Impinj, Inc. (PI) Q2 2019 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Impinj's Second Quarter 2019 Earnings Conference Call. All participants will be in listen only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ellen Davis Hayes-Roth, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon and thank you all for joining us to discuss Impinj's second quarter 2019 results. On today's call, Chris Diorio, Impinj's Co-Founder and CEO will provide a brief overview of our market opportunity and performance. Eric Brodersen, Impinj's President, COO and Principal Financial Officer, will follow with a detailed review of our second quarter 2019 financial results and third quarter 2019 outlook. We will then open the call for questions. Impinj's CFO Consultant, Linda Breard; and Impinj's Executive Vice President of Sales and Marketing, Jeff Dossett, are also on the call and will join Chris and Eric in the Q&A session. Management's prepared remarks, along with transit financial data are available on the Investor Relations section of the company's website. Before we start, please note that we'll 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 from 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 expectations are subject to risks and uncertainties. Please see the Risk Factors section in the annual and quarterly reports we file with the SEC for additional information about these risks. We do not undertake, and expressly disclaims, 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. During today's call, all financial numbers we discuss, except for revenue, or where we explicitly state otherwise, are non-GAAP financial measures. Balance sheet and cash flow metrics are on a GAAP basis. Before turning to our results and outlook, I'd like to note that the company will attend the 22nd Annual Oppenheimer Technology Internet and Communications Conference on August 7, in Boston, the 39th Annual Canaccord Genuity Growth Conference on August 8, in Boston, the Needham Industrial Technologies 1x1 Conference on August 14 in New York, and the Dougherty 2019 Institutional Investor Conference on September 5, in Minneapolis. We hope to see many of you there. I will now turn the call over to Chris Diorio, Impinj's Co-Founder and Chief Executive Officer. Chris?

Thank you, Ellen. Thank you all for joining the call. Our second quarter results were strong, highlighted by $38.2 million revenue, solid performance in both endpoint ICs and systems, and another record quarter. The gateway side of our systems business was especially strong led by a key project in North America. Endpoint IC year-over-year revenue growth was solid with apparel retailers increasing adoption despite macro crosscurrents and trade tensions. Retailers continue to view RAIN as a strategic differentiator that improves inventory visibility, enhances supply-chain efficiencies, and increases sales. Growing adoption by the performance apparel and footwear segment contributed meaningfully to our quarterly results. Turning to our progress releasing the first ICs in the Impinj M700 family, feedback from inlay partners and end users, has been extremely positive on both performance and features. Momentum continues building as our IC qualification and our partner's inlay qualifications proceed in parallel. Those qualifications, our production time line and end-user adoption cycles mean the M700 family should begin favorably impacting our business next year. Our systems business exceeded expectations with record revenue led by reader and gateway sales into supply-chain and logistics opportunities including that key North America project buoyed by a broad-based of other opportunities. I'd like to highlight one of those opportunities automotive, which today is a small part of our business. When a partner recently showed me an Impinj-based reader inventory in 1,000 individually tagged automotive parts in sealed boxes on a conveyor belt, I saw both our vision and the full scope of the automotive opportunity. We estimate the automotive industry uses more than 600 billion taggable parts per year and need systems to read those tagged items, all as part of Industry 4.0. It is too early to predict the timing of at-scale item-level RAIN adoption in automotive, but the opportunity is huge and automotive is just one of many broad-based opportunities our partners are pursuing with the second example being aviation. At the International Air Transport Association's 75th annual meeting in June, IATA unanimously approved using RAIN for global baggage tracking. The IATA resolution commits airlines to adopt luggage tags with RAIN inlays and airports and ground handlers to deploy readers to reduce bag mishandlings. Without specifying time lines, the resolution expect the aviation industry can reach global adoption in four years. The tagging opportunity is more than four billion bags annually and the systems opportunity spans thousands of airports and facilities. I'm especially energized by such a marquis industry choosing RAIN for its logistics needs. I believe this baggage tracking initiative will be a bellwether for other industries to similarly drive large-scale RAIN deployments. Key second quarter industry events included the RAIN Alliance meeting in Italy and GS1 Connect in Colorado. I spoke at both events about Impinj's vision of connecting and virtualizing every item in our world and the concomitant opportunity to automate data collection, optimize operations and engage consumers. I also highlighted what I believe is the challenge in realizing that vision, which is the fact that RAIN data today sit in closed corporate intranets, rather than in the open Internet. I asked GS1 and the RAIN Alliance to sponsor a consortium of suppliers and end users to drive a transition from disjoint Internet data stores to the open Internet of Things, using the Internet's history as a guide. I believe the data-sharing needs of the aviation industry require a first step in that direction and that ongoing initiatives within GS1 and the RAIN Alliance will further advance our vision of expanding the Internet's reach to trillions of everyday items. In June, we filed a patent infringement lawsuit against NXP USA, citing 26 of our U.S. patents that NXP's UCODE 7 and UCODE 8 ICs misappropriate without a license. These patents cover key Impinj innovations such as AutoTune, Integra, Enduro and FastID as well as circuit designs and implementations. Our patents are the hard-earned fruits of our significant invested -- investment, dedication and hard work and we will defend them with firm determination even as we continue innovating to further advance the RAIN market. Turning to new innovations in May, DELO Industrial Adhesives, Mühlbauer and Impinj announced a new adhesive that reduces the curing time to bond the Monza IC to its antenna from eight to 1.5 seconds. This adhesive enables future machines that produce up to 100,000 RAIN inlays per hour on a single assembly line more than double today's rate. This innovation represents yet another step in our efforts to reduce inlay costs and enable connectivity for trillions of everyday items. In closing, I would like to thank the Impinj team for their efforts this past quarter and as always in driving our bold vision. With another record quarter behind us marked by a solid team execution, I remain confident in our market position and I'm excited about our opportunities ahead. I will now turn the call over to Eric for our detailed financial review and third quarter outlook. Eric?

