Impinj Inc (PI) 2023 Q1 法說會逐字稿

Welcome to the Impinj First Quarter 2023 Financial Results Earnings Conference Call and Webcast. (Operator Instructions)

I would now like to turn the conference over to Mr. Andy Cobb, Vice President, Strategic Finance. Please go ahead.

Thank you, operator. Good afternoon and thank you all for joining us to discuss Impinj's first quarter 2023 results. On today's call, Chris Diorio, Impinj's Co-Founder and CEO, will provide a brief overview of our market opportunity and performance. Cary Baker, Impinj's CFO, will follow with a detailed review of our first quarter 2023 financial results and second quarter outlook. We will then open the call for questions. Jeff Dossett, Impinj's CRO, will join us for the Q&A. You can find management's prepared remarks, plus trended financial data, on the Investor Relations section of the company's website.

We will make statements in this call about the financial performance and future expectations that are based on our outlook as of today. Any such statements are forward-looking under the Private Securities Litigation Reform Act of 1995. While we believe we have a reasonable basis for making these forward-looking statements, our actual results could differ materially because any such statements are subject to risks and uncertainties. We describe these risks and uncertainties in the annual and quarterly reports we file with the SEC. We do not undertake, and expressly disclaim, any obligation to update or alter our forward-looking statements except as required by law.

On today's call, all financial metrics except for revenue, or where we explicitly state otherwise, are non-GAAP. Balance sheet and cash flow metrics are GAAP. Please refer to our earnings release for a reconciliation of our non-GAAP financial metrics to the most comparable GAAP metrics.

Before turning to our results and outlook, note that we will participate in the UBS Global Industrials and Transportation Conference on June 6th in New York; Baird's Global Consumer, Technology and Services Conference on June 7th in New York; and ROTH's London Conference on June 21st. Also, we will host an Investor Day on June 13th in Seattle. We look forward to connecting with many of you at those events.

I will now turn the call over to Chris.

Thank you, Andy. And thank you all for joining the call. Our first quarter set a strong start to the year. Revenue hit a new quarterly record. Our multi-quarter endpoint IC backlog, underpinned by our solutions engagements with enterprise end users, is very strong. And our wafer supply is finally improving, allowing us to use our balance sheet to begin building inventory to support that backlog as well as anticipated future growth.

Starting with endpoint ICs, first quarter revenue exceeded our expectations, setting a record for the 7th consecutive quarter. That performance was driven by underlying demand, increasing IC supply and our inlay partners rebuilding their safety stock.

Coming off that strong first quarter, we see several crosscurrents that should drive second quarter endpoint IC revenue to be flat sequentially. First, enterprise program expansions and new use cases, the latter built significantly on our solutions efforts, are the main drivers of our endpoint IC growth. From today's vantage point, even though every meaningful enterprise deployment with which we are involved is progressing, each is also delayed relative to our expectations by several months, all for their own reasons but most traceable back to prior supply disruptions and our inability to predict the precise timing and pace of large deployments.

Second, product shortfalls stalled many early opportunities and restarting those opportunities will take time. And finally, as our IC supply recovers, we see our inlay partners slowing their safety stock growth. In summary, our demand remains healthy, our backlog remains very strong and we expect robust full-year endpoint IC growth but see a second quarter pause.

Beginning with those enterprise deployments, we received a PO for the third phase of the loss prevention deployment at the visionary European retailer. This phase is roughly 75% the size of the prior phase, starts in second quarter, spans several quarters and will drive incremental endpoint IC volumes. We continue to be excited by the self-checkout and loss prevention use case and see expansion opportunities at this retailer and at others.

In retail general merchandise, we expect strong second half 2023 endpoint IC demand growth from category expansion at the large North American retailer. And on the supply chain and logistics front, we see very strong partner demand for our reader ICs, used in printer encoders, for our second large North American end user. We expect that end user to drive large endpoint IC volumes in second half 2023 and beyond.

Turning to the early opportunities, I am pleased by our progress with Impinj Authenticity and expect meaningful second quarter Impinj M775 endpoint IC volumes for tax tracking as well as healthcare and specialty foods. I am also excited about book and magazine tracking in Japan, a use case we pioneered years ago, that we expect will consume several hundred million endpoint ICs in 2023. We are well positioned to capitalize on these early opportunities.

