Q4 2023 Impinj Inc Earnings Call
Participants
Andy cobb; VP, Strategic Finance; Impinj Inc
Chris Diorio; CEO, Vice Chair & Co-Founder; Impinj Inc
Cary Baker; Chief Financial Officer; Impinj Inc
Jeff Dossett; Chief Revenue Officer; Impinj Inc
Harsh Kumar; Analyst; Piper Sandler & Co.
Toshiya Hari; Analyst; Goldman Sachs Group, Inc.
Matthew Myers; Analsyt; Susquehanna International Group, LLP
James Ricchiuti; Analyst; Needham & Company, LLC
Chris Kapps; Analyst; Loop Capital Markets
Scott Searle; Analyst; ROTH Capital Partners, LLC
Presentation
Operator
Welcome to the Impinj Fourth Quarter and Full Year 2023 financial results earnings conference call and webcast. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Mr. Andy Cobb, Vice President, Strategic Finance. Please go ahead.
Andy cobb
Thank you, MJ. Good afternoon, and thank you all for joining us to discuss Impinj's Fourth Quarter and Full Year 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 fourth quarter and full year 2023, financial results and first quarter 2024 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 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 balance sheet and cash flow metrics or 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 Susquehanna's 13th Annual Technology Conference on February 29 in New York Loop Capital Sixth Annual Investor Conference on March 11, and the 36th Annual ROTH Conference on March 18 in Dana Point, 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, and thank you all for joining the call. We exited 2023 on an upswing with fourth quarter revenue and profitability above both our third quarter results and fourth quarter guidance. Our focus on silicon and Enterprise Solutions paid dividends and strong fourth quarter endpoint IC volumes led by our two strategic verticals, retail and supply chain and logistics.
We will sharpen that focus as we enter 2024, increasing our investment in silicon and enterprise solutions while streamlining our organization to accelerate our pace and improve our profitability. Every January, we kick off the year with a national retail federation trade show in New York.
This year, Rainer up, if you felt like the belle of the ball solution providers across the show, how to use cases from inventory visibility to self checkout and user six sided delighting customers with just walk out and retail necessities like loss identification coming off, the significant retail inventory destocking that characterize 2023, the excitement at NRF was palpable although I still feel it is premature to call the retail downturn over green shoots I cited last quarter, feel a shade greener post NRF, buoyed by secular growth opportunities in supply chain and logistics, retail, general merchandise apparel and a long tail of other applications. From my perspective and pinch stood out as the leading RAIN silicon provider and enterprise solutions enabler, which is precisely where we want to be.
Turning to Silicon our 2023 endpoint IC unit volume growth exceeded our industry's historical 29% CAGR with opportunity expansion and inlay partner inventory rebuilds more than offsetting the retail destocking headwinds. Fourth quarter endpoint IC revenue exceeded our expectations as growth in retail demand outpaced headwinds from some inlay partners still dialing in their inventory levels.
Looking forward, we anticipate first quarter to again deliver modest endpoint IC unit volume growth for reader ICs on revenue held firm despite continued macro-economic headwinds in China as partners transition from older LED-based products to new E family designs. Q4 also showed strong test and measurement product deliveries to our inlay partners as they expand their inlay manufacturing capacity. We believe those capacity expansions bode well for the long term endpoint IC opportunity.
Before we turn to solutions, I would be remiss in not against citing our multiple intellectual property trial wins against our primary endpoint IC competitor and XP with steadfast determination, we intend to pursue the dispute to a long term successful outcome.
Moving to solutions division, our European retailers. Ongoing rollout of our self-checkout and loss prevention solution contributed strong fourth quarter gateway revenue. We expect this deployment their third today to conclude in the second quarter, even as it accelerates their embedded tagging brands. We anticipate future self-checkout and loss prevention opportunities with this retailer and other brands and geographies.
In general merchandise, the large North American retailer continued their rollout, albeit at a slower pace than they and we originally expected primarily due to the breadth of their supplier base and large diversity in the products being tagged. Regardless, they continue making progress.
