Okay, good morning. We're gonna start our next presentation. Thank you, for joining us, today for the, at the, 26th Annual Needham Growth Conference. We're gonna have a discussion with the management of Impinj. We're pleased to have with us today the company's Co-Founder and CEO, Chris Diorio, as well as CFO, Cary Baker. Cary's gonna make some comments, to start off this, fireside that we're gonna do. You probably are aware the company had news yesterday after the market. Cary, you wanna?
Yeah. Thanks, Jim. On Tuesday, after market close, we issued a press release announcing that we expect fourth quarter 2023 revenue to exceed $70 million, above the high end of our prior $65.5 million-$68.5 million guidance, and adjusted EBITDA to exceed $2.5 million, above our prior guidance of a loss of $900,000 to a profit of $700,000. I will now provide as much additional color around that press release as I am able to share at this time. I ask that you please defer any follow-on questions about that release, including about our fourth quarter results or first quarter expectations, until our earnings call, scheduled for Thursday, February 8, 2024, at 5:00 P.M. Eastern.
We are pleased to share that these preliminary fourth quarter 2023 results reflect a stronger than anticipated increase in endpoint IC revenue and sequential growth in systems revenue. Our strong operational execution drove adjusted EBITDA that exceeded our expectations. On that note, I would like to thank you, Jim, and Needham for having us here at the conference today.
Thank you. Thank you for that. So we've talked over the last several quarters about the destocking. And you know, I was at NRF earlier this week. You guys were there. Seemed like there was a lot of discussion around RFID from the various players, and you do get the sense that there's some real momentum there. I wonder, first of all, if you can talk at all about that destocking process? And second of all, just some color on NRF, what you've seen.
Yeah, I'm happy to take that, and both Cary and I were at NRF, so I'll let Cary make some remarks based on what he saw as well. So the retail apparel inventory destocking has been a bit deeper and a bit longer than we had originally anticipated. You can all see it in the numbers in terms of the import data versus the sales out data, and it's actually deeper and probably more sustained in Europe than it is in North America. So that destocking has provided a headwind to our business because our endpoint ICs go on new apparel items that are shipped to stores. On the positive side, despite that retail apparel inventory destocking, we're gonna notch double-digit year-over-year revenue growth and endpoint IC unit volume growth that's consistent with our industry's unit volume CAGR.
So generally, despite the headwinds, I feel good about the results we've posted to date. In terms of NRF, I'm gonna say that I felt, this is my personal feelings, that this year RAIN RFID was kind of the most spoken about thing at NRF. It was just everywhere. You saw all the suppliers doing demos or not all, but a significant number doing demos, whether it was loss self-checkout and loss prevention, whether it was inventory visibility, whether it was new use cases. There was a lot of excitement, a lot of enthusiasm about RAIN RFID, not just for retail apparel, but for retail general merchandise broadly. Cary, anything you'd add?
No, I thought that was great.
Yeah, I mean, in the past, we, we've spent more time talking about this market and talking about inventory management applications, but what does appear to be occurring, you know, occurring is, are these applications that are now overlaying that. Is there a sense, as you talk to some of the enterprise customers, that there's a foundation now that you can overlay some of these newer applications, new use cases?
Absolutely. So, the initial use case— Let's just start with retail apparel. The initial use case for retail apparel was inventory visibility, to reduce overstocks, understocks, maintain better inventory control, and give better in-store inventory visibility. You know, if you look at the numbers, in-store inventory visibility, depending on the retailer, was somewhere in the 60%-70% pre-RAIN RFID, and I think you'd see the vast majority of retailers saying that by doing regular handheld-driven inventory, they can drive that inventory visibility above 90%, and many are seeing above 95%. They don't go for 100% accuracy, because it's, it's not worth the, the, the store associate's time to do a perfect inventory in their stores.
