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Cary Baker

Thank you, Chris, and good afternoon, everyone.
First quarter revenue was 74.3 million, down 19% sequentially from 91.6 million in fourth quarter of 2024 and down 3% year over year from 76.8 million in first quarter of 2024.
First quarter endpoint IC revenue was 61.2 million, down 17% sequentially from 74.1 million in fourth quarter of 2024 and down slightly year over year from 61.5 million in first quarter of 2024.
Endpoint IC revenue exceeded our expectations driven by turns orders. Looking forward, we expect second quarter endpoint IC product revenue to increase sequentially.
First quarter systems revenue was 13.1 million, down 25% sequentially from 17.5 million in fourth quarter of 2024 and down 15% year over year from 15.3 million in first quarter of 2024.
Systems revenue exceeded our expectations, driven by strength in both reader and reader IC sales.
Looking forward, we expect second quarter systems revenue to decline sequentially driven by lower reader IC revenue.
First quarter gross margin was 52.7% compared with 53.1% in fourth quarter of 2024 and 51.5% in first quarter of 2024. The year over year increase was due primarily to lower indirect costs. The sequential decrease was driven by lower systems revenue mix. Looking forward, we expect second quarter product gross margins to be similar to first quarter.
Total first quarter operating expense was 32.6 million compared with 33.6 million in fourth quarter 2024 and 32.9 million in first quarter 2024.
Operating expense was below expectations as we managed, spend, and benefited from favorable timing.
Research and development expense was 17.3 million sales and marketing expense was 7.7 million, general and administrative expense was 6 million. Looking forward, we expect second quarter operating expense to be similar to first quarter.
First quarter adjusted EBITDA was 6.5 million compared with 15 million in fourth quarter of 2024 and 6.7 million in first quarter of 2024. First quarter adjusted EBITDA margin was 8.7%. First quarter GAAP net loss was 8.5 million. First quarter non-GAAP net income was 6.3 million or $0.21 per share on a fully diluted basis.
Turning to the balance sheet, we ended the first quarter with cash equivalents and investments of 232.5 million compared with 239.6 million in fourth quarter of 2024 and 174.1 million in first quarter of 2024.
Inventory totaled 98.5 million, down 900,000 from the prior quarter.
First quarter capital expenditures totaled 1.9 million. Free cash flow was negative 13 million driven primarily by unfavorable working capital timing, which we expect to reverse in the second quarter.
Before turning to our guidance, I want to highlight a few items specific to our results and outlook.
First, as Chris noted, due to partners changing their inventory strategies for geographic optionality, our first quarter endpoint IC channel inventory declined by only one week. From today's vantage point we see partners maintaining higher endpoint IC inventory balances for the foreseeable future.
Second, first quarter product growth margin exceeded our expectations, partially driven by reader IC revenue strength. We anticipate similar product growth margin in the second quarter, even as our high margin reader IC revenue declines. Looking to the second half, product margins will benefit from higher M800 mix, improved production yield, and lower cost waivers.
Finally, I am proud of our operational execution in the first quarter. We tightly managed operating expenses, inventory, and margins, delivering adjusted EBITDA well above our guidance. Looking ahead, we will align our investments to our revenue profile, staying agile in this uncertain environment.
Turning to our outlook, we expect second quarter revenue between 91 million and 96 million compared with 74.3 million in first quarter 2025, a quarter over quarter increase of 26% at the midpoint, including the license fee payment, and 4% excluding it.
We expect adjusted EBITDA between 23.5 million and 26 million. On the bottom line, we expect non-GAAP net income between 20.8 million and 23.3 million, reflecting non-GAAP fully diluted earnings per share between $0.68 and $0.76.
In closing, I want to thank the Impinj team, our customers, our suppliers, and you, our investors for your ongoing support.
I will now turn the call to the operator to open the question and answer session, Nick.

Operator

Thank you. We will now begin the question and answer session.

Question and Answer Session

Operator

(Operator Instructions). And your first question today will come from Harsh Kumar with Piper Sandler. Please go ahead.

