Impinj Inc (PI) 2017 Q3 法說會逐字稿

Good day, and welcome to the Impinj Third Quarter 2017 Earnings Conference Call.

(Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Ms. Maria Riley, Investor Relations.

Please go ahead.

Thank you, Austin.

Thank you all for joining us to discuss Impinj's third quarter 2017 results.

On today's call, Chris Diorio, Impinj's Cofounder and Chief Executive Officer, will provide a brief overview of our performance and market.

Evan Fein, Impinj's Chief Financial Officer, will follow with a detailed review of our third quarter 2017 financial results and fourth quarter 2017 outlook.

We will then open the call for questions.

Impinj's President and COO, Eric Brodersen, is also on the call and will join Chris and Evan in the Q&A session.

Please note that management's prepared remarks, along with quarterly financial data for the last 8 quarters, are available on the company's website.

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 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 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, except for revenue or where we explicitly state otherwise, are non-GAAP financial measures.

Balance sheet metrics and cash flow metrics are on a non-GAAP basis.

Before moving to the financial results, I'd like to announce that Impinj management will attend the RBC tech conference on November 7 in New York.

We hope to have the opportunity to see many of you there.

I will now turn the call to Chris Diorio, Impinj cofounder and Chief Executive Officer.

Chris?

Thank you, Maria.

Thank you all for joining the call.

I'm delighted to be here with you today.

We delivered a solid third quarter, with revenue just above the midpoint of our guidance.

Our fixed reader sales were strong, with third quarter unit volumes growing 68% year-over-year.

Our 2017 endpoint IC unit guidance remains unchanged at between 7.0 and 7.2 billion units.

Notably, several of the delayed end users we cited on our last earnings call have recently committed or recommitted to RAIN RFID publicly, reinforcing our adoption expectations.

But their pace remains mostly unchanged since our last call.

Today, I will discuss why we believe our fixed reader unit volumes are growing rapidly and why this trend reinforces our conviction in our platform strategy.

I will also discuss softness in our second half 2017 endpoint IC unit volumes versus first half and the market dynamics we believe may underlie that softness.

Technology adoption tends to come in waves.

For example, think mainframes to mini computers to microcomputers or first-generation mobile phones to flip phones to smartphones.

In RAIN, the first adoption wave was offline handheld inventory accounting and purpose-built RAIN software.

Impinj leveraged that first wave to establish our industry leading market position but we chose not to build handheld readers or purpose-built RAIN software.

Instead, we predicted that a second adoption wave was coming built on real-time fixed reading and enterprise software.

For years, we invested in fixed readers, gateways and our ItemSense operating system; in enterprise software partnerships, our channel and our solutions go-to-market team; and in ubiquitous reading, all in anticipation of that second adoption wave.

Today, analysts report site-expanding handheld-driven retail RAIN deployments.

We see that trend.

But we also see momentum building behind the next second trend.

A growing number of retailers wanting more transformative business value from RAIN are turning to real-time fixed reading, RAIN data integration with their existing enterprise software systems and deploying a broad array of RAIN-enabled use cases.

As an anecdotal but telling example, C&A, a large European retailer at the RAIN Alliance meeting in Lille, France, said that even as they are rolling out handheld reading to 9 countries, they are also driving towards a future of ERP integration, automatic reading and RAIN-based point-of-sale transactions, that second adoption wave.

We and our partners are also engaged with health care, airline, logistics and automotive end users to deploy shipment verification and asset tracking use cases that demand real-time fixed reading and RAIN data integration with enterprise software systems.

Recall Faurecia, the large automotive supply company we cited on our last 2 earnings calls, or the many hospitals we've mentioned in the context of asset tracking, again, that second adoption wave.

I've raised these points because our 68% third quarter year-over-year reader and gateway volume growth significantly exceeded our expectations.

We sold out of several SKUs, including our newly introduced Speedway R120 reader and xSpan gateway, pushing meaningful order volumes into the fourth quarter.

We also see strong fourth quarter demand.

Our market data, sales volumes and, for me personally, deep discussions with partners and end users reinforce my belief that the second RAIN adoption wave is upon us.

And even as we see that second wave driving significant reader and gateway volume growth, we see a few percentage points decline in second half 2017 endpoint IC unit volumes versus first half.

The reasons aren't completely clear to us, but we do not believe our market share has changed materially.