On the supply front, wafer availability will finally catch up to demand in the second quarter. Between support from our foundry partner and our post-processing investments, we look to avoid a repeat of our painful 2021 and 2022 shortfalls by building appropriate inventory. For readers, we entered the second quarter with significant backlog, but stubborn tightness in a few components means we will likely carry significant reader backlog into third quarter. For reader ICs, demand for our legacy Indy products was strong, even as our partners began ramping 65 announced E-family-based products to production, with more than 75 new products in development.

Turning to our organization, in April we acquired Voyantic, the industry leader in solutions for inlay design, measurement and test. With leading end users relying on our platform to transform their operations, this acquisition expands our solutions footprint to advance the quality, reliability and readability of the partner inlays used in those enterprise deployments. Perhaps most important to a successful integration, the cultural fit between the 2 teams is very strong. I have worked closely with and trusted the Voyantic leadership for the better part of 15 years and I'm thrilled to have them, and the very experienced Voyantic team, as part of the Impinj family.

I am also thrilled to welcome Miron Washington to Impinj's board. Miron has 25 years' experience in business-to-consumer and business-to-business ecommerce, global supply chain operations, digital transformation and multi-billion-dollar P&L ownership. His knowledge and experience in our target market verticals will pay dividends on our journey to connect every item in our everyday world. Miron, welcome to the Impinj family.

Before I close, I'd like to thank every member of the Impinj team for your unflagging effort on so many fronts, from new product development to scaling our operational capabilities to delighting our many customers. I feel honored by my incredible good fortune to work with you.

In closing, from today's vantage point, I see first half 2023 as a transition from product shortfalls and project delays to timely shipments against growing opportunities. Looking to second half 2023, I see secular market growth, strong Impinj backlog and our platform solutions efforts paying dividends. As we continue driving our bold vision, I remain confident in our market position and energized by the opportunities ahead.

I will now turn the call over to Cary for our financial review and second quarter outlook. Cary?

Thank you, Chris, and good afternoon, everyone. On today's call, I will review our first quarter financial results and second quarter financial outlook.

First quarter revenue was $85.9 million, up 12% sequentially compared with $76.6 million in fourth quarter 2022 and up 62% year-over-year from $53.1 million in first quarter 2022 First quarter endpoint IC revenue was $67 million, up 14% sequentially compared with $58.7 million in fourth quarter 2022 and up 73% year-over-year from $38.8 million in first quarter 2022. Improving supply drove first quarter revenue above our expectations. Looking to second quarter, we expect the project timing and first quarter strength Chris mentioned to now result in similar endpoint IC revenue to first quarter.

First quarter systems revenue was $18.8 million, up 6% sequentially compared with $17.9 million in fourth quarter 2022 and up 31% year-over-year from $14.3 million in first quarter 2022. First quarter systems revenue exceeded our expectations, driven by strong reader IC, reader and gateway shipments. On a sequential basis, reader and reader IC revenue increased while gateway revenue decreased. On a year-over-year basis, gateway and reader IC revenue increased while reader revenue decreased. Looking ahead, we expect a slight sequential decrease in second quarter systems revenue, as stubborn component shortfalls more than offset Voyantic revenue.

First quarter gross margin was 52.4%, compared with 53.8% in fourth quarter 2022 and 57% in first quarter 2022. The sequential decrease was driven by both endpoint IC product margins, specifically indirect costs related to ramping 300 millimeter post-processing, and systems product margins, specifically the lower mix of E-family reader ICs. The year-over-year decrease was driven by lower endpoint IC product margins, specifically a smaller specialty and industrial IC mix. Looking to second quarter, we expect our gross margin to return to the 53% to 54% range.

Total first quarter operating expense was $36.4 million, compared with $29.5 million in fourth quarter 2022 and $26.8 million in first quarter 2022. Research and development expense was $17.3 million. Sales and marketing expense was $7.7 million. General and administrative expense was $11.4 million. We expect a slight sequential decrease in second quarter operating expense.

First quarter adjusted EBITDA was $8.6 million, compared with $11.8 million in fourth quarter 2022 and $3.5 million in first quarter 2022. First quarter adjusted EBITDA margin was 10.0% First-quarter GAAP net loss was $4.4 million. First quarter non-GAAP net income was $8.7 million or $0.30 per share on a fully diluted basis.

Turning to the balance sheet, we ended first quarter with cash, cash equivalents and investments of $164.7 million, compared with $192.9 million in fourth quarter 2022 and $193.4 million in first quarter 2022. Inventory totaled $85.8 million, up $39.4 million from the prior quarter, with endpoint IC raw materials and WIP driving the increase.