Thank you, Chris. Second quarter revenue was $38.2 million, a company record. Revenue grew 33.8% year-over-year, compared with $28.5 million in second quarter 2018 and grew 15.5% quarter-over-quarter compared with $33.1 million in first quarter 2019. Second quarter endpoint IC revenue was $23.7 million, growing 18.4% year-over-year compared with $20 million in second quarter 2018 and growing 8.5% quarter-over-quarter, compared with $21.8 million in first quarter 2019. Second quarter systems revenue was $14.5 million year-over-year, compared with $8.5 million in second quarter 2018, led by a key North American gateway project. On a quarter-over-quarter basis, systems revenue grew 29.1%, compared with $11.2 million in first quarter 2019. Second quarter gross margin was 50% flat on both a year-over-year and quarter-over-quarter basis. Total second quarter operating expense was $18.3 million, compared with $18.3 million in second quarter 2018 and $18.8 million in first quarter 2019. We continue balancing our operating expense with our desire to invest in our opportunity. Research and development expense was $7 million. Sales and marketing was $6.9 million. General and administrative expense was $4.9 million -- excuse me $4.3 million. Adjusted EBITDA for the second quarter was $800,000, compared with a loss of $4 million in second quarter 2018 and a loss of $2.3 million in first quarter 2019. The $4.8 million year-over-year improvement in adjusted EBITDA reflects our ongoing focus on execution as we invest for growth. GAAP net loss for the second quarter was $4.2 million. Non-GAAP net income for the second quarter was $600,000 or $0.03 per share using weighted average diluted share count of 22.3 million shares. Turning to the balance sheet. We ended the second quarter with cash, cash equivalents and short-term investments of $59.8 million, compared with $56.6 million in the prior quarter and $52.8 million in second quarter 2018. Inventory totaled $37.9 million, down $3.3 million from the prior quarter and down $15.4 million from second quarter 2018. We expect internal inventory to decline further by year-end albeit at a slower pace than the first half of 2019. Before I transition to third quarter guidance, I want to say a few words about how far we have come in the past 18 months. We grew revenue from $25.1 million in the first quarter of 2018 to $38.2 million in second quarter 2019 citing four revenue records along the way. We shipped our two millionth connectivity device and our 30 billionth endpoint IC by December 31, 2018. We announced the Impinj M700 endpoint IC family with its industry leading innovations in March of this year, and we achieved adjusted EBITDA profitability this quarter. I'm incredibly proud of the team's dedication, commitment to excellence and execution as we continue to lead our growing industry. Turning to our outlook. We expect third quarter revenue between $37 million and $39 million, a 10% year-over-year improvement at the midpoint of the range. We expect adjusted EBITDA to be between a loss of $750,000 and a positive $750,000. On the bottom line, we expect non-GAAP net income between a loss of $850,000 and a positive $650,000, reflecting a non-GAAP per share earnings of between minus $0.04 and plus $0.03 on a weighted average diluted share count of 21.8 million to 22.4 million shares. In closing, I want to thank our team, our customers, our suppliers, and our investors for your ongoing support. I'll now turn the call to the operator to open the question-and-answer session.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Scott Searle with Roth Capital. Please go ahead.