Finally, in supply chain and logistics, we expect the second large North American supply chain and logistics end user to increase their label volumes in 2024. We expect all these projects to provide a tailwind to our 2024 endpoint IC revenue. On the product front contains M800 deliveries are poised to ramp as our inlay partners finished or close and begin shipping production in lace. The M800 is our best performing and most feature-rich endpoint IC ever end.
So far, customer feedback has been very positive although we are assuming the M800 will follow a typical multiyear ramp, we remain hopeful that our hard work on product performance and market readiness will accelerate that ramp. We also continue shifting our focus away from channel readers and gateways to our reader ICs and enterprise solutions. Former as partner products built on those ICs become increasingly able to unlock channel opportunities and the latter leveraging our readers and gateways as indispensable elements of whole platform solution.
Turning to new market drivers. Late last year, the European Commission and European Parliament provisionally included the Digital Product Passport or DPP in the EU's revised sustainability product legislation. DPP will provide information about powdered products, sustainability and traceability and help consumers and businesses make informed purchasing decisions.
We expect a phased introduction, including apparel start in 2027. We already see leading European retailers planning for and investing ahead of it. We believe DPP is a pivotal opportunity for us because rain already used extensively in retail apparel can provide the information required by DPP. We also believe DPP can be the impetus for post-purchase consumer around use cases. We began investing in DPP related R&D in 2023 and will continue doing so in 2024 and closing 2020.
Here, 2023 was another year of solid growth despite market headwinds with annual revenue crossing the $300 million threshold for the first time we delivered four quarters of positive adjusted EBITDA, successfully defended our IP, introduce market-leading new products and are well down the path to normalizing our inventory levels.
Looking forward, we are sharpening our strategic focus to improve our profitability and increase our competitiveness as we continue driving our bold vision to connect every item in our everyday world. 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 first quarter outlook.
Cary?
Cary Baker
Thank you, Chris, and good afternoon, everyone. 2023 was another year of strong revenue growth driven by our enterprise solution wins and end market diversification into supply chain logistics and retail general merchandise.
That said, we also navigated a fluid retail environment marked by significant retail apparel inventory destocking that elevated our first half revenue and depressed our second half revenues as our inlay partners, first overbuilt endpoint IC inventory and then adjusted stock back to healthier levels. Despite those fluctuations, our team executed well delivering non-GAAP profitability in each quarter of the year.
Another 2023 highlight was our brilliant Tech acquisition, which extends our solutions to include in late test and measurement. Cultural and financial fit between the companies is fantastic and the integration is proceeding as planned.
The Bladderchek test and measurement systems used by both our inlay partners and end users are a key element of our focus on silicon and enterprise solutions. Q4 revenue was $70.7 million, up 9% sequentially compared with $65 million in Q3 2023 and down 8% year over year from $76.6 million in Q4 2022 fourth quarter endpoint IC revenue was $53.9 million, up 11% sequentially compared with $48.6 million in Q3 2023 and down 8% year over year from $58.7 million in Q4 2022 to the sequential endpoint, IC revenue growth exceeded our expectations, especially when compared to typical fourth quarter declines.
Looking to the first quarter, we again expect sequential endpoint IC revenue growth now that are large and they partner inventory levels are relatively healthy. Fourth quarter systems revenue was $16.8 million, up 2% sequentially compared with $16.4 million in Q3 2023 and down 6% year over year from $17.9 million in Q4 2022.
The sequential increase overcame our expectation of a decline due to strength in test and measurement. Looking to the first quarter, we expect similar systems revenue to Q4 post 2023, revenue was $307.5 million, up 19% year over year compared with $257.8 million in 2022. Endpoint IC revenue grew 22% year over year with enterprise solution wins and inlay partner inventory rebuilds more than offsetting retail apparel destocking headwinds.