Rather, we believe several factors may be in play, the delays of several large retailers, our inlay partners adjusting to our transition from constrained supply and long lead times mid-2016 to early 2017 to buffer stock and short lead times now, some seasonality in retail deployment timing which our previously long lead times may have masked, a rebound from 2016's rapid volume ramps through our long supply chain and some retailers only partially deploying while they evaluate second wave solutions.

Over time, we expect our endpoint IC growth rates to return from this year's 18% to more historical norms, albeit with continued volatility.

In the meantime, we are seeing a few percentage points larger endpoint IC price erosion than we planned in the second half of 2017 due to stiffened competition at a time of slower growth causing a modest decline in second half 2017 endpoint IC gross margins rather than the increases we saw in the past years.

In light of these new market dynamics, we are rebalancing inventory, ramping reader and gateway production and slowing endpoint IC production.

Still, we are unable to build enough readers and gateways in the fourth quarter to catch up with the growing demand.

So we expect revenue constraints at least in the fourth quarter and perhaps into early 2018 as we push meaningful fourth quarter reader and gateway orders into 2018.

To summarize the market dynamics, we see today: number one, a growing pipeline of new retailers deploying RAIN but, as we've noted before, with deployment or expansion delays by a few large, notable apparel retailers; number two, a second half 2017 slowdown in endpoint IC volume growth and a few percentage points larger endpoint IC ASP erosion than we planned; number three, increasing interest among retailers, existing and new, in second-wave solutions even as they pilot or deploy hand-held reader-driven inventory counting; number four, a broad array of logistics, airline, health care and automotive providers piloting or deploying second-wave solutions; number five, growing demand for fixed readers and gateways, with 53% year-over-year unit volume growth in the second quarter and 68% in the third quarter, the latter could have been larger but for the operations constraints I just noted; number six, strong demand for our newest reader and gateway SKUs, with some second half 2017 gross margin pressure due to us substituting SKUs to meet demand; and last, connectivity revenue growing as a fraction of total revenue.

We are today supporting more than 30 fixed reading pilots and deployments in retail, health care and logistics, with a strong pipeline of fourth quarter opportunities.

We're ramping our go-to-market initiatives to meet the demand.

For example, a few weeks ago, we held our first partner acceleration forum with 15 key partner companies that have the know-how and scale to support second-wave rollouts.

We are also partnered with enterprise software providers, such as SAP and STANLEY Healthcare, to meet the needs of second-wave end users.

As an example of our SAP partnership, a few weeks ago, we and SAP deployed our platform at the SAP Hybris global summit in Barcelona.

ItemSense and 45 Impinj readers and gateways captured in real time the activity of 2,500 attendees across 300 scheduled events.

Our platform delivered RAIN data to the SAP Hybris galaxy experience application which, in turn, allowed conference attendees to visualize their conference experience and understand how our RAIN system could enable their applications.

The power of SAP Hybris delivering RAIN IoT data from Impinj's platform was readily apparent.

For several years, we've made significant investments in our technology and in every layer of our platform in anticipation of this second adoption wave.

Those investments will allow us to make significant 2018 product announcements that we believe will increase our differentiation, enhance our market position and help drive second-wave adoption.

Expect us to maintain low EBITDA as we bring these products to market.

I said on our last earnings call that we are learning in real time the dynamics of leading a nascent but gigantic opportunity.

Those words feel ever more relevant to me as we navigate today's market challenges.

At the same time, I feel ever more certain that we are on the right path.

We predicted the second adoption wave, long ago began investing into it and today see early market signals confirming our prediction.

Expect us to continue finding current revenue opportunities.

For example, by us introducing our Monza R6-A endpoint IC targeted at European retail even as we drive hard into the second wave, investing in and delivering fixed-reading solutions into enterprise partnerships that leverage our platform, accelerate adoption and drive scale in this gigantic opportunity.

In summary, I'm proud of our team's execution this quarter and our continued progress toward our vision of digital life for everyday items.

We grew to 310 employees and exited the quarter with 225 issued and allowed patents, an increase of 9 over last quarter.

Most importantly, our path forward, although not without its challenges, to me, has never been clearer.

I will now turn the call over to Evan to give you a detailed look at our third quarter financial results and our outlook for the fourth quarter.

Evan?

Thanks, Chris.

Before I review our third quarter 2017 financial results, I want to remind you that with the exception of revenue, or unless explicitly stated otherwise, today's statement of operations is on a non-GAAP basis.

All 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.

