Note: This is an earnings call transcript. Content may contain errors.

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DATE

Wednesday, Oct. 29, 2025, at 5 p.m. ET

CALL PARTICIPANTS

  • Co-Founder and Chief Executive Officer — Chris Diorio
  • Chief Financial Officer — Cary L. Baker
  • VP, Investor Relations — Andy Cobb

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RISKS

  • Management anticipates a sequential revenue decline in both endpoint IC and systems segments in the fourth quarter, citing project timing, a seasonal peak in the third quarter, and conservative ordering by Chinese reader IC partners.
  • Gross margin fell to 53% from 60.4% the prior quarter, primarily due to non-recurring licensing revenue in the previous quarter.
  • Net loss was $12.8 million in the third quarter of 2025, indicating continued non-GAAP/GAAP divergence in earnings quality.

TAKEAWAYS

  • Revenue -- $96.1 million in revenue for the fiscal third quarter ended Sept. 30, 2025, down 2% sequentially from $97.9 million in the fiscal second quarter, and up 1% year-over-year from $95.2 million in the fiscal third quarter of 2024.
  • Endpoint IC Revenue -- $78.8 million, down 7% sequentially and 3% year-over-year in the fiscal third quarter, but up 15% sequentially when excluding $16 million in fiscal second quarter licensing revenue.
  • Systems Revenue -- $17.3 million in systems revenue for the fiscal third quarter, up 30% sequentially from $13.3 million in the fiscal second quarter and up 21% year-over-year, driven by supply chain and logistics reader sales.
  • Gross Margin -- 53% in the fiscal third quarter versus 60.4% in the fiscal second quarter and 52.4% in the fiscal third quarter of 2024, with a 40 basis point product margin improvement sequentially when excluding licensing revenue.
  • Operating Expense -- $31.8 million, below expectations in the fiscal third quarter, versus $31.5 million in the fiscal second quarter and $32.5 million in the fiscal third quarter of 2024, with the company emphasizing fiscal discipline.
  • Adjusted EBITDA -- $19.1 million in the fiscal third quarter, a sequential decline from $27.6 million in the fiscal second quarter and an increase from $17.3 million in the fiscal third quarter of 2024; the 19.8% margin set a product revenue basis record.
  • Non-GAAP Net Income -- $17.7 million or $0.58 per fully diluted share (non-GAAP) in the fiscal third quarter, with a net loss of $12.8 million in the same period.
  • Cash, Cash Equivalents, and Investments -- $265.1 million at the end of the fiscal third quarter, up from $260.5 million at the end of the fiscal second quarter and $227.4 million at the end of the fiscal third quarter of 2024.
  • Inventory -- $92.6 million in inventory for the fiscal third quarter, down $3.6 million sequentially.
  • Free Cash Flow -- $18 million in free cash flow in the fiscal third quarter, up from $4.7 million a year earlier.
  • Convertible Notes Transaction -- The company exchanged $190 million of 1.125% convertible notes for an equal amount of 0% notes in September 2025, reducing interest expense and dilution, and breaking maturities into smaller tranches.
  • Q4 Guidance -- Expected revenue of $90 million-$93 million (a 5% sequential decline at midpoint) in the fiscal fourth quarter, adjusted EBITDA between $15.4 million-$16.9 million, and non-GAAP net income of $14.7 million-$16.2 million, or $0.48-$0.52 diluted EPS in the fiscal fourth quarter.
  • Gen2X Adoption -- Management highlighted Gen2X customization as central to solving client problems, with expanded use across endpoint ICs and readers, and called out food and e-commerce as future focus areas.
  • Food Segment Opportunity -- Modest food volumes are expected through the first half of 2026, according to management, with acceleration anticipated thereafter. The pacing is set by the complexity of rolling out at scale, according to Chris Diorio.
  • Hiring and Talent -- The company hired an SVP of SaaS and cloud services to lead software development aimed at recurring revenue, and will increase technical and business headcount to address client use cases in software and cloud.
  • Board Change -- Arthur Valdez was appointed to the board, bringing three decades of global supply chain and logistics leadership experience.