Systems revenue grew 10% year over year with test and measurement and Gateway strength more than offsetting weakness in our partner-led reader business. Q4 gross margin was 50.9% compared with 50.5% in Q3 2023 and 53.8% in Q4 2022. The year-over-year decline was driven by higher indirect costs against lower production volumes. Full year 2023 gross margin was 51.9% compared with 55.5% in 2022, with the decrease due primarily to lower end point IC product margins from less specialty and industrial ICs as well as mix within those specialty and industrial ICs.
Looking to first quarter 2024, we expect gross margin to sequentially increase. Total Q4 operating expense was $33 million compared with $32.6 million in Q3 2023 and $29.5 million in Q4 2022. Research and development expense was $15 million. Sales and marketing expense was $7.7 million. General and administrative expense was $10.3 million, including litigation expense of $3.8 million.
2023 operating expense totaled $137.8 million compared with $114.2 million in 2022. We expect total first quarter 2024 for operating expense to increase sequentially, driven by annual payroll tax and bonus accrual resets. We expect first quarter litigation expense to decline sequentially, Q4 adjusted EBITDA was $3 million compared with 300,000 in Q3 2023 and $11.8 million in Q4 2022.
Fourth quarter adjusted EBITDA margin was 4.2%. 2023 adjusted EBITDA was $21.8 million compared with $28.9 million in 2022. 2023 adjusted EBITDA margin was 7.1%. Fourth quarter GAAP net loss was $15.2 million. Fourth quarter non-GAAP net income was $2.5 million or $0.09 per share on a fully diluted basis, 2023 GAAP net loss was $43.4 million. 2023 non-GAAP net income was $19.8 million, or $0.7 per share on a fully diluted basis.
Turning to the balance sheet, we ended the fourth quarter with cash, cash equivalents and investments of $113.2 million. Inventory totaled $97.2 million, down $9.6 million from the prior quarter, with the decrease coming primarily from endpoint ICs. Fourth quarter net cash provided by operating activities was $1.4 million. Property and equipment purchases totaled $2.6 million. Free cash flow was negative $1.2 million. For the full year net cash used in operating activities was $49.4 million. Property and equipment purchases totaled $18.6 million free cash flow was negative $68 million, driven by our endpoint IC inventory rebuild.
Before turning to our guidance, I want to highlight a few items unique to our results and outlook. First and fourth quarter, our inlay partners made further progress reducing our endpoint IC inventory and our large partners exited the year relatively healthy, leading them well positioned to ramp M800 volumes. Some of our smaller partners still hold elevated inventory, which we expect them to bleed down as their project based demand returns.
Second, as we conclude our E family reader IC transition. We will end of life our prior generation in the product family with last time shipments scheduled in first half 2024. Turning to our outlook, we expect first quarter revenue between $72 million and $75 million compared with $70.7 million in Q4 2023, a 4% quarter over quarter increase at the midpoint, we expect adjusted EBITDA between $3 million and $4.5 million.
On the bottom line, we expect non-GAAP net income between $2.2 million and $3.7 billion, reflecting non-GAAP fully diluted earnings per share between $0.08 and $0.13.
In closing, I want to thank the Impinj team for your outstanding execution this quarter. We have delivered nine consecutive quarters of positive adjusted EBITDA. Even as we continued investing in our business, we now turn our focus to the next goal generating consistent free cash flow. I believe our efforts to streamline our organization will accelerate progress towards that goal.
With that, I will now turn the call to the operator to open the question-and-answer session.
MJ?
Question and Answer Session
Operator
Thank you. (Operator Instructions)
Harsh Kumar, Piper Sandler.
Harsh Kumar
Yes, hey, guys. First of all, congratulations. You guys are back to beat and raise, which is fantastic and best use our own. Chris, you sound fantastic about the prospects of the business. We appreciate that. So on that note, Chris, my first question to you is, you know, historically you had endpoint IC unit growth, call it 20%, 25%. You're coming off of a pretty healthy inventory correction, but your end markets are all looking in are nicely up is it fair for us to think about endpoint IC unit growth in the 25% range for 2024 a year?