Hey, good afternoon. Thanks for taking my question. Nice quarter guys. Hey just to get my hands around the sequential outlook as you're looking into the September quarter, it sounds like you certainly had a positive impact on the systems side. Is that more one-time in nature? Is that what we're seeing in terms of the sequential basis? Kind of wondering what the give and takes are that you're seeing sequentially from an endpoint, in the systems standpoint into the third quarter? And then I had a couple of follow-ups.

So Scott as I understand the question, the first one is the large systems opportunity is a one-time opportunity? And -- or do we project it to continue? And the second question is just kind of overall, how the outlook is for our businesses. Is that correct?

Yeah. Just trying to read into the seasonality Chris, when into the third quarter, because you had a nice second quarter here. How much of that is continuing? How does it look between ICs and systems?

Okay. So, I guess, I'm going to start by saying, we just delivered a strong second quarter as you said. And looking at the combined second quarter results and third quarter guidance, we're super pleased with how the business is growing. In terms of kind of project-based revenue, yes we feel good about our project-based opportunities going forward. And we see strength in both endpoint IC business and systems heading into third quarter. So overall, we're pleased with how the business is going. And in terms of kind of the overall seasonality we see in the business, we typically see -- as we head into the fourth quarter we typically see endpoint ICs a little bit slower and systems revenue to typically picking up in fourth quarter. Although, the variability on a year-over-year basis can kind of must come any one year.

Got you, and maybe to just follow up on the M700, it sounds like you guys are making a very rapid progress both from a customer standpoint and an inlay standpoint. It sounds like revenues start to ramp up in 2020. I'm wondering if you could provide a little bit more color, are you starting to see the traction with new customers', new designs or you swapping out some existing wins? And do you have any idea how quickly that's going to phase in maybe by the second half of 2020, in terms of the mix of revenues?

So, right now we're in the qualification the approval on production ramp cycle. Those things take time. Because we do our qual, our inlay partners do their qual, our end customers do their qual. And then the productions ramp start. So we expect that -- we expect the impact to our current 2020 rates. We expect a favorable impact. We do feel that both the capabilities of the M700 family in terms of its features as well as the performance not only allow us to supplement and in many cases kind of augment existing deployments, but actually open up new opportunities either based on opportunities or those opportunities -- I mean in the capabilities or features or both.

Got you. And maybe one last if I could and then I'll hop back in the queue. But the IATA news is clearly positive. I was wondering if you could provide a little bit more color in terms of what sort of an impact you would expect in 2020? Are there -- is there visibility to a number of different carriers starting down that adoption curve? And maybe give us an idea of what we've talked about the number of bags per year being four billion plus. Do you have an idea in terms of what the system sales build-outs could look out, as you're talking about supporting potentially thousands of airports? Thanks. Nice quarter.