SUMMARY

Impinj (PI 1.46%) management attributes the sequential revenue and margin declines in the fiscal third quarter of 2025 primarily to non-recurring licensing revenue and project timing, while emphasizing ongoing momentum in systems driven by supply chain reader strength. Management projects a return to gross margin expansion in the fiscal fourth quarter, citing product mix improvements tied to M800 endpoint ICs and cost alignment with 2025 pricing. Shifts in customer rollout timing, particularly in food and retail, have delayed some growth to 2026, but management remains confident in eventual adoption scale. Investments are increasing in both engineering and cloud software talent to capitalize on anticipated recurring revenue streams, particularly through Gen2X-driven differentiation and expansion in the food and e-commerce segments. Convertible debt restructuring is expected to provide flexibility by reducing interest costs and easing dilution pressure. The board was further strengthened by supply chain expertise with the recent addition of Arthur Valdez.

  • Management confirmed, "Yeah, Ezra. I'd just add that the volume estimates that are out there are not unreasonable. We view this as a multibillion unit annual opportunity when it's fully ramped. But to Chris's point, it's just always difficult to judge the pace of deployments especially one of this size until we get into it. So give us a little time to figure out what the pacing looks like."
  • Cary L. Baker noted, "adjusted EBITDA margin was 19.8% (non-GAAP) in the third quarter of 2025, a new quarterly record on a product revenue basis."
  • Chris Diorio stated, "We are aggressively hiring technical and business talent to develop [software] and win the recurring revenue opportunity," underlining a strategic shift toward expanding SaaS and cloud-based solutions.
  • Management expects systems revenue to decline slightly sequentially in the fiscal fourth quarter as large project phases roll into 2026, diverging from past seasonal patterns.

INDUSTRY GLOSSARY

  • Endpoint IC: A semiconductor chip with unique identification, used to tag individual items for wireless data transfer in RAIN RFID systems.
  • Gen2X: A set of advanced customizations and proprietary enhancements to the RAIN RFID radio protocol, implemented in Impinj's M800 endpoint ICs and related systems.
  • Lighthouse Account: A term used by Impinj for leading enterprise customers that pioneer large-scale deployments, providing early-use cases for new products or technologies.

Full Conference Call Transcript

Andy Cobb: Thank you, Gary. Good afternoon and thank you all for joining us to discuss Impinj's third quarter 2025 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 L. Baker, Impinj's CFO, will follow with a detailed review of our third quarter financial results and fourth quarter outlook. We will then open the call for questions. You can find management's prepared remarks plus trended financial data on the company's Investor Relations website. We will make statements in this call about 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.

Whereas 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. All balance sheet and cash flow metrics, except for free cash flow, are GAAP. Please refer to our earnings release for a reconciliation of non-GAAP financial metrics to the most comparable GAAP metrics.

Before turning to our results and outlook, note that we will participate in the Baird 2025 Global Industrial Conference on November 11 in Chicago, the UBS Global Technology and AI Conference on December 3 in Scottsdale, and the Barclays 23rd Annual Global Technology Conference on December 10 in San Francisco. We look forward to connecting with many of you at those events. I will now turn the call over to Chris.

Chris Diorio: Thank you, Andy. Thank you all for joining the call. Our third quarter results were strong, with revenue and adjusted EBITDA exceeding the upper end of our guide. Record endpoint IC volumes and better-than-anticipated reader volumes drove product revenue to a new quarterly record. With Gen2X's success, solving challenging industry use cases behind a growing portion of that product ready. We delivered that revenue outperformance despite weak retailer buying patterns and tariff headwinds, highlighting our strong market position, technical and product leadership. Starting with silicon, third quarter endpoint IC revenue exceeded our expectations. Supply chain and logistics led the way with our second large North American end user now fully deployed domestic parcel delivery.

Retail volumes grew modestly buoyed by the upcoming holiday season, but with a cautious note. As our partners and end users buy into demand rather than ahead of it. We expect third quarter to mark the seasonal peak for both supply chain and logistics, and retail endpoint IC volumes with fourth quarter volumes stepping down modestly. Partner channel inventory remains healthy, declining slightly in third quarter. Turning to reader ICs, third quarter revenue met expectations with the richest e-family mix to date. Looking to fourth quarter, conservative ordering by our Chinese reader IC partners push revenue lower.

Longer term, we see strong e-family growth including for multiple overhead reading deployments and pilots that leverage Gen2X creating pull for our M800 endpoint ICs. In solutions, we saw strong third quarter revenue led by our lighthouse accounts. We delivered more readers to our second large North American supply chain and logistics end user in the quarter than we expected, as they continue driving new use cases. Those use cases should generate meaningful fourth quarter reader revenue as well, but deliveries will step down as rollouts stretch into 2026. We also saw meaningful third quarter reader revenue from the Visionary European retailer, but here again expect a step down in the fourth quarter due to project phasing.