Now that the items are tagged, we see significant opportunities in self-checkout and loss prevention, like we've talked about with our visionary European retailer, and we're to the point where that solution is sufficiently mature that we are working with our partners, one in particular, to step and repeat at other opportunities. That self-checkout and loss prevention also has a little bit of a spin-off in simply loss detection. So to do self-checkout, a retailer needs 100% of the items tagged in the store. But if you're just looking to get an idea of where the loss is happening, you don't need 100% tagging, because you're not using the tagging for self-checkout. That gets to loss detection. So we see opportunities in the loss detection use case just to identify loss and theft to allow the store to take action.
And so there are other further opportunities in the retail space, for enterprises to layer on additional use cases using RAIN RFID. Then if we turn to retail general merchandise, that's just getting going. Supply chain and logistics, the initial use case is for package visibility to reduce some missed shipments and other mistakes, but you can see there would be overall large opportunities, including directly for end customer engagement, using the tags on the packages. So we see, as we've talked about previously, new use cases layering on the old use cases once the tags are put on the items.
Cool. At the Analyst Day last year, the company talked quite a bit about a strategy of engaging and developing platform solutions for key enterprise customers, and you've kind of touched on it, Chris. And talk to us about, you know, the process of... How do you identify the right customers? How do you resource this internally, that... Walk us through that process.
Sure. Thanks, Jim. Historically, our industry was built on handheld readers doing inventory counting. I won't say that was an easy thing to get going, given the time that it took. It, it certainly wasn't easy, but there was a human being in the loop that could make that handheld reader work. You know, if the tags weren't quite sensitive enough, the handheld readers make noise, you can get closer. We had a human being to basically enable the solution to work because the handheld was in their hand. Going forward for these new use cases, self-checkout, loss prevention, dock doors, package shipping, they all require autonomous reading. And those autonomous reading use cases are a lot more challenging simply because we have to engineer the solution upfront so that it just works, and there's nobody in the loop to compensate.
So what we look for is enterprise opportunities that have long-term value to us, that will drive tagging, that have long-term value to the enterprise in terms of the value proposition it brings. We look for visionary end users who want to move forward, who are committed to move forward at the executive level. We work with those enterprises to solve their problem, and that typically includes engineering, in some instances, making changes to our silicon itself, our endpoint ICs, our reader ICs, or both, supporting those changes through our entire platform, working hand in hand with the customer for many years to solve their first problem and then successive problems, and then from there, being able to step and repeat.
So our decision-making process is: Do we have a visionary lighthouse customer who's got a hard-to-solve problem that our engineering will add value to, and we can step and repeat with our partners after we've created the solution? For the most part, we are in the first or second inning in those opportunities with the lighthouse enterprises. The process of engineering the solutions with Fortune 100 companies takes, and rolling it out and deploying it, takes years, and that's not a bad thing. It takes years because they're rolling out billions of items that are tagged. They're rolling out multiple different use cases, and they keep layering on additional use cases. So for us, we focus on a partnership with the enterprise where they can rely on us, and we deliver that trust and solve their business problems, and that's our decision-making process.
So is the strategy, the near-term strategy, still to work hand in hand with these lighthouse enterprise customers? It may take a little longer before we see it spread out to other companies in those verticals. Is that a way to think about it? Or-
That is the way to think.
Okay.
No, that is the way to think about it, not because we don't want to spread it out, but because we want to create the solution first with the leading enterprise, make sure that it's... it can be repeated with our partners, and then let them go and repeat. I guess what I want to say is, we work with a relatively... with a very small number of lighthouse end users, on one hand. We have partners who use our readers and reader ICs, and, you know, they're looking at the entire span of opportunities, whether it's in retail, supply chain and logistics, industrial, manufacturing, healthcare. Most of the hospital stuff goes forward without us touching it. We help our partners, but they do it. Most of the automotive stuff goes forward without us touching it. Our partners do it.
So we've got a huge partner base that's deploying solutions all across the board. We focus on the hard ones with the big customers that will further accelerate the industry and allow us to differentiate our endpoint IC silicon and our readers, or reader IC silicon, to drive a differentiated solution that has extended features that enable that use case, enable that lighthouse customer, and further allow us to step and repeat with partners.
