Welcome to MPINGE's 3rd Quarter 2025 Financial Results Conference Call and Webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Andy Cobb, Vice President, Corporate Finance and IR. Please go ahead.

Thank you, Gary. Good afternoon, and thank you all for joining us to discuss Impinja's third quarter 2025 results. On today's call, Chris DiOrio, Impinja's co-founder and CEO, will provide a brief overview of our market opportunity and performance. Terry Baker, Impinja'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 reconciliation of non-GAAP financial metrics to the most comparable GAAP metrics. Before turning to our results in Outlook, note that we will participate in the Baird 2025 Global Industrial Conference on November 11th in Chicago, the UBS Global Technology and AI Conference on December 3rd in Scottsdale, and the Barclays 23rd Annual Global Technology Conference on December 10th in San Francisco. 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 third quarter results were strong, with revenue and adjusted EBITDA exceeding the upper end of our guide range. 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 revenue. We delivered that revenue outperformance despite weak retailer buying patterns and tariff headwinds, highlighting our strong market position and technical and product leadership. Starting with Silicon, third quarter in-point IC revenue exceeded our expectations. Supply chain and logistics led the way, with our second large North American end user now fully deployed in 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 eFamily mix to date. Looking to fourth quarter, conservative ordering by our Chinese reader IC partners will push revenue lower. Longer term, we see strong eFamily growth, including from multiple overhead reading deployments and pilots that leveraged 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 continued 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 to step down in the fourth quarter due to project phasing. To be clear, the size and scope of these rollouts remain intact, but timing will nudge fourth-quarter systems revenue down slightly sequentially sucking the typical seasonal growth trend despite the stretch 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 it was a student of mine at the University of Washington 25 years ago. Deep, our CTO, and others across the company are digging into opportunities, including e-commerce, leveraging the strong foundation, our platform, endpoint ACs and 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 the flexibility for customizations. We have now proved the foresight in that choice with Gen2X, which is native in our M800 endpoint ICs, eFamily 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, and now partners are using them for overhead retail reading 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 and supply chain efficiencies are driving palette case and item level deployments with two opportunities now public there are others including pilots at point of sale and for assistance self-checkup. Although we still expect food and Point SE 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 30 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 for 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 N2AC 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 tail 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 Carrie for our financial review and fourth-quarter outlook. I'd like to again thank every member of the Impinj team for your tireless efforts. I feel honored by my incredible good fortune to work with you. Gary?

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. work. 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 net 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 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 and $16.9 million. On the bottom line, we expect non-GAAP net income between $14.7 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 are investors for your ongoing support. I will now turn the call to the operator to open the question and answer session.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. 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 Wiener with Jeffries. Please go ahead.

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

Ezra, this is Kerry. 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 kind of normal seasonality because we guided our Q3 system so strong. Q3 actually turned out stronger than we anticipated, so there's going to 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.

Yeah, and Ezra, I'll just add that as I said in the prepared remarks, the size and scope of the role has remained intact. So 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 into fourth quarter as a consequence of that internal adjustment. There's nothing to read into 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.

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?

Yeah, why don't I start, Kerry, and then you jump in. So, I presume you're alluding to the food news. Grocery, yeah. Yeah, the grocery. So, I'm going to start by saying we're very excited by that news. It's 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-term 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 26 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. You've got to change how you do your operations. You've got to 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 have gone. 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. Kerry, anything you'd add?

Yeah, Ezra, I'd just add that the volume estimates that are out there are not unreasonable. We view this as a multi-billion 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. awesome thank you thank you excuse me the next question is from harsh kumar with piper sandler please go ahead hey guys congratulations on very good results uh chris i had a multi-part for you for starters and then i have one for carrie um so we hear about the announcement that was just talked about with walmart bakery meats etc and tagging uh 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 e-commerce a lot all of a sudden in this call. I've never heard you say that in this much detail. 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 uh help with e-commerce in some way yeah so thank you harsh thanks for for your questions i i will um address both of them in order so on the grocery side you're seeing announcements in bakery deli and meat products um there are very significant expansion opportunities beyond that um as you've alluded to with uh produce um you should look at first at perishable categories as being the areas where um grocers will see the most immediate opportunity but then of course as i alluded to in the prepared remarks um there are also opportunities for the consumer experience which 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 that you know kind of a functional limit have 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 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 turning to e-commerce. Yeah, go ahead. Yeah, turning to e-commerce. I use 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 and customers, for a direct from DC or warehouse to consumer. And that's in the retail space, in supply chain and logistics and other areas. And the second one is 3PL opportunities. And so three enterprises acting as 3PLs for other enterprises. The net of those I'm using is a broader e-commerce 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 e-commerce and attempt to expand and grow there. And as I said in our prepared remarks, I see opportunities for differentiation at the M1IC level, the reader IC level, and the software level to address those opportunities, both grocery and e-commerce.

Okay, and my follow-up question to Kerry is, you know, pretty impressive. I think you're implying 100 basis points of margin increase in the fourth quarter, Kerry, if I heard you correctly. Is that all from M800, or is there some other stuff at play over here?

It's a lot of M800. We're also now fully selling the 2025 costed wafers, so we're getting the benefit of wafer costs 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 the M800 ramps to volume runner in Q4. I don't think we reach the terminal mix, though, of the M800 into until 2026 sometime.

Thank you. Very helpful.