The size and scope of these rollouts remain intact, the timing will nudge fourth quarter systems revenue down slightly sequentially bucking the typical seasonal growth trend. Despite the stretched timelines, our end users, both current and new, continue asking for our help with their business challenges. Solving those challenges requires not just radio know-how, but also software. From ML at the edge to cloud services. So we are aggressively hiring technical and business talent to develop that software and win the recurring revenue opportunity. Last week, we hired an SVP of SaaS and cloud services to lead our development, heartwarming for me, because he was a student of mine at the University of Washington twenty-five years ago.

He, our CTO, and others across the company are digging into opportunities, including e-commerce, leveraging the strong foundation of our platform, endpoint ICs, Gen2X uniquely offer for solving those challenges. I'd like to again say a few words about Gen2X. Years ago, when we spearheaded developing the industry's radio protocol, we and others recognized that we couldn't create one single overarching protocol that addressed all market verticals and use cases. So we built into the final protocol flexibility for customizations. We have now proved the foresight in that choice with Gen2X. Which is native in our M800 endpoint ICs, e-family reader ICs, R700 readers, and adopted by many of our industry partners.

Our Gen2X customizations have helped us deliver retail loss prevention supply chain and logistics conveyor sorting, now partners are using them for overhead retail rebate. We are today enhancing Gen2X for food and e-commerce and will, over time, introduce differentiated endpoint ICs that help solve key use cases and win those markets. Turning to food, which is by far our largest opportunity, product freshness, supply chain efficiencies are driving pallet case, and item level deployments, with two opportunities now public. There are others, including pilots at point of sale and for assisted self-checkout.

Although we still expect food endpoint IC volumes to be modest this year, and in the first part of next, our engineering and go-to-market organizations are forging silicon, software, and business innovations to help unlock the food opportunity. We are well positioned to do so. And as the leading grocers adopt, we expect other grocers to follow. On the organizational front, I'm thrilled to welcome Arthur Valdez to our board. Arthur has more than thirty years of experience leading global supply chain and logistics operations for major e-commerce, retail and consumer enterprises. His expertise transforming and optimizing supply chain and logistics networks large consumer-facing companies will be invaluable. As we continue advancing our vision of connecting everything.

Arthur, welcome to Impinj. In closing, our solutions and Gen2X focus continue paying dividends in revenue, adjusted EBITDA, recurring endpoint IC volumes and market leadership. Our market opportunity continues expanding with more opportunities for secular growth in retail, supply chain and logistics, food, and a long avail of other applications. As we continue driving our bold vision, I remain confident in our market position and energized by the opportunities ahead. As always, before I turn the call over to Cary, for our financial review and fourth quarter outlook, I'd like to again thank every member of the Impinj team for your tireless effort. I feel honored by my incredible good fortune to work with you. Terry?

Cary L. Baker: Thank you, Chris, and good afternoon, everyone. Third quarter revenue was $96.1 million, down 2% sequentially from $97.9 million in second quarter 2025 and up 1% year over year from $95.2 million in third quarter 2024. Third quarter endpoint IC revenue was $78.8 million, down 7% sequentially from $84.6 million in second quarter 2025 and down 3% year over year from $81 million in third quarter 2024. Excluding the $16 million second quarter licensing revenue, endpoint IC revenue grew 15% sequentially. Looking forward, we expect fourth quarter Endpoint IC revenue to decline sequentially but on the favorable side of normal seasonality.

Third quarter systems revenue was $17.3 million, up 30% sequentially from $13.3 million in second quarter 2025 and up 21% year over year from $14.2 million in third quarter 2024. Systems revenue exceeded our expectations driven by reader strength in supply chain and logistics. Looking forward, we expect fourth quarter systems revenue to decline slightly sequentially driven by project timing as Chris already noted. Third quarter gross margin was 53% compared with 60.4% in second quarter 2025 and 52.4% in third quarter 2024. The sequential decline was driven primarily by licensing revenue. The year-over-year increase was driven primarily by lower indirect costs.

Excluding licensing revenue, third quarter product gross margin increased 40 basis points sequentially driven primarily by endpoint IC product margin including M800. Looking forward, we expect fourth quarter gross margin to increase sequentially. Total third quarter operating expense was $31.8 million compared with $31.5 million in second quarter 2025 and $32.5 million in third quarter 2024. Operating expense was below expectations as our team exercised good fiscal discipline. Research and development expense was $17.8 million. Sales and marketing expense was $7 million. General and administrative expense was $6.9 million. Looking forward, we expect fourth quarter operating expense to increase sequentially.