First quarter net cash used by operating activities was $26.6 million. Property and equipment purchases totaled $7.6 million. Free cash flow was negative $34.2 million, including $39.4 million for inventory growth.

Before turning to our second quarter guidance, I want to highlight a few items unique to our results and outlook First, as Chris mentioned, we acquired Voyantic, our first acquisition in many years. This tuck-in deal advances our solutions efforts and will both grow revenue and expand gross margin.

Second, although we began rebuilding wafer inventory in first quarter, we do not anticipate having a sustainable amount of 300 millimeter endpoint IC finished goods inventory until at least third quarter 2023. Today, our unit backlog significantly exceeds our inventory.

Finally, from a profitability standpoint, first quarter operating expense exceeded our expectations, due to litigation spend ahead of our scheduled trial dates. That $4.2 million spend was $1.3 million more than we expected, pushing our first quarter adjusted EBITDA below the low end of our guidance. Looking ahead, we expect second quarter adjusted EBITDA margin expansion and anticipate third and fourth quarter operating expense to be below the first half run rate.

Turning to our outlook, we expect second quarter revenue between 84 and $87 million, compared with $59.8 million in second quarter 2022, a 43% year-over-year increase at the midpoint. We expect adjusted EBITDA between 8.8 and $10.3 million. On the bottom line, we expect non- GAAP net income between 8.2 and $9.7 million, reflecting non-GAAP fully diluted earnings per share between $0.28 and $0.33.

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. Operator?

(Operator Instructions) Today's first question comes from Harsh Kumar with Piper Sandler.

I had 2 questions. Chris, when I listened to your commentary, it seems like the end demand is fine. You're going to what I would call as growing pains kind of fixing a few things. How would you characterize the end demand? And then historically, we've always thought of Impinj as a 25% to 30% grower at least in this phase of its life cycle. Do you think with a flattish first and second quarter, that number is jeopardy or would you still be in a position to be able to talk about that kind of growth rate for the year?

So to take the first part of your question, the end-user demand remains strong. We have not seen any pullbacks of any significance in any of the programs we've been working with. What we have seen is just due to the difficulty in predicting the pace and timing of those deployments and just -- and for many of them, given their sheer size, we see a bit of a push to the right. That said, our backlog remains strong, our backlog, which is going into those programs remains strong. And we see that backlog driving multi-quarter growth at those large programs. So that's why in my prepared remarks, I used the word pause. It's a bit of a pause in the second quarter as we see a growing demand into the third quarter.

For the latter part of your question in terms of overall inventory -- I'm sorry, (inaudible) inventory overall unit -- revenue growth for the year, we do see a strong year, we only guide 1 quarter at a time. We do see robust full-year endpoint IC growth and the industry unit volume CAGR going back over the past decade has been between 25% and 30%. And we don't see any reason why that unit volume CAGR is going to change given the demand we still see out in the market.

And then for my second and I guess last question, I'll get back in queue. I wanted to ask about the second logistics customer. Presumably, they'll be taking billions of ICs. So while, I guess, would we not see the benefits sooner than that? I guess I'm asking about the lag between depletion of inventory for that customer and the inlay partners and the resumption of orders that you might see from the inlay partners?

And then another question we get is, how much share do you keep at these kind of applications with like, let's say, the second logistics customer?

Sure. So to answer the first part of your question, the timing of the deployment is currently a ramp. So it's early days for that deployment. But there are significant systems efforts going on now on -- as I mentioned in my prepared remarks, the printer and coder side, to put printers in the facilities to be able to encode the label, there's other efforts around other parts of the reading infrastructure. So you should really be thinking of that deployment as ramping and we are a bit delayed relative to our expectations in terms of where the ramp is.

In terms of our share of those deployments, as you know, we have been working very hard to advance our entire platform to enable solutions for these enterprises and that solution includes many elements of our platform, including our endpoint ICs to basically use our know-how, our entire platform, the better together combined performance of our overall systems to advance our platform and our ability really to meet the end customers' needs. And to the extent that we can deliver against those end customer needs and outperform the competition, I expect us to maintain very good share at those accounts.

The next question comes from Jim Ricchiuti with Needham & Company.

I just wanted to go a little bit more deeply if we can into the delays that you're noting with respect to some of these enterprise deployments. Can you give a sense how many customers we're talking about? And how confident are you that these delays are partly a function of supply chain challenges that you've experienced? Or I think there's obviously some macro headwinds out there. So how confident are you that it's not the latter?

