintain our EBITDA margin in low single digit percentages as we increase our investments to enhance our leadership position and capitalize on the enormous and diverse market opportunity that Chris just talked about. GAAP net loss for the quarter was $2.2 million, on a non-GAAP basis, we achieved first quarter net income…

Ladies and gentlemen, we will now begin the question-and-answer session. During this question-and-answer session, management will address questions received by email prior to this call as well as questions received live on this call. [Operator Instructions] The first question will come today from Brad Erickson with Pacific Crest Securities. Please go ahead.

Hi. First, thanks for taking my question, just first to start out on the guidance, obviously the growth rate in Q2 being a little bit below the endpoint of your guidance, can you help us dimensionalize [ph] that in the year within the context of your comments around faster connectivity growth in ICs this year?

Eric, can you take that one?

Sure, thanks, Brad. I think we just highlighted continued emphasize to Chris points about our momentum across multiple markets and solid growth across all layers of the platform, I breakdown guidance really two ways first when you think about our Q2 revenue guidance it's really right in line with our overall annualized guidance for the year. And second, I think regarding the comparison versus year ago, recall that we've discussed previously how the 2016 growth rate at the endpoint layer were accelerated by several stuff function changes in demand and Q2 last year was really the period that some of those events really began to impact our business. So in our guidance, we're seeing strong growth even up against that strong year ago comparison, we feel like we're right on track and driving for across all layers of the platform.

Got it and then there's obviously been a lot of reports of retail store closures here recently, you made some nice comments earlier on the balance sheet where you how you're thinking about inventory levels? How do you feel about inventory and specifically your visibility of inventory with your providers maybe just talk about where you stand today on that?

Evan, you take that one?

Yes hi Brad. So as you know we have an array of endpoint IC customers that we keep in regular contact with we have relationships at all levels of those customers meaning both executives and kind of in the line and managerial level and based on those checks, we feel very good about the inventory levels at those places.

Got it. And then, one last one if I could apologize for the background noise, we all saw Apple's patent filing a few days ago, curious to get your take on that, so I guess kind of two fronts one could that be - could that kind of deal be competitive or complimentary how you're viewing that and then just maybe if you could provide any update on any partnerships or progress you're working on with smartphone vendors of the view somebody having reader ICs in our phones. Thanks.

Okay, Brad. This is Chris, I'll take that one. So I will just start with the patents, we think the fact that large companies like Apple and even know that there are sort of others who have been happening as well. Those patent applications and especially where they're targeting him in terms of the application space are further indication of our market opportunity and really a validation of the direction we're heading to connect every item in your everyday world. We believe that patenting is a good sign for the business on the side of a healthy market. And then your second part of your question was just about our drive towards ubiquitous connectivity and enabling really reading to be part of the infrastructure part of our environment as, ubiquitous reading is one of our key focus areas and we continue our developments in that area in terms of our partnerships, in terms of the products we're developing to bring to market and you should expect us to be really pushing on ubiquitous connectivity going forward.

Got it and then maybe one last one if I could squeeze it in just related to the Japanese retailers you called out in the prepared remarks, can you talk about sort of what you go to market is there that vary if it's different at all from what you're doing here in North America and then relative to an average retail customer here in the U.S. How should we think about timing and the size of some of those new wins coming into the model? Thank you.

Specifically in regards to Japan we've had a Japan presence for a long period for a long period of time I know that I've been visiting Japan multiple times a year for probably the past 10 years and we do have a team, sales team located in Japan. We view those opportunities as specifically the Japan continues to our opportunities as being in line with you know other opportunities we see for connecting items in this, in this particular case connecting food items and you know we've mentioned food previously. If you look at the announcement from the Japanese government as well as some of the other parts of the announcement as well, timeline for that deployment to ramp to 100 billion items at least with a cite and those announcements is a fully rolled out by 20, 25 I can't speak to whether that's going to happen or not or you know the pace at which they go but the announcement specifically talks about RFID tagging of items, and you put a timeline for it and also cites a value proposition for it. And we view those kinds of announcements as a further validation of our vision.