Third quarter adjusted EBITDA was $19.1 million compared with $27.6 million in second quarter 2025 and $17.3 million in third quarter 2024. Third quarter adjusted EBITDA margin was 19.8%, a new quarterly record on a product revenue basis. Third quarter GAAP net loss was $12.8 million. Third quarter non-GAAP net income was $17.7 million or $0.58 per share on a fully diluted basis. Turning to the balance sheet. We ended the third quarter with cash, cash equivalents, and investments of $265.1 million compared with $260.5 million in second quarter 2025 and $227.4 million in third quarter 2024. Inventory totaled $92.6 million, down $3.6 million from the prior quarter. Third quarter capital expenditures totaled $2.9 million.

Free cash flow was $18 million compared with $4.7 million in third quarter 2024. Before turning to our guidance, I want to highlight two items specific to our results and outlook. First, in September, we issued $190 million of 0% convertible notes while simultaneously repurchasing $190 million of our 1.125% convertible notes. This transaction reduces our interest expense, lowers our underlying share dilution, and breaks our maturity profile into smaller tranches. The latter increasing our ability to leverage our balance sheet in managing that convertible debt. Second, we have consistently projected gross margin leverage in our long-term model.

We expect that leverage to be on display in the fourth quarter where we have embedded more than 100 basis points of sequential gross margin accretion in our guidance. Turning to our outlook. We expect fourth quarter revenue between $90 million and $93 million compared with revenue of $96.1 million in third quarter 2025, a quarter-over-quarter decrease of 5% at the midpoint. We expect adjusted EBITDA between $15.4 million and $16.9 million. On the bottom line, we expect non-GAAP net income between $14.7 million and $16.2 million, reflecting non-GAAP fully diluted earnings per share between $0.48 and $0.52. 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. Gary?

Operator: We will now begin the question and answer session. To ask a question, you may press star. If at any time your question has been addressed and you would like to withdraw your question, as a courtesy to others, we ask that you limit yourself to one question and one follow-up. If you have additional questions, please re-queue and we will take as many questions as time allows. At this time, we will pause momentarily to assemble our roster. Our first question is from Ezra Weener with Jefferies. Please go ahead.

Ezra Weener: Hey, thanks for taking my questions. The first one would be about Readers. Q3 is much stronger. You're talking about a little weaker Q4 versus seasonal up. You just talk a little bit about what that timing means? Was it pull into Q3? Is there a push out to Q4? And then assuming it is pull in, what does that mean for endpoint IC ramp timing?

Cary L. Baker: Yeah. Ezra, this is Cary. Thanks for the question. I'll take the first part of that. So you know, originally, we thought we would grow revenue systems revenue in the fourth quarter, but probably not achieve a kind of normal seasonality because we guided our Q3 systems so strong. Q3 actually turned out stronger than we anticipated. So there's gonna be a natural step down as we move from Q3 to Q4. We also saw, as Chris alluded to in the prepared remarks, some of the project timing just shift to the right, which is just exacerbating that a little bit. So instead of growing as we typically would, systems revenue in the fourth quarter, we're down slightly sequentially.

Chris Diorio: And Ezra, I'll just add that. As I said in the prepared remarks, the size and scope of the rollouts remain intact. What we're seeing is some of the end users adapting in real time to the market environment and adjusting, how they phase their rollouts. And kind of where they put their emphasis. And so we're seeing a little bit of push in the fourth quarter as a consequence of that internal adjustment. I wouldn't read there's nothing to read into it in terms of pullbacks. These are not pullbacks. They're just real-time adjustments at the end user level to what's going on in the macro environment.

Ezra Weener: Got it. And then the second would be, I think we all saw the Walmart announcement with Avery. Can you talk a little bit about what that means in terms of timing and sizing for you guys?

Chris Diorio: Yeah. Why don't I start, Cary, and then you jump in? So first, I presume you're alluding to the Yeah. The grocery. So the food news Grocery. Yeah. Walmart. I'm gonna start by saying we're very excited by that news. Not a surprise to us, but we're very excited that it's out there. The theme in this announcement and the prior Kroger announcement are to improve product freshness, reduce waste, and lower costs. And that's an important theme for the industry. As I mentioned in our prepared remarks, we highlighted another longer theme, which is improving the shopping experience. But there are no public announcements yet on that front.

But you combine the two of those, the freshness opportunity, and the customer shopping experience opportunity. We're very excited about food. We expect modest food volumes through first half 'twenty six. And accelerating from there. The pacing really is set by the complexity of rolling out at scale. You think about it. You've got thousands of stores. Got a lot of categories of items. You literally have tens of thousands of employees you need to train. Gotta change how you do your operations. You gotta build the back end out. These kinds of deployments at this kind of scale at any major enterprise take time.