To answer your question, we are confident in those deployments. We see no indication that they're pulling back. And in fact, we see strength in systems and in systems demand to be able to service the infrastructure needs for those deployments. And as I mentioned in our prepared remarks, we just won the third phase of deployment at the visionary European retailer. We're seeing significant reader IC demand into the second large North American supply chain and logistics customer to build out some of the infrastructure. So we are confident those programs are going forward and we're confident in our position at those accounts.

But the delays are built on many factors, one of them being just the headwinds we faced earlier in terms of product availability. And it's not just the endpoint IC product availability, it's systems product availability as well. So delays in that product availability certainly impacted the timing of those project ramps, as just answer [for harsh] the sheer size and scale of what these enterprises are attempting.

And so I feel very good about the opportunities. Of course, we're in regular engagement with these end customers. We are confident in the future. As I said just a minute ago, we still expect to see significant full-year endpoint IC growth. But just given the timing and pace of some of these large deployments, things have moved to the right just a bit. And the move to the right is measured in months. We're not talking a huge move to the right. We're not talking multi-quarters here. We're talking months.

And my follow-up question is just regarding the 300-millimeter post processing, how satisfied are you with the pace at which you're scaling is, because it also appears to have been one of the nagging issues that's been holding you back a little bit.

Correct. And we have built out our post-processing capability to get ahead of the demand from these enterprise deployments. And I do not anticipate us being limited by post-processing capacity in the second half of this year. We'll be -- we're getting caught up on wafers, by the end of the quarter, will -- 300-millimeter wafer availability will finally have caught up to demand. And our goal is not to be limited by post-processing or by wafer availability in the second half of the year, and I believe we will achieve that goal.

The next question comes from Mike Walkley with Canaccord Genuity.

Maybe I'll start with Cary. Just want to dig into the inventory a little more. It's the highest in company history. Is there like some system side in there that are nearly done and [you're] waiting on some stubborn components? Or is this overall where you want inventory going forward as you're building up capacity for that endpoint demand? Or should it come down a little bit? Just trying to get a feel for, is this the right inventory level going forward? Or do you think you maybe need to build even more?

Yes, it is a record inventory level. I would also remind you, it's also a record revenue for Impinj as well. Most of the growth, as I noted in my prepared remarks were endpoint ICs specifically raw materials and (inaudible). As we think about our strategy, Fortune 500 companies rely on Impinj to supply RAIN products that they're using to transform and run their business. We -- it's no secret that we let them down in 2021 and 2022, where we couldn't get enough supply and we don't want to do that again. We are on a path to build appropriate level of inventory that supports growth expectations and also incorporates our foundry partners' signal of wafer tightness in our nodes in 2024.

Today's backlog, which comprises, non-refundable, non-cancelable orders with requestings primarily in 2023, significantly exceeds the level of inventory that we have today. So we're comfortable with where we are. We expect to build a little bit more in front of these growth opportunities.

And Mike, this is Chris. I think I'll just to reemphasize the point that Cary made, our inventory growth is being built on program growth that we're seeing at these Fortune 500 enterprises. So new programs, new expansions, significant program expansions that we want to make sure go forward and we're building the appropriate inventory to be able to service those opportunities.

You seem confident in that second half of the year ramp. Now that supply/demand starting to reach balance into the second half of the year, can you maybe remind longer-term investors that seasonality of your business that tends to be stronger in that third quarter? And maybe how we should think about seasonality in the second half of the year?

This is Cary. I'll take that one for Chris. So yes, historical seasonality has been such where endpoint IC revenue and volumes peak in Q3 before declining in Q4. And that's a result of our largest vertical being retail apparel. Today, we haven't seen normal seasonality in a couple of years now, probably 3 years at this point. So I'll provide a little bit more color on how we see the business progressing, the end point when I see business progressing today. Starting first with, we continue to expect strong full year endpoint IC growth. Our 2023 growth continues to be underpinned by enterprise program and expansion and new use cases that are significantly leveraging our platform solutions.

We're now modeling Q2 end point I see revenue flat because, as Chris mentioned, some of those big programs have slipped to the right by about a quarter. As a result, our growth expectations have also time shifted for about a quarter. So growth that we expected in Q2 moves to Q3 and Q3 to Q4, etc. So accordingly, we expect endpoint IC revenue to grow sequentially in Q3 and then again in Q4, so different than historical seasonality.

And last question, just a logical one on the systems side, with some of these things pause, would that have a decline maybe midyear and then grow again? Or how you're thinking about the systems business?