We delivered third-quarter revenue of $32.6 million, representing 5% growth over third quarter 2016.

Gross margin was 53.7% compared with 54.7% in second quarter 2017.

The sequential gross margin decrease partially reflects the decrease in endpoint IC prices.

Consistent with our plan to invest in our enormous market opportunity, total operating expense in the quarter was $19.0 million or 58.4% of revenue compared with $17.2 million or 50.5% of revenue in the prior quarter.

R&D expense was $7.9 million or 24.1% of revenue.

Sales and marketing expense was $7.1 million or 21.7% of revenue.

G&A expense was $4.1 million or 12.6% of revenue.

We ended the quarter with 310 employees compared with 283 employees at the end of last quarter.

We delivered an adjusted EBITDA loss of $1.5 million compared with $1.4 million income in the prior quarter.

GAAP net loss for the quarter was $4.9 million.

On a non-GAAP basis, we reported a third quarter net loss of $1.6 million or a loss of $0.08 per share compared with net income of $1.9 million or $0.10 per diluted share in third quarter last year.

Our third quarter 2017 weighted average diluted share count was 20.8 million shares.

Turning to the balance sheet.

We ended the quarter with cash and cash equivalents and short-term investments of $62.5 million compared with $74.5 million in the prior quarter.

Accounts receivable balance was $25.6 million, up slightly from last quarter.

We increased inventory by $2.4 million over the prior quarter driven primarily by previously committed endpoint IC production, bringing our inventory balance to $45.8 million.

As Chris noted, we will moderate endpoint IC production consistent with our plan to have 1 billion units of endpoint IC buffer at year-end, at the same time ramping reader and gateway production.

As Chris also noted, our fourth quarter outlook is impacted by a decline in endpoint IC demand as well as by insufficient reader and gateway inventory, with the latter causing us to push meaningful revenue into 2018.

Turning now to that outlook.

We expect fourth quarter 2017 revenue to be in the range of $28.25 million to $29.75 million.

We expect adjusted EBITDA to be a loss between $4.85 million and $3.35 million.

We intend to maintain our current level of investment in the business.

So on the bottom line, we expect non-GAAP earnings to be a loss between $4.95 million and $3.45 million or a loss between $0.24 and $0.16 on a per share basis using a weighted average basic and diluted share count in the range of 20.9 million to 21.4 million shares.

I will now turn the call over to the operator to open the question-and-answer session.

(Operator Instructions) Our first question comes from Charlie Anderson with Dougherty & Company.

So a lot of moving parts here, obviously, in terms of Q4.

You've got the fixed readers moving into the first half of next year and then you've got the lower ASPs.

So I wonder on the fixed reader, if maybe you're able to define how much that was that's pushing?

And then on the ASP side, obviously, that was a new dynamic.

So I wonder if you could talk about what's driving that and then how you see that going forward into next year as well.

Then I've got a follow-up.

Evan, do you want to take that question?

Yes.

Charlie, are you referring to the calendar-end boundaries, meaning the Q4 boundary?

Correct.

Yes.

On the fixed reader side, that is measured in more than a few million dollars -- or I should say a few million dollars, not more than a few.

A few million dollars is being pushed into 2018.

On the endpoint IC ASP reduction, it's a small, a slight increase.

Year-over-year, we've said single-digit price declines, and it is still in that range.

It's just edging up a bit.

Okay.

Got it.

And then just in terms of how that will persist, I mean what are the competitive factors you guys are seeing that's driving that?

And you mentioned new products also next year.

So I just wonder about the long-term ASP dynamics relative to how you guys have talked about it historically.

Yes.

So this is Chris, I'll take a cut at that, and then I'll hand over to Eric as well.

We do see increasing endpoint IC pressure as a consequence of stiffened competition at a time of slower growth.

So -- and we expect some of that pressure to continue.

But we expect to continue driving our platform in the market and as I said, next year, introducing new products that we believe will increase our competitive differentiation and -- that drive the market forward.

Eric, anything else to add?

No, I think you captured it well.

I think it also is key to make sure that we're thinking about which markets, the retail space being particularly price-sensitive versus some of our workloads in the, say, logistics or health care space, there's differentiation across those markets.

And our next question comes from Craig Hettenbach with Morgan Stanley.

Just had a follow-up on the commentary around competition ASPs, do you find at this point in terms of making more decisions as to just revenue growth versus margin?

Or how should we think about that really more so going into next year?