Thanks, Scott. So beyond the -- say in the opportunity spans, thousands of airports and facility, the pace of the deployment, the pace at which any individual airlines can move as kind of -- as well as kind of the overall growth rate of the adoption is really going to depend and -- on how those airlines go. And I think we'll get more visibility next year. IATA has some made some additional statements in terms of their expectations and their hopes to deploy several major airports relatively quickly. And they've made some statements in terms of where they see adoption heading. But beyond the statements, that IATA has made I don't think we have anything to add at this point in time. Like I said, I think we'll -- as things play out we'll have some more information to share but at this time we don't have any.

Hey, Chris just one quick follow-up there. Do you expect the decisions to be made unilaterally by the airlines themselves? Or are they going to be made by the various individual airports? Thanks.

The answer depends on where in the world the airport is located. In the U.S. airports -- I mean in the U.S. airlines are generally able to make their own decisions for any particular airport rollout, because they basically have control over the part of that airport that supports them. Overseas those airports are common-used airports. And so it's actually the airport that makes the roll out decision. So for that reason, it's critically important that I ought to made that announcement -- I made the decision to roll out because when I make the decision to roll out and all the airlines are on board that could be impetus for the airports that are common-use airports to begin their roll out.

Great, thank you.

The next question …

Thank you, Scott.

Thank you.

Excuse me. The next question comes from Craig Hettenbach with Morgan Stanley. Please go ahead.

Yes. Thank you. So North American project that you referenced on the systems side. Is there anything unique in that in terms of if I look at kind of your existing business, whether it's new features or things you're doing with that customer?

Thanks, Craig, this is Eric. Yes, what I can share is yes, we are extremely excited about this particular project and it is in the North American supply chain and logistics space. So I can share that, but for confidentiality reasons, we really can't say more about the customer itself. And from a variance versus the balance of our business, we continue to sell broadly into supply chain and logistics focusing on the core capabilities of the platform across locationing, transitions, identity. So really right within the sweat spot of our sales motion.

Got it. And then just as a follow-up on the commentary around inventory has been coming down and you expect to take it down into the back half of the year. Can you touch on just broadly from a customer and channel-partner perspective, just how you feel inventory is situated today and anything new from a lead-time perspective?

Let's touch -- let's break those into two pieces. From a lead-time perspective, we continue to be right on track with what our standard lead times are targeted at right in the four- to six-week lead-time standpoint. From a channel inventory standpoint, we feel very good about overall inventory position in the channel healthy and we continue to work that as a normal matter of course.

Got it. Thank you.

Thanks, Craig. Thank you.

Thanks, Craig.

Your next question comes from Mike Walkley with Canaccord Genuity. Please go ahead.

Thank you and congrats on the strong quarter.

Hi, Mike.

Just following up again on this large North American project. Can you give any color on duration, how much longer the gateway build-out is going to occur? And is this a customer that once the gateways are done, you'll have incremental strong endpoint opportunity? And any chance you can maybe share that type of endpoint opportunity given it's quite a large systems project?

Yeah. Thanks, Mike. When we talk about project-based deployments, as we've said before, they can span periods, they can span with longer time periods across the course of the year. So it's really just consistent with the way we look at large-scale projects and something that we manage all the time. In terms of endpoint consumption, yes, it will certainly be a factor in our overall endpoint business, but not something that we will breakout at this time.

Great. Thanks. And just to build on that, can you just provide some color may be on the pipeline of these larger systems deals I mean systems revenue has been quite impressive the first half of this year. You have the pipeline to keep that business growing, because you're going to be come up against some tougher comps longer term just given the huge acceleration in the last few quarters? Thank you.

Craig. This is Jeff Dossett. I think the way I'd characterize it is we have a healthy backlog, healthy bookings and a strong pipeline of opportunities. And it does reflect the range of transition use cases across a broadening range of industry verticals. So we feel good about the pipeline today.

Great. Thanks. Last question for me and I'll pass on the line. Just any updates on the competitive environment both in endpoint and readers and for some of these large gateway deals in the airports, how do you think you're positioned to win your fair share of those deals? Thank you.