Yes. So no, so a quarter ago, we guided systems to be flat in Q2 because we anticipated improving component supply. That supply has improved, but we're guiding Q2 systems down slightly sequentially because we're prioritizing supply for the third phase of the European retailers' self-checkout and loss prevention deployment, because a few components remain stubbornly tight. That deployment will begin in Q2 and then ramp in the back half of the year. As a result, we anticipate second half systems revenue to exceed the first half. And I think here, I think Q3 and Q4 follow typical seasonality where systems business is strongest in the fourth quarter.

(Operator Instructions) The next question comes from Natalia Winkler with Jefferies.

I wanted to ask, Chris, if you can help us with some color on the retail, apparel and penetration. So trying to figure out here if -- how has that changed over the last couple of years? How has the attach rate for the Impinj IC tax has changed? And trying really to understand if we should expect the retail business to now kind of trend together with the retail industry and if the retail inventories build may be now kind of showing for you as well?

Yes. So we have estimated for the retail apparel and [traded] between 20% and 25%. And so yes, I think it's fair to assume that if you look at probably 2/3 of the endpoint IC market demand today before these new opportunities ramp is probably tied to retail era as the retail apparel market goes a significant portion of the RAIN RFID demand goes. And when I say goes, I mean there's positive way, it goes up, you go after. It goes down a little bit, we go down a little bit. So what we saw a bit in first quarter was a more retail apparel inventory digestion than we and our partners had previously expected, a little less pull-through of endpoint ICs and therefore, our partners begin being able to build healthy levels or getting to healthy levels of inventory.

We still see a bit of inventory growth in the second quarter. If retail apparel demand is to pick up in the second quarter, some of that inventory growth in second quarter will turn to pull through, but we are carefully watching the retail apparel market because it provides a pull for a significant portion of the endpoint IC that we deliver today. And we do see significant retail opportunities still ahead of us as we talk about the second (inaudible). We talked about the visionary European retailer. I know it's opportunities like that and others, including for our self-checkout and loss prevention use case that we think will keep driving retail apparel attach above the 25% range.

And then for my second question, Chris, would you mind providing a little bit more color on the acquisition you guys have made? And what's -- how should we think about it from the strategic yield portfolio?

I'd be happy to. So Voyantic is the industry leader in the solutions to ensure inlay quality, reliability and readability. We acquired Voyantic for that skill set, particularly as it pertains to our enterprise opportunities, the ones we've been talking about, this business transformation relies specifically on that inlay quality, reliability and readability. So we saw an opportunity here with Voyantic, a known leadership team, a known team overall significant strength in RAIN RFID, very experienced team and really key to ensuring that the labels that go into the enterprise solutions and there are partner labels, partner in lays, but they really form part of the overall solution we as a company are focusing on delivering.

We want to be there with our partners, helping them and our enterprise end customers to ensure the quality and reliability and readability of those products. So basically, we want to continue to have more pieces of the solution to make sure the solution works. And so that was where the Voyantic acquisition fit and we are thrilled to have them as part of the Impinj family.

The next question comes from Scott Searle with ROTH MKM.

Maybe quickly to dive in on the OpEx, I wanted to get a couple of clarifications. It sounds like sequentially, things start to flatten out a little bit there. But could you talk about what the expectation is in the second half of this year net of litigation? And then could you recap for us again the litigation expectation in the first quarter and the second quarter?

So we -- I highlighted in my prepared remarks that litigation-related spend was $4.2 million in the quarter. And it was a little bit higher than we thought just because the timing of deliverables to the court got pulled in versus what I had thought would happen early when we built the guide. As you think about our OpEx for the quarter, adjusting for legal spend in the second quarter, adjusting for the incremental OpEx associated with the Voyantic acquisition, we expect OpEx to decline in the second quarter.

And then if you look to the second half of the year, we expect third quarter and fourth quarter to be below the first half run rate for OpEx. I can't put a timeline on the legal spend that follows the path of the courts, but I will continue updating you on how that factors into our expense.

If you were just to back out the legal spend -- the litigation-related legal spend from our first quarter and just do the straight math on it, it would suggest an 18% operating margin for the business.

And if I could, just to follow up on the acquisition. What does that do -- are there some other metrics around it in terms of number of employees, what you expect that to do to the revenue opportunity on a per customer basis and/or if you're kind of dipping your toe a little bit into what your inlay partners do? Or is this something that's welcomed by them?