Chris Diorio
I was personally say thank you for your kind words, Harsh, we guide one quarter at a time, as you know, making predictions at this point in time relative to overall 2024 is quite difficult. You've probably heard some of our partners talk about 2020 for overall, say they potentially see some macro pickup in the back half of the year if that macro improvement actually happens.
And then we see strength in the back half of the year as well and the potential for gains as we have seen in other years. But a lot depends on what happens in the macro environment. I'm not willing to call yet that we're going to see that pickup in the back half of the year because as I said in my prepared remarks, it's a bit too early for us to call the downturn over, but I'm guardedly optimistic for the back half of the year.
And if it picks up, we're going to see it in the endpoint IC volumes right now. And as I said in our three green shoots, I guess green shoots look greener. So let's hope those green shoots continued growing. We're going to do our best to water incentive pay.
Harsh Kumar
For my follow-up, I wanted to clarify on what you call as your second line, your second logistics customer. Now they do. I think $6 billion some odd shipments a year. Is it is it fair to think that you are now fully penetrated in 2024 with that sort of a $6 billion sort of shipment number? Or do you think that the endpoint IC installation within that particular customer will continue to ramp not just for 2024, but possibly into 2025?
Chris Diorio
So I'm just I think you mentioned 6 billion units rather than $6 billion terms with the problem of our products ship in our margin, it's difficult for me to speak to some of the pace and timing of an end customer ramp. What I said in my prepared remarks, we see some increases in volumes in 2024 from that said, that end user has diverse operations.
And so I think it's probably fair to say that there will be opportunities for continued gains with that end user. And we will do our best to support them at every opportunity to start their deployment and make it successful in terms of the pace and timing at which they ultimately go. I think I'm going to have to defer to them in their remarks that they often make in their earnings calls.
Harsh Kumar
Fair enough, Chris and I will get back in line. Thank you and congratulations, guys.
Chris Diorio
Thank you, Chris.
Operator
Thank you.
Toshiya Hari, Goldman Sachs.
Toshiya Hari
Hi, good afternoon and thank you so much for taking the question. I had two questions as well. The first one is on the M. 800. I think it was you carry toward the end of your remarks, you talked about your large partners being in a pretty good spot from a from an inventory position perspective and how they're well-positioned to ramp the M. 800 as the M. 800 kind of comes in into your mix, how should we think about the penetration rate exiting the year? And how should we think about the impact that could have on both ASP expansion as well as your gross margins and then I have a follow-up.
Cary Baker
Okay. Thanks, Toshiya. This is Cary up with customer feedback on the M. 800 has been overwhelmingly positive. Our partners are moving forward with the quals, and we expect some initial production shipment volumes this quarter. Historically, however, our new endpoint IC ramps have taken multiple years, and we're optimistic that the excitement around the M. 800. We can accelerate that historical product ramp, but it's too early to predict the pace of the ramp at this point.
And I would add in addition to the performance and manufacturability gains, the M. 800 also carries a significant cost advantage for Impinj, given the DI strength that's built into that endpoint IC when fully ramped we expect the M. 800 to deliver approximately 300 basis points of gross margin accretion, given how early we are on the product ramp. However, I do not think you'll see are we will see the M. 800 impacting gross margin in the first half of this year, give us another six months, and we'll see how that ramp goes. But we're very encouraged by what we've seen so far.
Toshiya Hari
Great. That's helpful. And then as my follow-up on Chris and Cary, I think you both mentioned something about streamlining your organization. You've generated positive EBITDA on a consistent basis. You talked about being focused on generating consistent free cash flow. When you say streamlining your organization, like what do you mean what are you doing today internally? And what kind of cost reductions or efficiencies can we expect and model going forward in '24 and beyond? Thank you.