But as we've seen in some of the other examples, aviation, retail, and others, once retailers move forward and see the successes, they continue to go forward and other parts of the industry adopt. So we feel good about where we are. We feel about the opportunities for rollout. M800 and Gen2x are very well positioned and, we will be driving hard into the food opportunity in 2026. Cary, anything you'd add?

Cary L. Baker: Yeah, Ezra. I'd just add that the volume estimates that are out there are not unreasonable. We view this as a multibillion unit annual opportunity when it's fully ramped. But to Chris's point, it's just always difficult to judge the pace of deployments especially one of this size until we get into it. So give us a little time to figure out what the pacing looks like. But I'll just reiterate what Chris said. We're very excited not only about what this opportunity means with Walmart, but what it means to the rest of the grocery community who can leverage the work that Walmart's doing.

Ezra Weener: Awesome. Thank you.

Cary L. Baker: Thank you.

Operator: The next question is from Harsh Kumar with Piper Sandler. Please go ahead.

Harsh Kumar: Hey, guys. Congratulations on very good results. Chris, I had a multipart for you for starters, and then I have one for Cary. So we hear about the announcement that was just talked about with Walmart, bakery, meats, etcetera, and tagging. Is there a fundamental problem in tagging vegetable grocery, leafy greens, and other things that compromise the other vast majority of the volume. Or is that just the next step of the evolution? And part two of my question is, Chris, I'm hearing you use the word ecommerce a lot all of a sudden in this in this call. I've never heard you say that in this much detail.

Is there is there something that I guess I'm trying to understand the significance of it. Or if you're trying to take the enterprise strategy to the next level and help with ecommerce in some way?

Chris Diorio: Yeah. So thank you, Harsh. Thanks for your questions. I will address both of them in order. So on the grocery side, seeing announcements in bakery, deli, and meat products. There are very significant expansion opportunities beyond that. As you've alluded to with the produce you should look at first at perishable categories as the being areas where grocers will see the most immediate opportunity. But then, of course, as I alluded to in the prepared remarks, there are also opportunities the consumer experience, requires tagging all the items specifically around produce, fruits, and vegetables, there is no fundamental limit that prevents us from tagging those items.

It simply is a color mechanical limit or just a you know, kind of a functional limit. Specifically, how do you do the tagging? What we're seeing some of already is grocers put some of the items in bags. And you can tag the bag fairly easily. Or in, you know, string containers or other things. Individual items are just harder because getting the tag on and keeping it on you will see innovation on the tagging front but I think you're also going to see innovation on the packaging front to make that produce tagging possible. And then turning to ecommerce. Yeah. Go ahead. Yeah. Turning to ecommerce. I used that word intentionally. Yeah.

I don't want you to read too much into it right now. But we are seeing two significant trends one is an interest across many of our customers, enterprise end customers. For a direct from DC or warehouse to consumer and that's in the retail space, in supply chain logistics, and other areas. And the second one is 3PL opportunities. And so three, enterprises acting as three PLs for other enterprises. The net of those I'm using is in a broader ecommerce term, You are correct. It's the first time I've meaningfully used that term, and it was intentional. And, expect us to push forward hard into that ecommerce and attempt to expand and grow there.

And as I said, in our prepared remarks, I see opportunities for differentiation at the endpoint IC level, the reader IC level, and the software level to address those opportunities, both grocery and ecommerce.

Harsh Kumar: Okay. And my follow-up question to Cary is, pretty impressive. I think you're implying a hundred basis points of margin increase in the fourth quarter, Cary, if I heard you correctly. Is that also and is that all from M800, or is there some other stuff at play over here?

Cary L. Baker: It's a lot of M800. We're also now fully selling the 2025 costed wafers, so we're getting the benefit of wafer cost matched to 2025 pricing. But, you're starting to see us flex the M800 muscle that we've been talking about for a while. Now I think M800 ramps to volume runner in Q4. I don't think, we reached a terminal mix of the M800 until 2026 sometime.

Harsh Kumar: Thank you. Very helpful.

Cary L. Baker: Yep. Thanks, Harsh.

Operator: The next question is from Christopher Rolland with Susquehanna. Please go ahead.