Yep. The next question is from Christopher Rowland with Susquehanna. Please go ahead.

Hey, guys. Thanks for the question. There was a press release by what appears to be a competitor of yours talking about getting some traction using Bluetooth as 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 you know does it have significant drawbacks uh and and what those are and if it was a compelling technology would you guys or could you

uh offer this bluetooth alternative as well thanks okay thanks chris i'll do my best to answer the question i'll give them i'll give uh say some things and then if you have a further question on that i'm happy to engage back and forth so ran rfid is ideal for item tagging with huge volumes been 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, 13 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 e-commerce opportunities, supply chain, and logistics, the 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?

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?

Yeah, domestic. Domestic personal delivery is not international, but you can keep going. I interrupt you. I apologize.

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, 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?

So I'm going to start with the first question first. For all of our Lighthouse Enterprises, including that one, they're never fully deployed. 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 an 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, a 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 e-commerce opportunities for them. So 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 opportunities.

And, Chris, this is Kerry. 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.

Excellent. Thanks, guys. Thank you.

The next question is from Scott Searle with Roth Capital. Please go ahead.

Hey, good afternoon. Great job on the quarter. Thanks for taking my questions. Chris and Carrie, 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, you're 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 that evolve? How does that look in the future?

Hey, Scott, this is Kerry. I'll take the first part of that. So 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. So give us until kind of February, March timeframe next year, we'll comment on 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. it.

And I will try and answer your question. So, no, 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 got, a challenge, and 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 the very least helping us maintain those accounts for us. Going forward, expand from that basis into other accounts. Now, in terms of a diversification, we see further opportunities in Gen2X to innovate on the endpoint IC, as I said, the reader IC, and in the software. You know, as we migrate down Moore's Law and get more advanced process notes for the endpoint IC, we have access to more digital capabilities. And those capabilities allow us to add features to the endpoint IC 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. And so expect us to continue advancing those Gen2x capabilities in concert with our lighthouse enterprises. They present us problems, we saw them, we rolled into Gen2x and we continue from there. I'm not going to cite any specific additional opportunities right now, just please know that they're there. Now in terms of what it means for software specifically, that was the last part of your question. I'm going to 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. I mean, for 20 years, we spent the 80s and the 90s building the hardware foundation until by the 2000s, early 2000s, 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 a whole bunch of stuff. So 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 IC, the reader IC, and the software. Now, there's a fun twist with the endpoint ICs in that they're recurring silicon, but even there, think of the endpoint IC as a data carrier on which to build those SaaS and cloud services. So as we add Gen2X innovations in the endpoint IC, we will leverage those innovations in the reader IC. We will build software solutions on top of it that look more and more like apps today for 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.

Great. Very, very helpful. Thank you, Chris. And Kerry, 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.

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.

Great. Thanks, guys.

Thank you.

The next question is from Jim Ricciuti with Needham & Company. Please go ahead.

All right. Thanks. Chris, I'm not sure if you can elaborate on this, but you were just kind of touching on it. But when you talk about enhancing Gen2X for food and e-commerce 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?

Thanks, Jim. Thanks for the question. Thinking how I want to answer it. You know, Jim, I can't, I'm going to tell you up front, I'm not going to be able to give you a sufficient answer to, because I don't want to disclose our product plans. What I'm gonna say is this, the radio link, the over the air link is for all practical purposes and endpoint IC talking over the air to our reader IC, the software controlling the reader IC, think of it that way. What we've learned from our Lighthouse accounts is that we need to customize all three, the endpoint IC, the reader IC, and the software. And there are major opportunities to customize all three, not just to improve their radio performance, think beyond that. To really drive, 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 2000s, a lot of the infrastructure was built out. Then it took Apple really to come up with a touch screen. to enable apps that consumers could use to drive the industry forward. That was one of the key innovations that turned hardware-based technology into something that was 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 going to say more about how we get there, the timeframe in which we're going to get there, what the innovations are going to 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 okay well we'll have to stay tuned on that um maybe okay carrie question for you um you know as we think about these opportunities um it sounds like and and correct me if maybe i'm just misinterpreting it but yeah how might we'd be thinking about operating expense? It sounds like, you know, do we, should we be thinking about higher investments in R&D? You know, you're getting a 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?

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 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&D line. We'll have leverage in sales and marketing and clearly leverage in the G&A line.

Thank you. Thanks, Jim.

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

Hi. Good afternoon. Your loan could be as much as $5 billion, $7.5 billion during the pilot.

Why don't you take the volumes? I'll take the program.

So, Guy, as I said earlier, we think this is a multi-billion unit opportunity on an annual basis once it's ramped. There's a lot of categories within freshness in food. There's a lot of skews. So we really need to see what the rollout timing is for each of those categories, each of those SKUs, to give a sense of what the final number in terms of units are. But under any scenario that we envision, it's a multi-billion unit opportunity per year.

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 going to use the word challenges, I'm going to 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 and they provide, in terms of the reliability of the overall solution. 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. Okay, thank you, Guy.

The next question is a follow-up from Ezra Wiener with Jeffries. Please go ahead.

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

Yeah, Ezra, this is Kerry, so 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 for the quarter, given our current lead times. Since we've not seen a standard environment all year, we're going to 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 typical end-of-year enterprise hardware buying patterns of the channel portion of our system's business.

Got it. Thank you.

Yep. Thanks for the question, Ezra.

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

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

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