One of the lighthouse enterprise customers, I think we've, we've been hearing about for a while, including the commentary that's come from the company's CEO, about deploying RAIN RFID in the logistics market, you know, through... I, I don't know how many facilities they have in the U.S. I think it's over 900 or so. Can you talk a little bit about a program of that magnitude? How long and how challenging is that for that type of organization to deploy? And, you know, where are we in that?
Thanks, Jim. Yes. So any time you have a Fortune 100 company that wants to fundamentally transform their operations, it doesn't happen in a step. It's a long process. It has to be, because they have hundreds or thousands of facilities. They're moving billions of items. They encounter challenges along the way that neither we nor they anticipated. That particular customer is committed to their solution. They reaffirmed that commitment in a talk at NRF, just I guess it was two days ago. They're committed to the solution. They're committed to driving forward. We're committed to working with them in every way we can to facilitate them going forward. But it is a multi-quarter, multi-year proposition to roll out successive use cases, to get the tags on the parcels, and then they have a wish list after that.
In fact, all of our customers have wish lists, that once you get this done, here's what we wanna do next. And that wish list, in my experience, never ends because they keep every one of these customers thinks of new opportunities and new, new use cases. And in fact, I met at NRF with our Asia-based global retailer, and they came at that time with a wish list also. And I met with a very large French sporting goods company that we work with, and they came with a wish list as well. So all of these enterprises, once they're deployed, they have a lot more things they wanna do. But for that particular customer, they're going forward. But think of it, think of the overall deployment pace being measured in quarters to years. There's no instantaneous.
Yeah, and that's the type of approach that all large enterprises take. They'll launch a pilot to prove out the technology, then they make a decision to go, and that decision's typically made by the C-suite or sometimes the board. Once they made the go decision, the go decision, t he first go decision is really on a controlled deployment, something small that they can prove out the ROI at scale, then they make the decision to go broadly, and we see that in logistics, as Chris described. We see that in loss prevention. We see that across the board.
Yeah, let's take the European visionary retailer. How long have you been working with them?
Better part of a decade.
Better part of a decade. And, how many years ago did you start looking at working with them on some of these-
The loss prevention-
... applications? Right.
Yeah, the loss prevention and self-checkout. I might not get the year exactly right, but I think I'm okay saying it was, I think it was probably 2018 timeframe that we really started working on it, where they, they had identified that they wanted to do loss prevention. They couldn't solve it themselves. They couldn't solve it with partners. So we spent a lot of time with them understanding the problem statement, understanding what it would take to retrofit existing loss prevention gates, understanding the requirements for not only for embedded tagging and, you know, how they were gonna do their tagging and how they were gonna go forward, but the theft model and how people steal, and inadvertent versus intentional stealing, and then trying to engineer a solution.
And you may think, well, why is it so hard to do the self-checkout and loss prevention use case? The answer is you've got a store exit, and the true thing about RAIN RFID is it's got broad readability. I mean, that's the whole point of doing inventory visibility. You have a handheld, you wave it around, you read everything. The problem is at a store exit, where there's a lot of garment items right near the store exit, you don't want to read everything. You just want to read the item that's leaving the store unsold. But there's no way to control the radio waves to say: Don't read everything. So the problem was: How do you focus on the tag of interest, which is the one that's leaving the store unsold, and not get cluttered by everything else around the store exit?
Now, you could say: Well, just whitelist all the stuff at the store exit. Ignore it. But those are the things that get stolen because the high-value items, the most... the sellable items, are put right at the store exit, so whitelisting is not an option. So solving that problem, focusing, decluttering, and focusing on the tag of interest, the item of interest, to identify loss prevention, and doing it within 200 milliseconds, was the nut that we had to crack, and we did crack it. And so that creating the solution took, I'm gonna say, better part of two years, working hand in hand with the customer, and then the rollout has been brand by brand.