As -- Craig, I think the way you think about it is as we said on our last earnings call, we intend to continue competing aggressively to drive share and to maintain our market position in this market.

And that is, as Eric just mentioned, in all segments of the market: retail, automotive, airlines, the many different segments, as well as continuing our investment in the business, in our new products and differentiation to drive our platform forward and give us strong competitive dynamics going forward.

Okay.

And then as my follow-up, as you talk about maybe some pullback in retail, can you touch on some of the newer verticals be it transportation and even kind of prospects in health care?

Is it a point where just you're seeing some realignment of growth opportunities?

Or how should we think about some of the new opportunities and your visibility as to when they ramp?

Eric, do you want to take that one?

Yes.

So I'll pull it into 2 parts.

I think Craig, you highlighted this idea that there's a pullback in retail.

That really is related, as we said last earnings call, that's about major projects that have moved out and pushed out of their current period.

When you think about the other verticals and the traction that we're seeing there, you can really -- the evidence around that is really borne out in those growth rates around our readers and gateways.

2 major factors, I think within our core channel and our historical RAIN-focused channel, we see significant growth on our reader products, particularly on that 120 launch.

And then with our shipment verification and logistics sales focus this past quarter adds more traction on products like xSpan, gateways and our ItemSense software.

So those -- that's how I would look to those -- the differentiation between the verticals.

I guess -- this is Chris, I'd like to add one more thing.

We don't see a pullback in retail.

What we see is expanding handheld-driven retail RAIN deployments, as I said in the script.

But what we saw was a couple of the giants, as I call them, whales on one of the prior calls, pushing out their deployments in time as a consequence of the -- it's just really the size of the upscale opportunities or -- them just determining exactly where they want to go with fixed infrastructure versus handhelds.

So we still see retail growing.

And in fact, if you look at data, for example, from the University of Auburn and others, you see expanding retail deployments.

And we're just -- in this 2017 year, we just haven't seen those big step function increases from giants coming in like we saw in 2016.

That's absolutely right.

Our next question comes from Troy Jensen with Piper Jaffray.

It's Nick on for Troy.

Just a quick touch on the whales, as you call them.

When do you expect those to land?

Is it going to be sometime in 2018 or is it in multiple quarters?

Can you just break that down a little bit for me?

So again, Chris speaking here.

So we can't decide or really cite the timing of these large retail end customers.

I guess you well know that there has been some public press from several of them on their recent earnings call or as repeated by some of the analysts.

And I think if you look out in the public press, you can get an idea where some of the giant retailers may be moving and the timing of their go-to-market initiatives.

Okay.

And then kind of touching on the second wave, as you guys call it.

And you mentioned you've been talking to a few of your customers.

Which market fields are you seeing and hearing that basically that the adoption is near?

So I guess I'm going to start by answering that question, and I'm going to expect Eric to jump in.

We see significant opportunities in shipment verification and asset tracking significantly across multiple verticals.

It's not confined to one.

We've got logistics and health care and airlines and manufacturing and -- so there's many, many verticals going.

As I said, we've got 30 fixed reading pilots ongoing now and more in the pipeline.

So we're seeing kind of a broad wave of adoption of that fixed-reading, hands-free infrastructure that's driving transformative business changes for end users in these multiple verticals.

Eric, anything I left out?

I just -- I go back to your comments in the opening remarks around C&A and their focus on as they roll out and expand, they're utilizing both handheld infrastructure in the near term and evaluating deeper ERP integrations, evaluating fixed infrastructure deployments as they go forward.

Okay.

And then just my last question.

You're going into these verticals with new adoption in second wave.

Are there any new verticals that you haven't seen in the past you are talking to?

Or which ones in particular are -- have the most interest moving forward?

So that's a hard question to ask because -- a hard question to answer because they're all exciting to me.

I guess I'm going to give an answer that's just for me personally, and I'll see if the other guys here sitting with me have a different answer, the one that's surprising me right now in terms of the speed at which it's coming on is food.

Now that said, I don't expect significant adoptions in the food industry to happen next year or really that quickly because it's such a gigantic opportunity, it's such a gigantic vertical.

But when you hear about the stuff going on in Japan and some more recent news coming out of China in terms of food tagging and other opportunities and other companies talking about food tagging, for me, that's the giant opportunity that's hanging out there.

And the pace of interest there is the one that's really surprised me the most.

Anything you guys would like to add?

Okay, that's it from this side.

Our next question is from Mike Walkley with Canaccord Genuity.