Harsh Kumar

Yeah, hey guys, first of all, congratulations on very good results and what I would describe as extremely uncertain environment.
Chris and Cary, I have one for you, obviously you're aware of tariffs. They're changing if you will. I guess my question is if the tariffs do hit, or if even if they're maintained at the level that they're maintained at one would expect some sort of a demand fall off, I guess how are you thinking about this aspect of your business and then maybe for historical context if you've seen anything like this in the past 10-15 years we could talk about what you saw last time and how are you preparing for this potential possible, you know possible demand drawdown?

Chris DiOrio

Okay. Harsh, I'll do my best to answer your questions. You might need to interject one or two times as, if I missed part of it. First, I want to start by saying thank you for your nice words at the beginning. I'm going to answer the second question first, just have we seen a scenario like this previously.
I can't recall anything like this. We struggled during the 2008 downturn, but that was a long time ago when we were still a small private company. Obviously, COVID was quite a whips off for the business, but it was materially different.
We're in uncharted waters here, but at the same time I truly feel that we've got the strongest team in our company's history. We've got the strongest financial back backdrop in terms of our cash operating margins, product portfolio, everything else we need to weather the storm. We've got a very strong enterprise and customer base and we've got a very dedicated set of partners.
So as I said in my prepared remarks, I believe we will benefit from investing in the opportunities where we see that we seek to invest in and coming out the other side stronger.
Now to answer the first part of your question about tariffs, so I'll go through a couple of points and Cary, you'll need to jump in here and see what I missed.
Bookings were strong in the first quarter and we are still seeing bookings. That is kind of different from, for example, what we saw in the COVID timeframe.
At the second time we did not see material pull ahead in the first quarter, and we're currently not seeing them in the second quarter. So another way, we're not seeing pull for our products driven by the enterprise end user pulling ahead demand for endpoint ICs. We see fairly consistent endpoint IC shipment volumes across the quarter.
We do see the shift, the geographic shift from where the end users are sourcing their products out of China to newer geographers to different geographies and paused some shipments as a result of that shift. So we currently believe that enterprise end users are under shipping demand.
At the same time, we see some channel inventory build as our label partners build that inventory to have geographic optionality to fulfil for those enterprise end users as they need the labels. So that, we think those two kind of wash out, as I said in my prepared remarks as we expect to see some normalization and bookings return as enterprise end users begin fully shipping into that demand.
So net of it will feel like for navigating the tariff situation okay, and we'll keep driving to the future. Yeah, go ahead, Harsh.

Harsh Kumar

No, that was it.
I was going to say thank you. That was a very complex question.
Thank you for all the clarity and the points you made.
Let me ask my second question, Chris. You talked last quarter about some inventory and one of your larger customers in one of the segments. How are you, and you said now customers seemingly want to maintain a high level of inventory? How are you thinking about your business as you get past this slightly increased level of inventory that your customers want to maintain? Do you do you think that 2025 could be a lot like 2024 where you see decent demand and decent growth both in and when I see in systems or do you see something different happening because of all the confusion?

Chris DiOrio

Well, we don't think channel inventory is high relative to consumer demand. We're seeing a wobble right now in the second quarter associated with production shifting to different geographies.
In terms of what we see looking out. That's harder. I mean, we got one quarter at a time and given the macro dynamics that are going on right now and the uncertainty, it's really hard to predict the future. In fact, I'm reticent to really say anything about it other than that if consumer demand holds, our products go on staples, and they go on shoes and socks and children's clothing. They go on medical shipments and shipping packages. They go on government ID and food products, and they go on things that people buy regardless of the demand.
So we feel good about our position. It doesn't mean that if there's a major downturn, we won't feel it. We'll feel it the same way the macro feels it. But right now we don't see that downturn. We see, like I said, a wobble in the second quarter as production shifts to different geographies. I'll turn it over to Cary. You want to add?