Yeah. To that end, this was the loss prevention opportunity. We announced that win in the fourth quarter of 2020, and their first phase was to deploy to one of their smaller brands. Think of that from our perspective in terms of revenue, it was about $6 million in systems revenue, which we substantially deployed. We, along with our partners, substantially deployed in the second and a little bit into the third quarter of 2021. In early 2022, they made the decision to roll out phase two, which was their flagship brand. They continued that deployment. That was a four-ish quarter deployment, and then after phase two, they announced phase three, which were two brands three and four. With the completion of phase three, which is upcoming, they'll be a little over half of their total, the total-
Mm-hmm.
... opportunity for loss prevention. And as Chris mentioned earlier, customers think about what else they can do with their RAIN deployment, so they're not done with loss prevention.
Part of that solution was us reengineering our endpoint IC silicon to address their needs for privacy, consumer privacy, as they transition to embedded tags. So the idea is that a tag becomes an integral part of the item. Ideally, with DPP coming out, Digital Product Passport, the item is traceable from cradle to grave, all the way through the consumer use to recycling. And how do you protect consumer privacy when you have tagged items in the hands of consumers and prevent traceability and meet European privacy regulations? So we actually modified our silicon to add Protected Mode, which allows us to turn a tag invisible at point of sale, be made back visible again with a PIN. We engineered that solution into our silicon based on the customer requirements.
So the customer, in these enterprise use cases, gives us requirements, says, "This is what we need." We will actually modify our chips to meet their needs, which gives us, of course, a long-term opportunity with that customer built on trust.
And presumably, that also enhances your competitive position. I mean, that's the next question. It's a segue for, you know, as we think about an application like you, you're alluding to, talk to us about Impinj's position in the market relative to its competition, both on the endpoint IC and on the system side. Systems, I think, is, you'd agree is maybe a little bit more competitive?
Systems is a bit more competitive, but a significant number of enterprise or significant number of companies that deploy solutions use either our reader ICs, our readers, or work with us with our endpoint ICs to create a solution. So we have a platform that spans endpoint ICs, to reader ICs, to readers and gateways, to software that implements algorithms, for example, for that loss, self-checkout and loss prevention, and now cloud services for item authentication with a cryptographic engine in the endpoint IC. Our focus is on enabling our partners, either directly, them going to enterprises and solving a problem, or indirectly, at least initially, where we solve the problem and then hand off to our partners for them to step and repeat. So our focus is on that partner base.
It's on creating a platform, a whole platform, including the endpoint ICs, including differentiations in those endpoint ICs, that our partners can use to deploy out in the market. And so whenever I see any company out there, and if they're a competitor, I think, "Hmm, how can I turn them into a partner?" It's a little harder on the endpoint IC side, but anything on the system side-
Mm-hmm.
I think of every company as either an existing partner or a potential partner.
You, you highlighted cryptographic authentication. Maybe for those in the audience, tell us a little bit about it. Just give us a little bit of background and how we should think about that opportunity for the company's RAIN technology.
Great. Thanks, Jim. So we spent about 10 years figuring out a way to shrink a cryptographic engine, you know, that does a crypto computation, and put a key into our endpoint ICs, such that you could do the authentication in milliseconds, at full range, and be secure. So we can literally authenticate an item as genuine. The key we insert at time of IC manufacturing. We have a cloud service that when a partner reads our endpoint IC, sends a challenge, a random number, gets an answer, can go up to our cloud service, says, "I have this IC. I sent this challenge, got this answer, genuine or fake?" And we can say, "Genuine or fake." We're on the early days of rolling out that capability, but what it really does is it brings crypto to standard product authentication.
Today, if you think about authenticating products, you think about holograms, and funny dyes, and inks, and reverse, you know, forensics, when something might be counterfeit, and vision-based. It's hard. I mean, all these things are static approaches. We're bringing crypto to authenticating items as genuine, and we think the long-term opportunity for bringing crypto to item authentication is huge. On top of that, it is my understanding, and we just got the document, so I'm not gonna say this with absolutely, but it's my understanding that the Digital Product Passport initiative in the E.U. is going to require some level of security. I don't yet understand it completely because I haven't yet read the document, but I hear from our partners that we need a level of security around DPP.