Chris, I just wanted to touch base on just the lower endpoint sales in the second half of the year versus the first half.

Since a lot of your customers, they tend to be disposable as you work through retail, et cetera, can you talk about just the decline year-over-year and why you don't think maybe it's a share loss of EBIT on a short-term basis?

Just how do you think about your relative share given the softer second half of the year versus the first half when your retailers should be a little stronger on a seasonal basis?

Yes.

So Mike, I think I'm going to refer back to the script, and we can go back and forth as we tease this one apart.

As I said, we believe that there's a couple of factors in play.

One is, again, the delay, with several large retailers not introducing those large step function increases.

And number two is our inlay partners adjusting from a transition where we had constrained supply and long lead times to us having a buffer stock in short lead times now.

And another one is some seasonality in retail deployment timing, which our previously long lead times may have masked.

And so we're actually seeing a bit of slowness in sort of those deployments in Q4, which previously we sort of drove right through because we had long lead times and significant pending orders.

But now our inlay customers are ordering mainly at the time that they need -- or closer to the time they need the product.

And so we are seeing a little bit of seasonality in Q4, especially in terms of new deployments.

And then we're seeing still a little bit of a rebound from 2016 rapid volume ramp.

So all of those are the factors that we believe may be in play.

It's hard for us to quantify which ones they are.

But we still believe our share is strong.

And our data based on the information we have, the best information we've ever had in terms of where we stand with our direct partners as well as end customer adoption, we don't believe that our endpoint IC market share has changed materially.

Okay, that's helpful.

And then, as you look to your fixed comments into 2018, you talked about the endpoints returning to more normal growth after the 18% this year.

Can you kind of walk us through that thought process, especially given some of these big projects that might push past Q1 and you have pretty difficult year-over-year comparisons on the endpoint growth just to kind of how you see the market developing over the course of '18 to think about a 20% or greater end point growth next year?

Sure.

So we do see some volatility on a quarter-by-quarter basis, both due to timing and due to any particular opportunity ramping up.

We do -- if you look back to last year, we were, essentially in allocation, we didn't have enough product.

And we're -- and so we have long lead times, and we see a normalization happening now as we accommodate basically a new dynamic where we have sufficient product to meet the demand.

And so what we see at least is sort of an underlying growth rate in the industry that's more along the lines of historical norms.

And we expect our volumes to approach and get closer to those historical norms over time.

Now I can't cite exactly what's going to happen on a quarter-by-quarter basis next year or how long it's going to take us to get back to those historical norms, but we remain confident in the retail business, confident in adoption at other verticals.

For example, looking at Delta rolling out and others.

And we see growth adoption all across multiple industries.

And as a consequence, we do expect our volumes to return to more historical norms.

Okay.

And last question for me, for Evan, on the gross margin, were the readers and gateway gross margin in line with normal trends?

Or because you're supply-constrained, you had to pay up on the spot market so those margins were below expectations because given the stronger mix of readers I would have thought the margin might have been a little stronger this quarter?

Sure.

Yes.

So a few things going on, on the gross margin percentage.

One, on a skewed basis, our gross margin percentages were very healthy.

Meaning kind of same product over prior periods, those margins were more or less unchanged.

What Chris mentioned earlier was we saw great adoption of some of our newer products, specifically the xSpan and the R120.

Those have a large margin -- a larger margin profile -- I'm sorry, a lesser margin profile than their -- than other products inside the family.

So lower margin products were gaining more traction.

And so that was -- there was a mix issue towards those newer products which we're very excited about and we think create kind of new opportunities for us.

And those tend to have a slightly lower margin profile.

But the health of any given product remains very good.

(Operator Instructions) Our next question comes from Jim Ricchiuti with Needham & Company.

You seem to be suggesting that at least on the tagged IC endpoint portion of the business, things may be getting a little bit more competitive.

Is that coming from your major competitor?

Yes.

And if you look at what's happening in the market and maybe compare it to previous points in time when things were competitive, how does it stack up against prior years?

So I guess what we're feeling right now is a little bit stiffened competition as the -- in a time of a little bit slower growth.

And so I think what we're feeling now is somewhat stiffened competition compared to the past.

That said, we remain confident in our product positioning, in our -- as I talked about our Monza R6-A launch really targeted at European retail and in our opportunity to introduce new products next year that we believe will really, again, really cement our leadership position and give us opportunities as we head into 2019.