Cary Baker

Yeah, Harsh. I would add that you know we entered the quarter in a little bit elevated channel inventory position, and some of our partners made really good progress reducing that channel inventory while others did not. But in the end towards the end of the first quarter and certainly into the second quarter, the strategy around inventories is changing. Partners are flexing their geographic footprint and they're trading off regions that have higher transit time for lower tariff risk.
So that's putting inventory strategically, purposely, and rationally into the channel and that's why they're telling us that they think they're going to hold this level of inventory for the foreseeable future. So it's a really interesting dynamic right now, but for today, from today's vantage point, we feel like we're in pretty good position.

Harsh Kumar

Fair enough guys thank you so much I'll get back in line.

Chris DiOrio

Thank you, Harsh.

Operator

And your next question today will come from Scott Searle with Roth Capital. Please go ahead.

Scott Searle

Hey, good afternoon. Thanks for taking the questions. Nice job, guys, and an incredibly difficult, if not schizophrenic environment.

Chris DiOrio

Thank you --

Scott Searle

So Chris and Carrie, just to follow up on Harsh's questions here, it sounds like we're, when we entered the year you talked about elevated inventory being at weeks and you say it's come down by about one week, but now we might be in a new equilibrium given the geographic distribution.
I just want to clarify that comment. Is that what you're saying so that we're not going through some further inventory reduction as we go into the second half of this year from a channel perspective? And also if you could clarify, I think there's been some concern or speculation in terms of your end product mix exposure, right? With I think the last numbers you guys have talked about is 70% in retail slash apparel, but a lot of that is seasonal.
So if you had any other color on that front in terms of what is seasonal and therefore goes through that seasonal replenishment as opposed to sneakers that could sit on the shelves, etc. for months, if not quarters.

Cary Baker

Hey Scott, this is Cary. Thanks for the question. I'll take the first half of it and then I'll hand over to Chris.
We don't think channel inventory is high right now, not high versus the evolving production strategies that our inlay partners have, and not high for the fact that we think we are under shipping and consumer demand in this environment.

Chris DiOrio

Yeah, Scott, so I'll do my best to answer your question.
We, in our business has become more diversified over the past couple of years in terms of where our inputs are used. We currently ship a good portion of them into a supply chain of logistics, which is significantly in the US, and those volumes seem to be holding.
We shift into not only retail apparel, but retail general merchandise. The general merchandise tends to be more of a kind of staples, the words that I used in our prepared remarks. If you just look at retail apparel on its own. I don't think we've actually sat down and quantified for for our investors what percentage of our overall business is currently retail apparel, nor what which of it is a seasonal versus not.
But you're really asking that is what part is discretionary and what part is necessary. And we think that the significant majority of our endpoints go on products that are staples or necessary and not discretionary. Discretionary consumer demand goes way down and discretion comes down, we'll feel it as the macro feels it, but we feel pretty good about what we tag today, where our products are going, and the diversification we've seen over the past couple of years.

Scott Searle

Okay, very helpful.
Thank you. And if I could just look to the second half, there are a lot of different levers that you've had out there in terms of big box retailers piggybacking off of Walmart, migration into smartphones with Qualcomm. I'm wondering if you could update us on a couple of those initiatives and what you would expect to possibly hit in the second half of this year. I think in your opening remarks, you talked about engagement with two grocers that that continues to progress. Any color on that front would be helpful. Thanks.

Cary Baker

Scott, this is Cary. I would say that while none of those projects are showing any signs of slowing down, this environment today is highly uncertain, and we're not experts at predicting tariff policy.
We do believe enterprises are under shipping consumer demand as they wrestle with optimizing the production footprints.
And with resolution to that production strategy or resolution to the tariff strategy or both, we could see bookings growth in the back half of the year, assuming consumer demand holds. But until we have more clarity, we're going to stick to our policy of only guiding one quarter at a time.