Craig, this is Jeff again. I'd say no, no significant change in the competitive environment that we would call out this quarter. We still feel very confident on the merits of our technology and the strength of our go-to-market teams around the globe to be well positioned to participate in the significant opportunities that are emerging around the globe.

Okay. Thank you very much.

Thanks, Mike.

Thank you.

Your next question comes from Mitch Steves with RBC Capital Markets. Please go ahead.

Hey, thanks for taking my question. I just wanted to focus on the North American retail win. Just to be clear in terms of the rollout, is this I guess the entire U.S. where it should be rolled out or is there only specific cities. How do we kind of understand that like what the deployment is going to look like I guess over the next 12 months?

Hey, Mitch, this is Jeff. I just want to clarify that we referred to this as a North American supply chain and logistics project and not specifically a retail opportunity.

Okay. Because the transcript says the retailers are continuing to -- apparel and footwear ramp.

Thanks for clarifying your question, Mitch. I mean, retail continues to be a strong market driver and as the script mentions in particular among performance apparel and footwear leaders and these leading brands and retailers are increasingly commenting publicly on the benefits of RAIN RFID, and we feel very good about the growth opportunities ahead.

Okay. Got it. And then secondly do you mind give us a quick update on what the revenue mix is in terms of end markets for you guys? You guys typically talk about healthcare retail and then I guess airlines be kind of the big three. Do you have a rough idea of what the percentage is in terms of those three as your total revenue?

Mitch, this is Jeff again. We don't break out our revenue percentages for each of the markets or vertical sectors. What I will say is that some of the key drivers in addition to continued strength in retail includes supply chain and logistics and smart manufacturing and to our Industry 4.0 as it's often referred to more specifically within automotive and aviation.

Got it. I guess, one more follow-up then I'll just jump out. Just to clarify here. So if I think about the end markets you guys had in the original filings retail healthcare and let's say airlines and I look out to 2020 do you think retail is going to be a higher percentage of revenue or lower percentage?

I think retail will continue to be a strong driver of market growth and opportunity. We do see a growing adoption among supply chain and logistics and smart manufacturing, which helps to diversify the growth opportunities ahead.

Got it. Thank you.

And Mitch, I would just add that as you think about the aviation opportunity as you think about bags moving around through airports really it's a logistics opportunity, it's tracking particular items as they move.

Your next question comes from Jim Ricchiuti with Needham & Company. Please go ahead.

Hi. Thank you. Good afternoon. Can you say whether you had any revenues maybe to this North American logistics project in Q1 or was it all in Q2?

Jim, this is Eric. This is the second call we've highlighted this project. So we referenced it in our first quarter call and also today.

So the question I had Eric also leading up to this can you talk a little bit about the bake-off for this. What was the selection process like? When did this project come into being was there an RFP that went out –six, nine months ahead of Q1 when you started to see some revenues? And what was the -- what do you think the deciding factor was in terms of you guys winning the business?

Why don't I lead on this and then Jeff, can talk perhaps a little bit about the customer itself. But from a process standpoint I think this is a long-standing project that we've been engage with this customer for some time. And so I would say that from a process standpoint, it's really about account engagement and the capabilities of the platform and our ability to support the customer at scale. And from a selling process standpoint point I think Jeff you want to add any highlights?

Jim, I'd say that this particular opportunity followed a pretty typical assessment of technologies and capabilities available in the marketplace at the time. To Eric's point, I think, customers like this customer select using a wide variety of criteria including our ability to stand aside our customers and their partners as they work to integrate the RAIN data that is enabled by the Impinj contributions in the context of a much broader enterprise-wide transformation. So I think that the Impinj's ability to reflect its commitment to partners and customers and to their effort to integrate into enterprise business systems was a critical factor.

The other question I have is how leverageable is this project is this win? It sounds like you expressed the pipeline is pretty healthy on large project size and that's not only systems, but that's endpoints. But again, I'm just trying to get a sense is this something that you feel you are going to be able to leverage in the near term with other customers?