Chris, any -- are you seeing any new competition in this market or increased competition from other players that you normally wouldn't be seeing a stiff competition coming from?

Yes.

Jim, it's primarily from existing players in the market.

We have not seen much in the way of new competitive entrants there.

I've been traveling around the world talking to people, and there's some noise about competitive entrants here and there, but primarily the market is driven by the players that have been prominents in the market since the early days.

Okay.

And then just shifting over to readers and gateways where you've been having trouble meeting demand, at least for certain SKUs.

Is that -- do you get the sense that is something that's happening with your competitors as well?

I mean you seem to be suggesting that some of this business shifts into Q1.

And I'm just wondering is there a risk that potentially some of this business may just go to a competitor?

So I'm going to -- so Jim, I'm going to start by just saying a little bit about the dynamics of us pushing some business forward.

And then I'm going to talk to Eric and see if he has any additional insights in terms of competition.

We can't really speak to what's occurring at our competition on the fixed reader side.

What we do see, number one, high demand for our new SKUs.

And number two, long and increasing component lead times, which is increasing the time it takes us to get those new products.

And at the same time, we are ramping production as fast as we can.

And we're prioritizing, obviously, those deployments that need products the most as well as have the most critical value for us.

So we're driving into -- we're driving the fixed reading, we see the opportunity now and we're moving to it as fast as we can, managing through those component lead times.

Eric, anything to add?

Jim, I think with respect to a potential substitution by a competitor into some of these workflows, I'll start at the top end of the platform and emphasize that on the gateway, an ItemSense-based sales into say a logistics shipment verification or health care asset management workflow, we're deeply integrated into that deployment.

And our team selling at the end user level as part of an ecosystem makes us more confident in our ability to both have the right prioritization around how we flow units and what supply we put in place and also makes us feel like we have competitive differentiation in that type of a deployment that leads us to worry less about competitive substitution.

I'm not saying that it can't occur but I think that's less of a concern for us in that type of a sales motion.

I think the place where we're working aggressively to make sure that we capture this expansive entry level space that we've identified with the 120, we know we need to drive supply to the right level there because that's the market where the options available to end customers and channel partners are more prevalent.

But it's -- for us, we feel like again, we've got good investments in our channel team, good investments in our channel partners and ensuring that we're prioritizing the right supply into the right opportunities.

Yes.

And to put a bow on it, so that fixed -- those fixed reader opportunities are really platform sale opportunities, and it's a lot harder to displace a platform.

Okay.

And Evan, just a question for you.

How should we think about operating expense this quarter?

You had a couple of areas where OpEx, particularly R&D and sales and marketing, scales up quite a bit sequentially.

How should we think about OpEx in Q4?

Sure.

As Chris said, we are in an investment mode to capture this massive opportunity, so we do intend to continue to invest.

What drove some of the increase in Q3 specifically was platform development and ubiquitous reading.

We made some meaningful progress on our development of our ubiquitous reading product in addition to other products in the platform.

We hired a number of people, I think I mentioned going from 283 to 310 folks.

And we had our one-time wage increases -- or kind of our annual review process takes effect in the third quarter.

So those 3 things were kind of notable increases which drove most of the increase from Q2 to Q3.

And then I think it will not grow quite as fast in Q4 because some of those were onetime items, but we do intend to continue to invest.

And our last question today comes from Mitch Steves with RBC Capital Markets.

I had 2 questions for you.

First, on the margin front.

So I guess, why is the profitability kind of decreasing if the revenues are coming down near term?

Is there anything you can do to essentially keep the profitability more flattish?

And then secondly, from a growth perspective, is the new product that's targeted to European retail, is that going to be an ASP uplift for you guys?

Or is it going to be more in line with your corporate average?

Mitch, this is Evan.

I'll take the first question.

On the margin front, we feel like the opportunity is massive.

We're entering the second wave, and we like our strategy to continue to invest in this opportunity.

So it's not our goal to optimize profitability.

It's our goal to optimize revenue growth and adoption.

And we think that's the right strategy for investing.

So therefore, Chris mentioned in his script, you'd see lower EBITDA as a result of that continued investment strategy.

And then with respect to the MR6-A launch, we really like that launch, and see solid, strong support for that as we ramp it in market.

But I would characterize that as an IC that is targeted specifically at European retail and will have a price strategy that's more in line with our existing model.

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 just like to say thank you to everybody for joining our call today.

And thank you, again, very much for your support.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.