Christopher Rolland: Hey guys, thanks for the question. There was a press release by appears to be a competitor of yours talking about getting some traction using Bluetooth as our RFID or like RAIN alternative. So I'd love to know Chris, in particular, your take on this technology. Is it disruptive or, you know, conversely does it have significant drawbacks and what those are? And if it was a compelling technology, would you guys or could you offer this Bluetooth alternative as well? Thanks.

Chris Diorio: Okay. Thanks, Chris. I'll do my best to answer the question. I'll give I'll give I'll say some things, and then if you have a further question, I'm happy to engage back and forth. So Randolph ID is ideal for item tagging. With huge volumes and a huge opportunity. We've talked at multiple times in the past about other technologies like vision and now with Bluetooth beacons here. That can help fill in the gaps. Yes. We can make RAIN RFID ICs sense pallet temperature or humidity in fact, our industry standardized those capabilities in the radio protocol back in 2012, thirteen years ago. But the volumes to date have been tiny and are still small.

So we're focused where the volumes are right now I would say that some complementary technologies filling in the gaps is helpful. For enterprise adoption if the volumes become large, we can look at either that technology or using RAIN RFID to accomplish the same objective. But given the size of the volumes right now, we are focused on the food opportunity, the ecommerce opportunity, supply chain and logistics, big opportunities where the volumes are orders of magnitude larger, And we'll stay focused there until we see some meaningful change. So I view them as gap fillers. Did that answer your question?

Christopher Rolland: That did, Chris. Thank you very much. Perhaps just following up kind of on a couple of comments you made. The first was about the second large North American supply chain logistics vendor. You said that they were now fully deployed in personal delivery. So does that mean sorry. Say that again?

Chris Diorio: Yeah. Domestic parcel deliveries, not international. But keep going. I interrupted you. I apologize.

Christopher Rolland: Okay. Yep. Perfect. So does that mean that the full infrastructure is fully deployed? Like, do they have readers everywhere they basically need them? And then in terms of tagging individual items, is has this reached an attach rate that you think is normal? Or do you think they grow from here as, call it, a percentage of parcels?

Chris Diorio: So gonna start with first question first. For all of our Lighthouse enterprise including that one, they're never fully deployed. They're always they always have new use cases. They're always coming to us with new opportunities. They're always thinking and inventing, and they're looking to us to help them think and invent. So you should look to us to continue talking about fixed reading opportunities, mobile reading opportunities, new tagging opportunities, and just more. I view our engagement with them as a true partnership. A close partnership, partnership among friends, They trust us to not let them down. We will not let them down, and we will be there to support them.

In terms of the actual tagging volumes, yes, they're fully deployed in domestic parcel delivery. But that's just domestic parcel delivery. There are opportunities in other areas of their business in international and then in their expansion opportunities, including in ecommerce opportunities for them. We see growth opportunities on the endpoint IC side. On the reader side, on software side, on helping them as a Lighthouse partner win in their respective market opportunity.

Cary L. Baker: Hey. And, Chris, this is Cary. I would just add. That while they're fully deployed domestically right now, as Chris said, they haven't been that gateway for the entire year. So there's potentially opportunity on a year over year basis just as they're fully deployed next year.

Christopher Rolland: Excellent. Thanks, guys.

Cary L. Baker: Thank you. Thank you.

Operator: The next question is from Scott Searle with ROTH Capital. Please go ahead.

Scott Searle: Hey, good afternoon. Great job on the quarter. Thanks for taking my questions. Chris and Terry, maybe to dive in on some of the gross margin commentary, but specific to Gen2X and some of the software investment. I'm wondering a couple of things on the Gen2X front. Is it delivering shares now that is demonstrable that you're seeing in terms of your customer buying patterns? And in terms of the customization opportunity then from an endpoint IC standpoint, does this permanently move you guys into a different gross margin realm on the endpoint IC? And then maybe as a follow-up to that, talking a little bit more about software and recurring revenue, Chris.

I'm wondering if you could flush that out a little bit more in terms of what that means and where it goes. You know, in the past, we've talked about things like authenticity. But how does how does that evolve? How does that look in the future?

Cary L. Baker: Yeah. Hey. Hey, Scott. This is Cary. I'll take the first part of that. So from does Gen2X drive share to impinge? We sure hope so. It's too early to say and comment specifically on share, but this is exactly why we launched Gen2X. This is exactly why we licensed Gen2X to the reading community for free is so that we can not only solve previously unsolvable opportunities for our end customers, but we can also drive endpoint IC share to impinge. Give us until kind of February, March time frame next year, we'll comment whether or not we were able to grow share again in 2025.