Got it. That's great. I'll jump back in the queue. Thanks

The next question will come from Craig Hettenbach with Morgan Stanley. Please go ahead.

Yes, thanks. Just on the topic of the 32% end point growth and really the backdrop Chris of your comments very strong momentum across the business so, can you talk about maybe some puts and takes that could have the endpoint I see growth being on either side of that 32% as you go through the year.

So I'm going to start by saying we feel good about our guidance that 32% unit growth at the midpoint and as I noted in my comments were more excited about business today than it really at any time in the past and so we feel good about those numbers as I mentioned on the last call. Last year we saw some fairly significant step function opportunities that came in as a consequence of large end customers starting to deploy and I noted at that time that those opportunities may happen again in 2017 and so some of the puts, there are some of the, what we see as opportunities going forward as, if some of those big events happen we're not counting on them but if they come it could be upside to our forecast or to our guidance.

Got it, and then the follow-up can you give an update on just what you've seen in terms of item sense from a momentum you know any anecdotes you can provide in terms of the impact on the sales and margins as well.

Eric, would you like to take that one?

Sure. And so, I think I've just continued to emphasize that along with that momentum in logistics and retail that Chris highlighted what we see in those is that this value proposition for our distributor last item sense it really is transformational and it's more compelling and more important to our go to market motion and our business than ever before. Qualitatively I would tell you that our pipeline and POCs are increasing in quality and quantity. And our sales motion is really shifted from several quarters ago right where when, we may have been more in the markets creation or evangelization stage. Now it's all about improved targeting and qualification so the market creation of our sales motion and our and our ability to drive it repeatedly used cases we feel great about. I'm still outside this is we're still in the early stage of item sense and the overall operating system itself but we're continuing to innovate with our partners as we said we're launching new solutions and very pleased with the progress.

Got it. Thanks for the color.

The next question will come from Mike Walkley with Canaccord Genuity. Please go ahead.

Gary, thank you. Chris just building on some your comments have you seen any changes across any layers of your platform in terms of a new competitor threats or change from my competitors?

And so, thanks Mike, really what we see across the market is competition at all layers of our platform but no one competing against the entirety of our platform and we're seeing a little bit different competition that the market heats up as you might expect, the market's getting bigger and the opportunities are out there but in terms of any significant material change compared to where we were a while back there's nothing that I could really point out or not specifically.

Okay, great. Just I think some of the other comments just with the strong end point growth. In the movement you think in the market more to text readers can just talk about kind of the visibility you're seeing in that market should be key to strong end point growth over the last year is kind of a leading indicator to a move toward more fix readers with the specific plan to your, your business model?

I think you should view the end point growth as a leader and as an indicator of overall market adoption as we've cited previously and because the -- that endpoint on the items in that number of items being tagged as a good indicator but you should also expect that as more verticals adopt and I mentioned specifically logistics and healthcare but there are others out there as more of those verticals adopt. The opportunities for fixed infrastructure really increase if you think about retail it's sort of natural for a retail store employee to be using a handheld reader to inventory because they have historically done so, with barcode readers but as we move to logistics healthcare, Automotive, airlines and other verticals that there is not really such an opportunity for those handheld readers and fixed infrastructure will become more and more the norm to get data in real time about items that a company transport manufactures or sells.

Great, thanks. And then, Evan just, just a question for you on just endpoints any change in pricing trends and how should we think maybe about pricing 2017 versus 2016 in terms of your product portfolio? Thank you.

Sure, as you know might the end point I see prices do decline annually most of that happens when we negotiate the year long agreements that we have with our major end point I see customers and so, kind of the single digit price declines are consistent with what we've seen from the last several years.

Great. Thank you. That's it from me thank you.

Our next question is from Mitch Steves with RBC Capital Markets. Please go ahead.

Hello, can you guys hear me?

Yes, we can.

Actually I apologize in the ear plug. Just a two quick ones for me it's a first on the Inventory side to look at that building pretty rapidly here it looks like 39 million from march but then you're talking about potentially this being kind of one of the that's not have you seen in years so, is this just essentially backlog of demand building or why inventory another like 12 million or so.