Cary Baker
Thanks, Toshiya, this is Cary again. I'll take that once we are streamlining and adjusting our channel reader investment to better align that portion of our reader business to its revenue profile, we're not exiting the channel reader business and we'll continue supporting our partners in the market.
This move will allow us to do that and support our partners in a more profitable fashion. This change is a natural progression of our strategy as our partner designs with each family are increasingly able to unlock that channel reader business, and we are, therefore able to focus our efforts on the enterprise solutions. We remain focused on our three financial goals that we outlined last European investor or the Analyst Day, long-term revenue growth, profitability and free cash flow.
Toshiya Hari
Thank you and congrats.
Chris Diorio
Thank you.
Cary Baker
Thank you.
Operator
Thank you.
Christopher Rolland with Susquehanna.
Matthew Myers
Hey, guys, this is Matt Meyers on for Chris. So first off, congrats on the quarter, but also just wanted to get some more clarity around the inventory dynamic. So is this largely over now for you? Do you still see much excess inventory on the endpoint IC side or is it on the reader side? And I know you mentioned smaller partners that still have some elevated inventory. How incremental is this? And is there any inventory so what you're in life.
Cary Baker
Hi Matt, this is Cary. I think I could take a shot at that. In the fourth quarter, our inlay partners made further progress reducing their endpoint IC inventory and the large partners exited the year relatively healthy. So they're now able to ramp the M. 800 as production volumes increase. Think of our inlay business as an 80 20 rule with a handful, maybe six or so inlay partners driving the bulk of that volume. There are smaller partners whose inventory levels remain a little elevated.
We're not as concerned about that, their demand has historically been project based and as that project based demand comes back and they'll get healthy again. But we're feeling pretty good about where we are at this point. And we think in the in the first quarter, we'll be shipping closer to demand, whereas the last couple of quarters we've been pulling down channel inventory and as a result, under-shipping demand.
Chris Diorio
And I guess I'll say a tiny bit more there. As you look at the overall market, we do see the retail inventory destocking at the end user levels starting to taper, but on sales out still exceeds imports. And so I'm not clear how long that destocking is going to go on at some point. And we're seeing a tapering now. And as that destocking ends and it assuming demand stays healthy with then we expect to see accelerating retail demand on the other side.
Matthew Myers
That's great color. Thanks. Guys. Just a quick follow-up to I know you talked about your second logistics costs. Curious if there were any updates around you.
Chris Diorio
No, Matt, I don't think we there have been any public comments from that customer. And I don't think we've got anything that we can add at this point in time. Sorry about that.
Matthew Myers
Thanks Chris.
Operator
Thanks.
Jim Ricchiuti, Needham & Company.
James Ricchiuti
Thanks. Good afternoon. I may have missed it in. I joined the call a little bit late, but can you elaborate on just on some of the restructuring that you're doing to what extent that's impacting our OpEx carry?
Chris Diorio
I think I think Terry and I are going to spend a little bit time as part of the sharpening our focus. And as Kerry mentioned to answer to one of the prior questions, some kind of adjusting our spend and normalizing our spend in our reader and gateway channel business, we have reduced our headcount by about 10% and refocused our Company along the lines of our silicon and enterprise solutions.
We believe that refocusing will drive both our profitability and our success kind of our focus going forward and the growth opportunities for the Company. So although it's painful, very painful to go through a headcount reduction and it's not something we take lightly or easily something that we felt we needed to do and done in refocusing the company, we're going to be focusing on growth on accelerating our growth, even as we drive profitability.
So we're aligning to our strategy and done, and I think you'll see us tighten that alignment as we go forward, not in terms of further headcount reductions but just in terms of how we're really focusing on the opportunity in front of us here.
Jeff Dossett
And Chris, I think I think you did a fine job answering it, Jim, I would just reiterate that this is a natural next step in our strategy, and you've heard us talk about enterprise solutions and for the last several quarters at this point, this is allowing us to do that in a better way while also running our channel reader business in a more profitable fashion.