From a gross margin accretion perspective, think of Gen2X as native in the M800. So not driving any more gross margin than the M800 was already slated to, but helping to drive adoption of the M800.

Chris Diorio: And, Scott, I will try and answer your question. So the genesis of a lot of our Gen2X customizations was Lighthouse Enterprises coming up to us and asking for or basically presenting us with a problem that they've got a challenge. Us addressing that challenge. And so our Lighthouse enterprise accounts use Gen2X because we actually invented some of the capabilities in it to enable them to deploy. So we view it as at the very least, helping us maintain those accounts for us. Going forward, expand from that basis into other accounts. Now in terms of diversification, we see further opportunities in Gen2X to innovate on the endpoint IC, as I said, the reader IC, and in the software.

As we migrate down Moore's Law and get to more advanced process nodes for the endpoint, I see we have access to more digital capabilities. And those capabilities allow us to add features to the endpoint AC that we just couldn't do in the past. And you mentioned some of them, the cryptographic authentication. But there's more. There's lots more. We've only scratched the surface. So expect us to continue advancing those Gen2X capabilities in concert with our Lighthouse enterprises. They present us problems. We solve them. We roll it into Gen2X, and we continue from there. I'm not gonna cite any specific additional opportunities right now. Just please note that they're there.

Now in terms of what it means for software specifically, I guess that was the last part of your question. I'm gonna take a minute to answer that question. You know, in every information industry, if you go back decades, that industry first has to build the hardware foundation. Think about mobile phones. And for twenty years, we spent the eighties and the nineties building the hardware foundation till by the February, early two thousands, we had flip phones. But there was no it was just phones. You made calls. Only when the foundation is sufficiently mature can you really start monetizing the information. In apps and data services, solution management, AI, and just whole bunch of stuff.

So I'm our industry is close enough to that maturity point that it's time to invest in that information. We get there by investing in every layer of the stack. The endpoint I see, reader I see, and the software. Now there's a fun twist with the endpoint IC in that they're recurring silicon, but even there, think of the endpoint I see as a data care on which to build those SaaS and cloud services. So we add as we add Gen2X innovations in the endpoint, I IC, we will leverage those innovations the reader IC.

We will build software solutions on top of it that look more and more like apps today enterprises and the future for consumers, and create a virtuous cycle by which our platform enables that information economy on the Internet of things. That is our vision. And it stems from the significant enhancements we're making around Gen2X.

Scott Searle: Great. Very, very helpful. Thank you, Chris. And if I could just throw out, typical pricing negotiations and decreases as we go into the first quarter kind of early thoughts in terms of how we should be thinking about endpoint IC pricing in the first quarter and traditional seasonality? Thanks.

Cary L. Baker: Yeah. We are just getting into endpoint pricing conversations right now, so I don't have a lot of color to provide at this point. We'll definitely provide insight next quarter.

Scott Searle: Great. Thanks, guys.

Chris Diorio: Thank you.

Operator: The next question is from Jim Ricchiuti with Needham and Company. Please go ahead.

Jim Ricchiuti: Hi, thanks. Chris, I'm not sure if you know, you can elaborate on this, but you were just kind of touching on it. But when you talk about enhancing Gen2X for food and ecommerce applications. Can you help us understand a little bit more about what that might entail and what you know, challenges you might be solving or, you know, addressing.

Chris Diorio: Thanks, Jim. Thanks for the question. Thinking how I want to answer it. Jim, I can't I'm gonna tell you upfront. I'm not gonna be able to give you a sufficient answer. Because I don't wanna disclose our product plans. What I'm gonna say is this. The radio link the over the air link is, for all practical purposes, an endpoint IC talking over the air to our reader IC. With software controlling the reader IC. Think of it that way. What we learned from our Lighthouse accounts is that need to customize all three. The endpoint is either where I see in the software. And there are major opportunities to customize all three.

Not just to improve their radio performance. Think beyond that. To really drive apps, to drive additional information, to drive use cases. And I guess I'll do it by analogy. So, again, going back to the mobile phone analogy, you know, by the early two thousands, a lot of the infrastructure was built out. Then it took Apple, really, to come up with the touch screen. To enable apps that consumers could use to drive the industry forward. That was one of the key innovations that turned an information based technology that people could use. We have that level of opportunity in terms of driving information value around RAIN RFID. In our future.

I'm not gonna say more about how we get there. Frame in which we're gonna get there, what the innovations are gonna be, how many there are. But they're in there. And I believe, fundamentally, we're just scratching the surface on what we can do.