Chris DiOrio

And I'll say, in my, in our prepared remarks, I prepared remarks, right now we see enterprises engaged. We haven't seen the enterprises pulled back.
And because we see enterprises engaged, because we saw strong reader IC volumes, which indicates that enterprises are buying readers.
Because of the belief that I have. That those enterprises that use our platform will end up on the winning side of the ledger through this tariff dynamic.
We are investing rationally, but investing in our enterprise opportunities in this market. We believe it's the prudent thing to do. We're going to do it prudently, but we also think it's the prudent and smart thing to do to come on the other side stronger.

Scott Searle

Great, thanks so much and a great job on the quarter again.

Chris DiOrio

Great. Thank you, Scott.

Operator

And your next question today will come from James Ricchiuti with Needham & Company. Please go ahead.

James Ricchiuti

Alright thanks.
Good afternoon. I'll echo what others have said about a nice job in these interesting times.
Maybe just want to go back to what you were saying about the the reader IC business and maybe how that ties into what I think Cary you said in release in the script, you're expecting a lower reader IC revenue in Q2. Can you maybe square that for us in terms of what that might indicate?

Cary Baker

Yeah, it is really timing of orders and specifically we had higher indie reader IC revenue in Q1 than we anticipated. This is a product that our prior generation that we've end of life.
It continues to sell in our last production runs. We got higher yield than we anticipated, so we had more units than the last time orders. So we're letting those those excess units, if you will, flow in, and that's what benefited our Q1, excuse me. In Q2, we're seeing strong growth with our e-family reader ICs, but on a sequential basis it's down because I don't anticipate as much in the readerized sales in the second quarter.

Chris DiOrio

Yeah, but either way, Jim, strong e-family growth in the first quarter. We're expecting strong e-family demand in the second quarter and we wouldn't see strong e-family reader IC demand if people weren't planning to deploy readers. And so you're not going to deploy readers if you don't have something to deploy them into. So we actually see enterprises continuing to press forward deploying readers in this environment.

James Ricchiuti

Okay, got it. The other question I had was, and I'm not sure if you mentioned this, but how we should be thinking about the M800 ramp and particularly in the current environment and maybe if you could remind us of the tailwinds we could see from the ramp on margins.

Cary Baker

Yeah, the M800 continues to ramp nicely.
First quarter was strong. We expect growth in the second quarter. And at some point this year if we continue following this path, which I believe is a typical path, we could see the M800 as our volume runner. I don't think it blends for the full year, but I think at some point this year it turns into our volume runner. When it blends as our volume runner, I expect a 300 basis point gross margin benefit. So not that full benefit in the second half, but we will start to see some of the benefit to gross margin in the second half.

Chris DiOrio

And Jim, I'll add that Gen2X is natively implemented in our M800s.
Which means that all you need to do is use the reader to turn it on and you get the benefit. So as one I gave on our prepared remarks was a significant increase in square foot coverage in an overhead deployment at a leading retailer.
That's just one example of some of the benefits that we're seeing out there on the market from M800 which just has Gen2X natively built into it, so we see not only an opportunity to drive M800 overall as a greater portion of our overall business, but actually to enable enterprise solutions that previously we could not do and that's we believe Gen2X in combination with the M800 is a game changer.

James Ricchiuti

Got it. If I can just squeeze one other one, and you mentioned this other major deployment at another retailer. What's, is that occurring now? What's the timeline on that?

Chris DiOrio

It's occurring in the back half of this year. Yes, it's occurring now, and it's essentially a loss analytics or loss identification deployment where they're not 100% tagged, but by deploying readers at store exits, a variety of store exits, they can see what's going out of the store and they can get they can get some ideas of where that is happening, how it's happening, the time frames, everything. It's just a full loss analytics deployment.
Doesn't give you all the benefits of a full loss prevention deployment, obviously, which you do self checkout, but you can, but a retailer can start without 100% tagging.

James Ricchiuti

Got it. Thanks very much. Thanks, guys.

Chris DiOrio

Okay, thank you.

Operator

Your next question today will come from Christopher Rolland with Susquehanna. Please go ahead.