Again, this is Jeff. We certainly we've learned a lot with this customer and its partners and in within the context of its enterprise deployment and that enables us to learn a lot about the opportunity for other customers to build out solutions based upon the integrated and comprehensive Impinj platform. So I think as we engage more deeply in the real life implementations of our customers that learning is leverageable by our partners and by other end customers in the marketplace.

Final question for me. I'm wondering if you can give some color on the business in the quarter and perhaps looking out to Q3 in terms of your major geographic regions.

So, Jim, this is Chris. We see continuous growth worldwide opportunities. I don't think we see any change in terms of the geographic distributions heading into third quarter versus second quarter or even versus first quarter. So just -- same across the board and I maybe putting words in your mouth, but you may be asking the kind of the trade things that are going on a macro crosscurrents in terms of trade whether that's affecting our business geographically and as of right now it hasn't been materially affecting our business. We still see a strong growth in all the geographies.

So across the board in Q2, Chris, the growth you saw into the regions was fairly uniform?

I won't say fairly uniform, because it varies a little bit based on project based on revenue and other things, we cited the opportunity in North America being as a consistent revenue driver.

Perfect.

But if I just look at the geographies and say, are they all healthy? Yeah, all the geographies are healthy. Are they all growing? Yeah, they are all growing. We see opportunities in all of them significantly.

Okay. Okay. Thanks a lot. Congrats on a quarter.

Thank you, Jim.

Thank you.

Thank you.

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

Hey, gentlemen, congrats on the result and return to GAAP profitability.

Thank you.

Thank you.

Thank you.

Hey, Chris to start with you, I would argue or guess that NXP is violating your IP for quite sometime. So I guess, I'm curious why now are you guys going after it? And what do you think the legal cost would be for this IP luggage?

So I'm going to say something on the first part and then Linda will close out with the legal costs. As I noted in an open letter that we put forth to the community at same time as we filed the lawsuit, we've been trying to engage in a discussion with NXP for two years and during that time they steadfastly refused to negotiate with us or really to engage us. And so finally we came to the determination that we had no choice but to file suit. So, you are correct in your assessment that we've known about the situation for a while and we try to do something and they basically left us no choice.

And then I would say, Troy, from a spend perspective, legal spend is always part of our regular OpEx and it's contemplated in our guidance as we move forward. There's obviously a lot of factors that can impact what that is that we are closely monitoring and watching that as a company.

All right. Understood. And then maybe just one for Eric here. Back on the M700, I understand it takes a while to kind of penetrate the new and existing programs here. But if you think you're out and the M700 becomes more of the business, what do you think the margin impact's going to be on the gross margin?

I think the exact representation of gross margins for that period that far out I think it's a critical product launch for us. It's important to our overall business model and profitability, but as you think about some of those customer qualification cycles and the deals that we're going after, I think Jeff can comment a little bit on sort of the framework of how that sets up.

Yes, I think what I would add is that in our experience introducing a sixth generation of Monza product families we haven't seen a significant impact immediately in a new product introduction. In fact our products tend to have a very long life as I believe you know well. So, what we actually see is a layering of continued demand for existing ICs for some time as the market ramps in its adoption of latest most performance endpoint ICs. So, the impact is realized over time. But as Chris said earlier, we do anticipate the Impinj M700 having a significantly favorable impact later in the year.

Later in 2020.

In 2020. Thanks for clarifying.

In 2020. Okay, I get it. All right. Thanks again and congrats.

Thanks Troy. Thank you.

The next question comes from Charlie Anderson with Dougherty & Company. Please go ahead.

Yes, thanks for taking my questions and my congrats as well on a really strong quarter.

Thank you.

Thank you.

So, on the script Chris you mentioned automotive I thought that was interesting and certainly by this new -- or this customer that's helping in systems we're seeing a lot of pickup in supply chain logistics. So, I wonder if you could just step back and help us with a rough sketch of where is RAIN RFID adoption those two end markets supply chain logistics and in automotive what are people using for today? And then how much headroom is there to grow in those two end markets? When you look at your pipeline of opportunities how does that look compared to how it is being used today? And then I have got a follow-up.

