James Ricchiuti: Thank you. I’ll jump back in the queue.
Chris Diorio: Okay. Thank you, Jim.
Operator: The next question comes from Mike Walkley with Canaccord Genuity. Please go ahead.
Michael Walkley: Great. Thanks. Maybe I’ll start with Cary. Just want to dig into the inventory a little more is the highest in company history. Is there like some system side in there that are nearly done and you’re just 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 right inventory level going forward or do you think you maybe need to build even more?
Cary Baker: Yeah. Thanks, Mike. It is a record inventory level. I would also remind you it’s also record revenue for Impinj as well. Most of the growth, as I noted in my prepared remarks, were endpoint IC, specifically raw materials and WIP. 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. 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’re on a path to build appropriate level of inventory that supports growth expectations and also incorporates our foundry partner signal of wafer tightness in in 2024. Today’s backlog, which comprises non-refundable, non-cancelable orders with request dates 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.
Chris Diorio: And Mike, this is Chris. 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.
Michael Walkley: Great. Thanks. For my follow-up, Chris, that kind of feeds into it, you’ve seen confident in that second half of the year ramp. Now that supply demand is starting to reach balance into the second half of the year, can you maybe remind longer-term investors just 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?
Cary Baker: Yeah, great question, Mike. 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 endpoint IC 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 endpoint IC revenue flat, because, as Chris mentioned, some of those big programs have slid 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, et cetera. So, accordingly, we expect endpoint IC revenue to grow sequentially in Q3 and then again in Q4, so different than historical seasonality.
Michael Walkley: Okay, thanks. And last question, just the logical one on the system side with some of these things pause. Would that have a decline maybe mid-year and then grow again? Or how are you thinking about the systems business?
Cary Baker: Yeah. 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 retailer 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, Q3 and Q4 follow typical seasonality, where systems business is strongest in the fourth quarter.
Michael Walkley: That’s helpful. Thank you very much.
Chris Diorio: Thank you, Mike.
Operator: The next question comes from Natalia Winkler with Jefferies. Please go ahead.
Natalia Winkler: Hi. Thank you for taking my question. 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 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 maybe now kind of showing for you as well?
Chris Diorio: Yes. So, thank you, Natalia. So we have estimated the retail apparel attach rate of between 20% and 25%. And so, yes, I think it’s fair to assume that if you look at probably two-thirds of the endpoint IC market demand today before these new opportunities ramp is probably tied to retail apparel. As the retail apparel market goes, a significant portion of the RAIN RFID demand goes. And when I say goes, I mean in a positive way. It goes up and you go up. If it goes down a little bit, we go down a little bit. So what we saw a bit of in first quarter was more retail apparel inventory digestion than we and our partners had previously expected a little less pull through of endpoint ICs, 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 significant portion of the endpoint ICs that we deliver today. And we do see significant retail opportunities still ahead of us, as we talk about the second. We talked about the visionary European retailer. 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% grade.
Natalia Winkler: That’s very helpful. Thank you. And then for my second question, Chris, would you mind providing a little bit more color on the acquisition you guys have made and how should we think about it from the strategic kind of new portfolio stands?