Christopher Rolland

Hey guys, thanks for the question.
So I just wanted to confirm that I, that my understanding is correct here. So first of all, you guys don't see lower retail volumes from your customers related to tariffs as we move through the year. And then secondly, you believe we're generally out of the woods in terms of inventory. You had two to three extra weeks last quarter. You burned one, but the one to two extra weeks is the new kind of state of normal here and will stay indefinitely. Did I get those two parts right?

Chris DiOrio

Chris, thank you, and this is Chris, let me start and then I'll hand off to Cary on the first part of your question. We definitely, both in our prepared remarks, and some of the comments really want to highlight that there's definitely a wobble in the second quarter associated with tariffs as we see enterprises pausing some of their shipments and shifting their suppliers to different geographies.
So we believe that currently, those enterprises are under shipping consumer demand as they transition their sourcing geographies.
In terms of further out third quarter and basically the back half of this year, one, we only guide one quarter at a time. Number two, we're probably not the best ones best position to really guide on what consumer demand is going to be, but what we said is this consumer demand holds.
We expect channel inventory to normalize and we expect to see bookings growth. Now, that if is the, is the key word in there if consumer demand holds. But as of right now, we believe enterprises are undershipping consumer demand.

Cary Baker

And Chris, this is Cary, to your question on channel inventory, we entered a little bit elevated. We made some of our partners made good progress against that, but the strategies of how much inventory to carry have changed as a result of tariffs. And we're seeing not all partners, but some carry a little bit more than they normally would. And in some cases it's because they're adjusting the production footprint and leaning heavier on locations that have higher transit times in order to avoid areas that have higher tariff costs or higher potential tariff risk, and that's naturally causing them to carry a little bit more inventory.
I think that maintains and they tell us that this is the new reality and this level of inventory will stay for the foreseeable future, but we're continuing to watch it closely. We think overall the weeks of channel inventory will normalize as the demand comes back, but I don't know that that means the volumes go down.

Christopher Rolland

That's clear. Thank you.
And then your main competitor has suggested that it's gaining some momentum and some market share since their legal settlement with you guys. Would you agree that that's the case? Is this just a near term dynamic, and then Chris, I often ask you this, but, what do you see as the biggest needle moving driver in terms of new opportunities for '25 or '26 even? Is it still food or are you seeing some cool new opportunities emerge as well? Thank you.

Chris DiOrio

Okay, so first, Chris, I'll start with the legal settlement and going back there. So, pinch took 85% of the industry's 2024 unit volume growth.
So, we saw, so that translates into a very significant share gain in 2024. Obviously, we can't project 2025 until we get the RAIN Alliance data at the end of the year, but we're going to do our best to gain share again.
In terms of where the market's headed, food is a significant opportunity. There will be small volumes in 2025. They won't be really material. You see food as a '26, '27 type opportunity just because food opportunity is so large, the deployments are large, everything's big and it takes time.
In the bigger picture, we see an expansion of the market from handheld driven or not solely, but significantly handheld driven inventory counting in retail stores to fixed reading significantly in supply chains. And don't just think supply chain and logistics, think supply chains, retail supply chains, reading items from point of manufacturing, tracking them through the supply chain into a distribution center, out of the distribution center, and to a store, and then out the store exit at point after point of sale.
That retail opportunity, not just in the retail apparel, it's in retail general merchandise. It includes shipping and supply chain and logistics, and it uses significantly fixed reading. We think that growth opportunity is a place where we can excel.
Our platform is needed, it's used, we're innovating in that space. So expect us to keep focusing and doubling down on opportunities around fixed reading, and that's the opportunity for the next couple of years.
Looking out beyond that. You can start to see, you can get into mobile phones, consumer opportunities to layer in. The consumer opportunities is further out in time. It's fun to talk about it. It's exciting. It truly changed our industry, but it's not going to happen in '25 or '26. It's going to be further out in time. And in the meantime, Look at the solutions that we're delivering to enterprise end users to solve their pressing thorny problems.

Christopher Rolland

Thank you so much --

Chris DiOrio

Questions?
Thank you, Chris.