As I as I think about OpEx in the first quarter, I still expect OpEx to step up. And so not as much as you've seen in the last couple of years. In Q1, we still have the annual payroll tax resets we still have the bonus accrual reset, but muting that will be a little bit lighter on labor, wage related spending and a little bit lighter litigation spend.
James Ricchiuti
Got it. Thank you. For that. I'd like to follow a question. Cary, in the past when you've given guidance, you've given a little bit more color around endpoint IC revenue growth. And I'm wondering is this quarter, a little bit more challenging to forecast and what are some of the puts and takes as we think about the sequential growth that you're anticipating in endpoint IC revenue and is there any color as we think about beyond Q2?
Cary Baker
Jim, I think the colors about the same, maybe I'll provide a little a little more here in Q4 is seasonally our softest quarter as we typically ship in front of the holiday season. We bucked that seasonality this Q4 and we were able to deliver 11% sequential endpoint IC revenue growth even as we took down more channel inventory in Q4 than we did in Q3.
Looking to the first quarter, we again expect sequential endpoint IC revenue growth. Now that our large inlay partners. The inventory levels are relatively healthy and our shipments, as I mentioned previously, are going to more closely match the underlying demand in the fourth quarter. We are very pretty pleased that we are now modeling our third quarter in a row of sequential demand increase.
The upticks, however, have been modest and I don't think reflective of the snapback that I would expect when the broader retail recovery occurs, while some of our partners have signaled expectations of direct retail recovery in the second half of the year. And as Chris mentioned, some of our green shoots are greener this quarter than they were last quarter, where a couple of steps removed away from end customer demand. And I don't think it's our place to call the timing of a retail recovery. And we're very encouraged by the progress that we're seeing in demand and the improvements that we're seeing. But at this point, I'm not modeling a retail rebound in the first half of the year.
James Ricchiuti
Got it. Thank you again.
Operator
Thank you.
[Mike Walkley, Canaccord Genuity].
Hi, this is [Juliana John] on for Mike. Thank you for taking the question and congrats on the strong performance on. So for Chris on Pinterest, strong intellectual property. And can you discuss how you are protecting your IP and update us on the status of your ongoing lawsuits with NXP and also with the potential for a monetary award, given your recent wins, how should we think about a potential amount or could a royalty type of arrangement happen with NXP? Thank you.
Chris Diorio
Thank you, Ray, and thank you. And the answer to that question will take more time than I think we have here. I will say that we have gone through three separate trials with NXP one in Washington, one in California, one in Texas, and we have prevailed in all three of those trials. In addition, NXP sued us in three separate trials in China and subsequently dropped all three of those trials.
So I feel good about where we are to date. There have been jury awards, both in terms of damages and lost profits as well as ongoing royalties. But the final judgments haven't yet been entered by the courts. So it's a bit there's motions back and forth and a lot of the other things that go on the legal front.
So it's too early for us to call where we will net out, as I said in my prepared remarks, prepare to take this litigation through to a successful completion, and we feel that we need to defend our leadership position in the market, our intellectual property that we expanded so much effort to develop as the market creator and against people who copy our products, infringe our IP So you should expect us to continue pursuing that litigation settlement takes two parties to date.
There hasn't we haven't been able to reach a settlement with NXT. I don't know if we will or we won't either way. And we feel that it's our obligation to protect our company, protect our IP, protect against people who copy it. And so expect us to do our best here going forward and like I said, pursue this litigation to a successful outcome.
Thank you.
Chris Diorio
Thank you, Julia.
Operator
Thank you.
[Chris Kapps, Loop Capital Markets.]
Chris Kapps
Good afternoon. My questions are focused around the M. 800 offering and so I understand the manufacturing yield benefits that you'll get with that chip being produced the advanced technology node given the much greater diaper per wafer yield.
And I appreciate that the gross margin tailwind that you mentioned, the 300 bits of upside as that transition happens. I'm just curious if any of that IC unit cost improvement accrues to your inlay customers as well. I'm asking because I was wondering if that might be an incentive for them to shift more of their inlay footprint or from your production to inlays based on your chips? Then I had a follow-up, Chris.