Yes sure. Thanks Charlie. As you think about where we are on a retail apparel space I think when I typically speak out in public, we talk about the retail apparel being roughly 10% penetrated and I think that the leading vertical in terms of adoption has been going on for years. As I look at supply chain and logistics kind of across the board, we are way early days probably some 1% penetrated in terms of the overall opportunity. If you think about where we are in aviation in just the overall supply chain space and automotive significant opportunities across the board, early days, lots of upside, and that upside is reflected kind of in our pipeline. Without projecting far into the future, it's hard to say how these things are going to go over time and how quickly adoption will happen. But we do feel that there is great opportunities out there kind of across the board of the supply chain and logistics space.

And then in terms of…

In terms of what they're doing based upon the Impinj platform I think if I think about supply chain and logistics, of course, RAIN has contributed for some time in improving overall inventory visibility in each location and the opportunity today is expanding to that level of visibility across the entire supply chain and logistics. So, manufacture to distribution center to store or -- end use marketplace so I think that's a key trend. So, things like dock door transitions throughout supply-chain and logistics. So, visibility is continuous throughout the supply chain. And in manufacturing we see many examples of deployments for work in progress or work in process manufacturing, knowing where things are in an increasingly smart manufacturing environment is critical. So, transition of items into the manufacturing location within the manufacturing location and then out to the next point of delivery, so tool tracking, work in process tracking are key transitions that are being enabled and enhanced with RAIN deployments.

Hey Charlie not to pile on this question too much. But I do want to say one thing about this because I started the example. So, the partner showed me the -- this reading system data developing and it just had a sealed box and I said, what's in the box? He said automotive parts. I said how many? He said 1,000. I said 1,000 parts? In one box? He said yes. Then how we're doing? He said great. And I was thinking wow the technology has narrowed the plane, where one of our partners can grow reliably inventory 1,000 items in a field box, and that's why I cited it on the call, because for me, it just really highlighted our vision.

That's great color. Thanks guys. So then, Chris on M700, you did mention the partnership recently where you were able to really reduce the time to build one of these inlays? And then, I think it's my understanding too that with a smaller IC, you potentially can have a smaller inlays, so that could reduce some cost there. So I wonder, in putting all these things together, how much cost can we reduce still in the overall, let's call it inlay or label? And what kind of opportunity does -- can those bring about in the market that aren't there today? Thanks.

Yeah. So, I'm happy to answer that question. So, I guess I'm going to say two things: number one, as we cited on our prior call, the Impinj M700 IC, and family of ICs will have more than twice as many type of wafers as any of our competitors. So, we have introduced the product into our inlay partners early on, so that they can get experience on designing inlays with these IC. So, I want to talk about our qual proceeding the same time as their qual. We actually introduced the parts, early up in their qualification process so that they can basically build out and get that expand. And so undertakings are going well. I'm excited about how they're doing in handling this small IC and getting performance out it. When we talk about improved performance of the IC itself, when you get a more sensitive IC, you can either get a more sensitive inlay and get longer read range or you can actually shrink the size of the inlay shrinking and still maintain performance. So, shrinking the size of the inlay reduces the cost of the inlay itself and materials as well as in the packing that goes on and those things. So, I can't cite precisely what the cost reductions are going to be, but we push on overall cost reductions for the industry whether it happens to be in an adhesive that reduces the assembly time on a more sensitive inlay that -- or more sensitive IC that could reduce inlay cost, and you should expect us to continue pushing in that direction for the next -- first, as much as we can to spur adoption in the industry.

All right. And then just one quick one for me, I know the question's has been asked a few different times, a few different ways. But just, is there a way that you guys can be more specific and then mix of business in Q3 between endpoint and system? Thanks.

So, other than what we publish in our quarterly filings, there really isn't. For competitive reasons, we're only disclosing the information that we're disclosing, and we prefer not to say anything more about either the ASP mix or the overall mix.

Okay. Perfect. Thanks so much.

Thank you, Charlie.

Thank you, Charlie.

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

Thank you all for joining today's call and a special thanks to the Impinj team for another quarter of solid execution. Thank you all. Bye now.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.