Sure, Mitch good question when we before we even IPO we identified one of the needs to do the IPO as an investment and working capital specifically inventory 2016 was a year over where we were not able to adequately meet customer demand because our inventory position was too low and we were in the process of correcting for that so, that we can have an inventory position that meet demands of our market, the timing needs of our customer and so forth. And we're not quite there yet the $39.2 million is that, is the step in that direction but as I said you know that the momentum and the demands are so great we're going to invest even more inventory in that, in the second quarter and then that growth in inventory will slow a bit on an absolute basis that will continue to ride this but the expansion will moderate.

Got it. And then second question overall you guys are continuing, continue to execute on plan right so revenue growth as higher than your expense but if I look at the kind of the overall OpEx line, how do we think about the sales guys, you guys are hiring and ramping, where do we try to see the inflection points on the parts of mine, is it going to improve through 2017 we're as the entirety of 2017 essentially, invest in here?

Sure. Mitch, this is Evan. Consistent with our previous guidance, we view 2017 as an investment year those investments include both the go to market investments that you're talking about an R&D investments on the platform there's been no change to that places we're investing or the level of investment the consequence of that is low single digit EBITDA margins at the percent of sales in 2017 and then some bends in the model in 2018. There's been no change the kind of our plan in that area.

Got it and then just one small one for the software side this still kind of 1% for the order of the big uptick to the December and is that going to continue through 2017.

Yes. Mitch, we haven't quantified the software revenues on a quarterly basis but there's no change to our guidance software being 5% of the revenues in that 2019 to 2020 model.

Perfect. Thank you.

[Operator Instructions] The next question will come from Jim Ricchiuti with Needham. Please go ahead.

Thank you. Good afternoon. And I spent a good amount of the prepared remarks talking about opportunities, the fixed reader market I'm wondering what your if you're doing anything differently in terms of pursuing this market which seems like it's if anything accelerating So, are there some areas either on the R&D side that you're spending more or you're bleaching up sales and marketing to go after this, if you could just elaborate on this opportunity and whether you're changing your strategy about going after it…

So Jim thanks for the question this is Chris. I'll start with the answer and then I'm going to hand off to Eric to provide some additional color, your question about whether we're changing that the answer to that question is really no we've always envisioned fixed infrastructure as kind of the next step for RAIN RFID and for our platform to deliver visibility into items we've talked about, about expansion and other verticals about ubiquitous connectivity. And we've really envision the future as readers as part of the environment and that getting information from tax items from connected Items in real time as being our vision and that's where we've been investing and driving toward So, for us it's, it's a no change. In terms of what we're seeing out in the market, I'll hand it up to Eric.

Yes, Jim, you were probably on any adjustments in the way that we're resourcing our driving to go to market motion. I tell you we continue, I made one comment earlier about this idea that we're, we're no longer vandalizing, we're actually finding, targeting and driving against used cases where we know, we're going to be successful that's a big improvement. And when you step into back phase of development it's logical that we're investing in at the either so presales engineers and channel resources to help scale that business so, from a fixed infrastructure standpoint and investment those are the places where you're seeing us add additional talent.

Okay, Chris wanted to go back to in the earlier comment you made about last year how there's some larger opportunities that you either have in your pipeline you have a line of cite to and, you never quite know if those are going to materialize or not. I'm just trying to get a sense do you have a line of cite into some of these opportunities this year. Do you normally have visibility for those or those did they tend to come up with more opportunistically.

So, Jim, I guess I want to answer the question in this way which is by saying that we have a lot of end customer engagements we've got a lot of partner engagements and those engagements are the reason I talk about this enormous opportunity and depending up a right picture of the future however the bigger the opportunity is the less certainty often we have about when it's going to hit. And in many cases I might even say in most cases of a lot of the decisions were big company to deploy are made at a very high level of the company out of some sort of board level and when that company decides to go forward and when the priority for going forward is high enough for them to invest in it to and really to push forward compared to other things they have to do other as the company. We typically don't know exactly when it's going to hit and often the people we're working with at the company don't know when it's going to hit so, we see opportunities out there, we see a promise for the future. We see a lot of them but citing when any particular as we call them the wells when they're going to land is very difficult for us to predict and certainly don't want to be forecasting or giving you guidance on something that might happen in any year term in future. But our picture, right picture of the future is about all the things we see out there.