Chris Diorio
Got it. Thank you. Good question. So the any hundred has roughly 25% greater rig range than the M700. That's with the same size and or said another way, if you shrink the size of the antennas and save money on the InLight cost, you can get the same effect of very great interest.
The M700, certainly partners have the opportunity to either yes, that greater range for effort for our applications that need it or as is often the case, reduce their labor costs, their antenna costs, their PET. costs, other costs and achieve the same performance that they've been able to get on the market. So there is definitely an incentive for our inlay partners to move forward with the M 800. It's just overall goodness for them for us, an incredible product, and they will see benefit from it.
Cary Baker
And then, Chris, this is Cary. I would add that from a pricing perspective, we made the conscious decision to price the M. 800, even though it is more performance and more manufacturable, slightly below the M. 700 to accelerate that adoption as I mentioned earlier, the typical adoption ramp is multiple years. We want to do that much quicker than that. And we'll know more if we're successful in accelerating this adoption in another six months, but that is our goal at this. At this point, I'm not modeling a visible gross margin impact in the first half of the year on normal, like I said, a no more than six months.
Chris Kapps
Got it. That's very helpful color. And then separately, you mentioned one feature of the greater read range and I believe there's other features that are imparted into the M800 chip design and just curious if those benefits are in and of themselves enough to for market to see impetus to for to embrace adoption of a program based on the capabilities of this new product. And just curious because if that's the case, it would also be from there that helps extend your IP moat as the industry continues to grow and mature? Thank you.
Chris Diorio
Yes, good question. Thanks, Chris. And the answer to your question is yes, absolutely. Yes.
We've talked about it at least one feature and our products are protected mode, which allows a retailer to make a tag invisible at point-of-sale to protect consumer privacy. We believe that feature will have value in DPP. going forward. We have introduced other features in the M. 800 that we haven't spoken to publicly yet, but we will over time and we think will drive enhanced performance in enterprise solutions to make those solutions work better and drive preference for Impinj endpoint ICs.
That's about all I can say on that topic at this point in time, just know that I'm as we migrated to a more advanced process node, the cost of digital logic came down because it took advantage of that effective savings to introduce features in the IC that we believe will solve previously unsolvable enterprise problems, plus going forward, give us an opportunity to address the EPS we said in our prepared remarks.
Chris Kapps
Appreciate the color.
Chris Diorio
Thanks, Chris.
Operator
Thank you.
Scott Searle, Roth MKM.
Scott Searle
Good afternoon. Thanks for taking the questions and congrats on the quarter and nice to see the inventory in the channel normalizing at this point in time.
I apologize. I joined the call late, but on the systems front, I was wondering if you could provide a little bit of color looking into 2020 for what you're seeing from a pipeline opportunity perspective and linearity perspective, I think there were some larger contracts or projects that were reaching a conclusion or at least a phase of conclusion. I'm wondering what the visibility on that phone is and how that pipeline is shaping up?
Cary Baker
Hey, Scott, this is Cary. I can take a start at that and then Jeff can jump in. So looking to the first quarter, we expect similar systems revenue in the fourth quarter and looking a little bit further out than that first half systems revenue benefits from the ND. reader IC last time shipments related to that products end of life. Additionally, Phase three of the Europe visionary European retailers loss prevention deployment will conclude in the second quarter.
So we've got some benefit in there. There is more opportunities beyond Phase three, but we're taking a conservative approach right now because they may not line up perfectly Phase four. That is may not line up perfectly with the conclusion of Phase three, we had the same similar situation back when we knew Phase two was completing, but we didn't know when Phase three would kick off.
And then I would just add maybe a final thought on the systems outlook. We've historically seen that after economic downturns, our endpoint IC business recovers before our systems business. So good color. On the first half of the year, we're in kind of a little bit of a wait-and-see mode to see how systems recovers in the back half of the year.