Operator

And your next question today will come from Guy Hardwick with Freedom Capital Markets. Please go ahead.

Guy Hardwick

Hi, good afternoon, guys.

Chris DiOrio

Good afternoon.

Guy Hardwick

I know you touched on it, but I'm going to know if you could just give us a bit of an update on the situation with the, your large, your second largest North American supply chain logistics customer.
And whether this, the flow of trade to the US is going to maybe exacerbate that issue or maybe it doesn't just maybe you could give us a bit of an update on how the inventory situation there is.

Cary Baker

Yeah.
You want to start, go ahead.

Chris DiOrio

So we continue supporting the customer in all that they're doing. We see them continuing to deploy. We see growth this year over last year And overall, we see a very positive dynamic engaging them.
We haven't seen further pushouts, and we will support them as they go forward. Cary, do you have things you can add?

Cary Baker

Yeah, I would say that there remains a lot of consistency with that and customer. And you know, we've made good progress in the channel inventory perspective, but as I mentioned earlier, the channel inventory dynamic has changed and some partners are increasing channel inventory for different reasons for strategic reasons.

Guy Hardwick

Thank you.

Chris DiOrio

Sure.

Guy Hardwick

Thank you, guys.

Operator

(Operator Instructions). And your next question today will come from Troy Jensen with Cantor Fitzgerald. Please go ahead.

Troy Jensen

Hey gentlemen, congrats. Maybe a couple of quick questions here for Cary, kind of common questions from me, but, Q2 gross margins, Cary, if you some kind of midpoint of revenues, and I think you said keep CapeEx relatively flat. It implies like a really high 50% type of gross margin in Q2. Am I thinking about that correctly?

Cary Baker

Yeah, you're thinking about it. I remember Q2, we have the benefit from the annual license payment which all flows to revenue in Q2. So that's a high margin revenue stream for us as you might imagine.

Troy Jensen

Yeah, okay, perfect. And then also just --

Cary Baker

On a product basis, I would expect a product gross margins, so that is excluding the license payment to be similar to Q1 gross margin.

Troy Jensen

Okay, perfect. Alright. And then how about just like if we look at second half, you talk about just, I mean assuming some growth and assuming, the 800 kind of takes over, I mean, safe to say second half gross margins should be above two one gross margins.

Cary Baker

I anticipate the second half product gross margins to benefit from the continued M800 ramp from improved yields that our ops team has been able to generate, and then also lower cost wafers flowing through.

Troy Jensen

Great, perfect.
Okay, and how about this, last question, I should know this, but can you just give us the details again on the debt, just the conversion price and the due date.

Cary Baker

The conversion price is about $111 stock price, and it is May 2027, so we've got plenty of time on that.

Troy Jensen

Okay, right,

Cary Baker

The notional value 287.5 billion. We also and then the last thing I would add, Troy, is we still have the cap call from the initial convertible debt we raised in 2019 just short of $50 million accretes to us if the stocks over $54.20 and end of 2026.

Troy Jensen

Okay, good to know. Thank you.

Chris DiOrio

Thank you, Troy.

Operator

And your next question today will come from Harsh Kumar with Piper Sandler with a follow up. Please go ahead.

Harsh Kumar

Yeah, hey gentlemen, I wanted to follow up on something that I heard in response to one of the answers, Chris, that you that you might have mentioned and make sure that I get this correctly.
Are you suggesting that your logistics, the large logistics customer, will be up in 2025 over 2024 despite the inventory issues that happened in in one queue? Is that the correct way for me to think about it?

Chris DiOrio

Well, harsh, remember that the inventory was at the channel partner level, so we would anticipate that and customers still having label growth, any change to the macro that has a flow flow through effect notwithstanding, but that was our assumption going into the year.

Troy Jensen

Thanks.
Understood, thank you.

Chris DiOrio

Okay, thank you, Harsh.

Operator

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

Chris DiOrio

Thank you very much, Nick. I'd like to thank you all for joining the call today and thank you for your ongoing support. Bye-bye.

Operator

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