Okay and last question for me is just outside of the traditional brick and mortar retailers who are doing all sorts of things to stimulate demand the omni-channel strategies or whatnot I'm wondering if you're seeing increased opportunities in whether considered maybe more pure play e-commerce companies?

Jim I think the - you're absolutely right, we like retail it's going to continue to be a strong vertical for us. And regardless of how this combination of Brick and Mortar and e-commerce converge for the new model as we do believe, we are we're foundational, really strategic to how retailers are going to go to market. And so, I can't comment on specific mixes between online and on-prem but just know that when you think about the experiences that we're seeing there's really a convergence you're seeing online retailers moving to fixed infrastructure stores or Brick and Mortar stores and vice versa, so we think the trends are very, very observable as Macy's rightsizes their store count, they're extending tagging to more departments. And as they reach higher percentages of tagging, they're extending to new use cases and more penetration opportunities for fixed infrastructure in our full platform. That atomic example that Chris highlighted is an excellent e-commerce, omnichannel, in-store experience example that is driving revenue growth. So we think those value propositions resonate whether you are pure retailer, which as I said I think is actually blending into the brick and mortar world or whether you're a traditional brick and mortar store.

Thanks a lot.

Your next question comes from Troy Jensen with Piper Jaffray. Please go ahead.

Hey, congrats on nice results. I think my first question is to Chris, could you just give us a little more detail about this July RAIN RFID event that you're hosting with Amazon, any idea whether that is going to be showing off best practices, demos or any color would be helpful?

Yes so thanks for the question, Troy. So the RAIN alliance host three meetings a year, typically one in the U.S., one in Europe and one in Asia and this happens to be the one in the U.S. as I noted it is co-hosted by Impinj and Amazon. The agenda is not fully flushed out and so I don't, I can't speak here whether there's going to be any particular demos or anything along those lines but the meeting will follow the typical meeting agenda that we've had for all the other meetings which is that there will be two days of members only sessions and then the final third day will be open to non-members and of course you're welcome to attend that non-members day. But in terms of whether there's going to be demos or other things, I can't speak to it at this time, I honestly don't know. And I think you should keep your eye on the RAIN Alliance web page and the agenda will get posted.

Okay, perfect, thank you. And just maybe a last question from me, just maybe an update on Delta Airline vertical, how far long Delta deployment have you seen other carriers?

I don't think we can speak to anything about Delta other that has been in the press and it was an announcement a couple of months ago and I believe that's the most recent announcement that's out there. Other than that, it's just anecdotal things going on flights and using the Delta app and seeing people tracking their flights on airplanes which to me is incredibly exciting, it's a kind of rewarding when I see people on their phone in the boarding lines actually checking -- checking to see if their bags made it on the plane but in terms of actual announcements I don't think there have been any public announcements that was not none that I'm aware of subsequent to the one a couple months ago.

Okay, thank you for all your time [technical difficulty] keep up the good work.

Thank you.

Ladies and gentlemen, our final question happens to be a follow-up question from Craig Hettenbach with Morgan Stanley. Please go ahead.

Yes, thanks. Chris, you mentioned you continue to compete aggressively for this big opportunity, any update on just kind of how you feel from a market share and some of the momentum and business opportunities for 2017?

We feel good, we grew 47% over first quarter 2016 which we feel is healthy growth. In terms of actual share at any layer of our platform the data come out of the analyst data come out at the end of the year, so I can't update you on market share but we feel good about our position in the market and good about our competitive positioning and we intend to continue competing aggressively. Our real goal here is to win this market opportunity maintain and gain share.

Got it, thanks.

This concludes our question-and-answer session. I would like to turn the conference back over to Chris Diorio for any closing remarks.

I'd like to thank everybody for joining the call today. I'd like to thank our investors for being on and supporting us over the past year since our IPO and we look forward to talking with you again next quarter. Thank you.

And thank you, sir, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.