And lastly, if I could, the pipeline for the systems opportunity, it sounds like Phase 3 rollout is certainly going to be favorable in the second half of this year. But I'm wondering if you could address how else that pipeline is filling up on the system side with new projects, diversifications into other industries, application into use cases?

So Scott, I will take the Voyantic financial impact and I'll hand it to Chris with --

We probably have Scott -- I mean, probably have Jeff talk a little bit about the pipeline.

Okay. All right. So the way to think about Voyantic, it's is a small tuck-in deal. We have high hopes to grow the revenue from it, but it's small revenue at this point. It will be reported in our systems line. It is a gross margin that will be accretive. So think of it as -- at the top end of our systems business. So we'll expect a little bit of a lift from it as that revenue line grows.

Scott, this is Jeff. I'll just speak a little bit to the systems pipeline. The systems pipeline remains strong and is building in its diversity, both by industry sector and geographic. So there's still lots of opportunity in our focus, industry sectors, retail and supply chain and logistics. In retail, as Chris noted, on increasing focus and interest in the area of enhancing the shopper experience via self-checkout and the related and important role of loss prevention in supporting that shopper experience in supply chain and logistics, all the way from freight to a small package, it's clear that the industry is embracing the RAIN RFID opportunity to improve visibility, and I'm excited about the plans for new offerings to those supply chain and logistics customers that provide premium visibility and new revenue streams for those supply chain and logistics leaders.

And then as was noted in the script, I'm also encouraged by the progress of the pipeline with respect to Impinj authenticity. We're seeing our partner ecosystem and leading enterprises embrace the unique and differentiated approach to authenticity. And I think that creates another growth trajectory for Impinj. We're seeing emerging opportunities in food traceability reducing waste, optimizing freshness, in particular, in high-value elements of the food industry like proteins, pharmaceutical, pharmaceutical organizations are investigating supply chain safety and traceability to protect brands and consumers.

And then finally, I would say, increasingly, sustainability and the circular economy are becoming key growth opportunities for us in that inventory visibility is really at the sort of the foundation of knowing everything about everything that we manufacture, transport and sell. And when you have that visibility, you can begin to optimize your supply chain, which delivers real value into sustainability initiatives and then the circular economy when you're able to know more about each particular item upon its return into the economy for recycling or reuse. So I remain very optimistic and bullish about the growing opportunity across industry sectors and geographies.

The next question is a follow-up from Jim Ricchiuti with Needham & Company.

So, I think we appreciate the growth trajectory out there for the endpoint IC business. And I'm wondering, you may spend time on this. I assume you'll spend some time on this in June at the Investor Day. But how should we think about the pipeline, the line of sight, the growth prospects in the systems area of the business.

Yes. So Jim, on the systems side, obviously, we have the pipeline of opportunities we speak to. The specific ones, for example, the visionary European retailer, the Asia-based global retailer, the second large North American supply chain and logistics customer, we're also driving new opportunities, as Jeff just mentioned, around Impinj authenticity which is a whole platform offering that uses our readers, our reader ICs and our cloud service at the back end. And so we see systems pipeline strength in retail, specifically for those use cases that is fixed reading, authentication, supply chain and logistics.

And then, of course, we have our partners driving all kinds of other opportunities that in various verticals, everything from building materials to the bookstore opportunity that I spoke about in my prepared remarks. So we're very excited about the opportunities ahead and look to see -- look to strong systems demand, and we look to delivering full platform offerings that -- by which our systems provide pull for our endpoint ICs to make a complete solutions offering. I hope that answered your question.

It does, it's been lumpy, Chris, as we know, this has been somewhat lumpy business because of the deployment of some of these customers. But is this, should we think of this as a double-digit growth business?

Jim, this is Cary. It's hard to put a percentage growth on it like that because of the lumpiness of this business. Now our growth has been depressed in the last several quarters because we haven't been able to get supply. So -- and we're entering -- or we will -- we anticipate exiting Q2, entering Q3 with pretty substantial reader backlog that we've just been unable to support. We expect second half systems business to be greater than first half, so we'll certainly grow in the second half of the year. I think the better way to think of it is that the systems business enabled endpoint IC volume. And as we continue to push down the platform solution path, it will enable endpoint IC volume for Impinj because we're unlocking new features and new functionality that's only available in our readers when compared -- when combined with our endpoint ICs. So that's how we think of the systems opportunity going forward.

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

Thank you, operator. I'd like to thank you all for joining the call today, and I hope you and your loved ones are and remain safe and well. Thank you very much.

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