Great. Very nice.
Jeff Dossett
Go ahead, Scott.
Scott Searle
Oh, no, no, please continue and Thanks.
Jeff Dossett
Thanks very much. I was just going to add that our systems pipeline remains strong. I think what's encouraging to me and our team is that we and our partners are seeing increased sales activity increased detailed project planning, U.S. increase in the number of proof of concepts that are re activating at this time.
And really it's in the context of our customers and our partners increasingly understanding the importance of end to end supply chain visibility and process digitization, that ability to that ability to sort of digitize and optimize the entire flow of everything they manufacture transport cell and even process back into their business in returns or other forms of circularity. So we're encouraged, but the pace and timing of these deployments is always determined by the individual and customers. So as we as we get more visibility, we'll integrate that into our guidance each quarter.
Scott Searle
Great. Very helpful. And if I could for a follow-up on the DPP front, it sounds like you had some comments on, so I apologize if this is redundant, I could take it offline, but I thought the initial discussion was contribution may be starting on in '25, not '24, but the opportunity to spread to not only different categories but other geographies. So I'm wondering if you framed it at all in terms of the opportunity as we start to go into 25 and 26 kind of permeating, not just within the EU but into other geographies? Thanks.
Chris Diorio
Yes. So on so we did say some words about the debate, and I personally am very excited about the PP., what it means for our business going forward. There's two aspects that I would really focus on for DCP number one requirement for retailers initially and other enterprises and other markets going forward to provide true traceability through a product lifecycle from really initially at the time of manufacturing through point of sale.
With that visibility requires what the laws are going to require, what those customers really need to be able to show and do and the fact that I believe RAIN RFID can provide all the data they need and we can do it in a proper way. Second aspect, and actually, we see retailers already today and we're going to see more from other customers as well. See retailers today already planning for DPP speaking with us about it and talking about integration, talking about their needs. So it truly is an opportunity for us.
Second aspect that I find very exciting is that DPP doesn't end at point of sale. It ends in items and that's life. So evidenced at items end-of-life, but it will, I believe, opens up the opportunity for us and post-purchase consumer use cases initially focus on recyclability at end of life.
There's more because when you have an IC that lasts for the life of an item, it's embedded in the argument becomes part of the item for recycling of end-of-life. It opens up consumer use cases that today our market and our industry has touched this company have been very excited about the opportunity for consumer use cases. It's very early to say anything about that attack.
I can't say anything about that or how that materialized. I believe GTP will be in the interests for those consumer use cases over the next couple of years, and I expect us to put some effort into it because it's just an exciting opportunity for us overall.
Scott Searle
Hey, Chris, maybe just to follow quickly, when do you expect, I'll call it a clinically meaningful impact. But I think some of the initial deployments are around things like tires, et cetera, but not necessarily high volume items on is this '25 does it become meaningful or is it beyond that? And we just got a lot of infrastructure that's starting to go out the door in the next 12 to 24 months. To support this deployment.
Chris Diorio
As I said in my prepared remarks, which of that becomes is there a real opportunity is further out in time already seen retailers and others planning for DPP., but the regulations on the apparel side, at least at least with the current timing effectively come into force in 2027.
So you'll see plan and you'll see work going on. You'll see us doing some investments. You'll see us work directly with enterprises as we prepare for that time line. So B2B is a long term, not short term opportunity and it's a long-term game for us.
So think about it in the same timeframe as we think about these large enterprise opportunity wins, they don't happen in a month they don't happen in a quarter. They are going to happen in a year. They take time. But as they roll in the really meaningful for our business, an IGGTPA.s in that same light except much larger than any single enterprise customer.
Scott Searle
Great. Thanks so much.
Chris Diorio
Yes. Thank you.
Operator
Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Chris Diorio for any closing remarks.
Chris Diorio
Thank you. MJ, I'd like to thank you all for joining the call today and especially to thank you for your ongoing support.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your line.