Jim Ricchiuti: Okay. Well, we'll we'll have to stay tuned on that. May okay. Cary, question for you. You know, as we think about these opportunities, it sounds like in correct me if maybe I'm just misinterpreting it, but, yeah, how might we be thinking about operating expense? It sounds like, you know, do we should we be thinking about higher investments in R and D? You're getting nice lift from gross margins, but I'm wondering how do we think about OpEx going forward in light of some of the opportunities you're going after?

Cary L. Baker: Yeah. So, you know, expect us to continue investing. Our OpEx is going to increase in the fourth quarter. We've held it fairly flat throughout most of the year. But it's going to increase in the fourth quarter. And then, you know, you've been following this story long enough that there's a seasonal increase of OpEx in the first quarter. And then that kind of increases again in the second quarter then moderates thereafter. I don't see any change to the seasonal spend patterns that we've had in the past. But we will always stay true to the long term model that we put together a few years back.

And that is every single line item that we have in our spend will deliver leverage. Less so in engineering because that's our primary focus of investment, but still we will have leverage in the R and D line. We'll have the leverage in sales and marketing and clearly leverage in the g and a line.

Jim Ricchiuti: Thank you.

Cary L. Baker: Thanks, Jim.

Operator: The next question is from Guy Hardwick with Barclays. Please go ahead.

Guy Hardwick: Hi, good afternoon. Hi, guys. I think you said earlier you're you're fairly comfortable with some of the numbers discussed out there in terms of volumes, but in terms of some of the numbers I've seen, the Walmart opportunity alone could be as much as 5,000,000,000 labels over say, once fully ramped over, say, two to three years. And since Kroger is maybe half the size of Walmart, or maybe better bigger than that, we're talking about maybe 7,500,000,000 combined between the two. First question is, you comfortable with those sort of numbers? And secondly, I understand that Impinj is the sole provider in the pilots of, say, 40 to 60 stores. So Walmart.

But how long would you expect to remain the sole provider? Typically customers would want two supplies over time.

Cary L. Baker: So, guys, you know, we as I said earlier, we think this is a multibillion unit on an annual basis once it once it's ramped. There's a lot of categories within freshness in food. There is a lot of SKUs. So we really need to see what the rollout timing is. For each of those categories, each of those SKUs to get to give a sense of what the final number in terms of units are. But under any scenario that we envision, it's a multibillion unit opportunity per year.

Chris Diorio: And then, Guy, you had asked about our current position in those rollouts and pilots and whether we were able and essentially, how are you going to sustain that position? So we feel today we are very well positioned in many if not all, of the ongoing pilots and deployments. We believe that's a result of the performance of our products, quality of our products, the effort that we have put in with others, And a healthy dose of Gen2X. What we also see is a set of I'm not gonna use the word challenges. I'm gonna use the word opportunities. A set of opportunities in the food space for continued innovation.

And we will be driving those innovations pulling them into Gen2X, and put distance between us and our competition In terms of readability, in terms of findability of items, in terms of scannability, in terms of the data that we that we and they provide, in terms of the reliability of the overall solution. Innovations. So look to us to drive those innovations. Measure us against our success creating and building those innovations. And if we're successful in so doing, which I have every intention of being, look to us to hold good share in the food space.

Guy Hardwick: Thank you.

Chris Diorio: Okay. Thank you, Guy.

Operator: The next question is a follow-up from Ezra Weener with Jefferies. Please go ahead.

Ezra Weener: Yes, just a very quick one. I know the last couple of quarters, talked about not guiding any turns. I didn't see that in the prepared remarks this time. Could you just comment on that?

Cary L. Baker: Yeah. As and so this is Cary. So I'll take a I'll take a shot at that. So we continue operating in a very dynamic market. In the third quarter, we saw more turns than expected, but we also saw the same trend of partners requesting changes to delivery timing and location continue. In a typical quarter for endpoint IC, we have two to three weeks following earnings to turn business given it turned business for the quarter given our current lead times. Since we've not seen a standard environment all year, we're not we're gonna take a similar approach to our guidance that served us well in the second and third quarter.

So looking into Q4 for endpoint ICs, we've assumed very minimal turns. Less than a week's worth. And then on the system side, we've assumed more normal turns to reflect the end of year enterprise hardware buying patterns of the channel portion of our systems business.

Ezra Weener: Got it. Thank you.

Cary L. Baker: Yeah. Thanks, Eric, for the question, Ezra.

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, Gary. I'd like to thank you all for joining the call today. And I'd especially like to thank you for your ongoing support. Thank you, and bye.

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