We're gonna be focusing our authentication efforts on providing that level of security for the item, so you know it's the authentic item, you know the authentic item went through the supply chain, the authentic item was recycled, and it provides some security over the air link for that authenticity.
We are still in the early days of authentication from a P&L impact perspective. In 2023, we shipped hundreds of millions of these chips, which sounds like a big number, but we ship billions of chips a quarter, so it's actually quite small. Largely, we shipped them in the second quarter. They went into pilots that are underway right now. The breadth of the pilots is probably the most encouraging piece. We expected to be in performance apparel and footwear for the pilots first, and yes, we were there, but we were also in specialty food. We were also in tag tracking. We were also in pharma and medical devices. Those are use cases that we didn't anticipate getting traction with early on. Now, those pilots are all under... in various states of deployment and working, and we're waiting to see the success of that.
But it was actually really encouraging to see the initial interest in the authentication chip. Now, 2023 was too early to model significant authentication revenue, which is the next ability for us to monetize the IC. So we'll see how those pilots progress and see what we can deliver in 2024. But again, early days, encouraging progress, though.
Next question, just as it relates to general merchandise. First of all, remind us, the retail apparel market is roughly what % of the market now?
Probably 30%, give or take.
Sure. Penetrated.
Penetrated, yep.
But it's still in bulk of the-
Oh, fair question.
Right?
So we think the retail apparel market is roughly 30% penetrated. We think 2/3 to 3/4 of the chips that we produce as an industry go into-
Yeah.
... apparel. It may be a little bit different in 2023 because retail apparel was down while logistics was ramping, but in 2022, that was the number.
Actually, I wanna say one thing there. When we scale the retail apparel market, we take what we believe to be the overall size of the retail apparel market, then we subtract, and we basically discount it by 50%-60% because there's a lot of parts of the world that we can't touch, and flea markets in parts of the world. And so we already take that number out, and then we say we're 30% penetrated on the remainder. So we're 30% penetrated in the number of items that we think are taggable, not the total number of apparel items. Okay, general merchandise.
Has it gone slower, Chris, than you would have anticipated? Or maybe-
If I had been smarter and thought about it more, it's going at the pace that it probably should have. We were, as usual, a little bit overly optimistic, and it has gone slower. But let me say, it hasn't. The reason that it's gone slower is not a lack of enthusiasm on the particular end user that's driving it. The reason it's gone slower is that the suppliers of general merchandise items, there's a gigantic diversity and a gigantic number, much more than there were in retail apparel. The skids weren't greased because these suppliers hadn't even heard of RAIN RFID, and so they have to ramp up in a new technology for them. The packaging is hugely diverse, whether it's corrugated, or cardboard, or plastic, or cellophane, or else.
It's just this diverse layer of packaging, and some of these companies don't actually put stickers on things. They don't have a history of doing that. So there's a lot to work through. We're not doing the primary work. It's our partners, it's the end customer. We're supporting where we can. The desire is there, the demand's there, the mandates are still there. As we get better at it, I believe it's gonna take off just like retail apparel has taken off, but we're slower than we had expected, but not slower than we should have expected.
The supplier mandate is, remind us, is it end of February, or?
It's in February. I don't remember the date.
Yeah, I don't remember the exact date.
Is that, is that a realistic target?
Is it a realistic target to have made good progress? Yes. Is it a realistic progress target date to be done? No. Like I said, it's. Yeah. But don't take that lack of progress as indicating any lack of interest, or willingness, or desire. It's just a reflection of reality. We are, as a company, very optimistic about general merchandise. We see the same value proposition or even a higher value proposition for general merchandise than we see for retail apparel. And, so we're investing in it and helping out in any way we can.
Now, there's a subtlety in-
Mm-hmm.
... in the general merchandise ramp being behind that I think is important. In 2023, we delivered endpoint IC unit growth that was consistent with the historical unit CAGR of 29%, despite our number one vertical by a long ways, retail apparel being down significantly. We were able to do it because, A, we had to rebuild some channel inventory. We had depleted the channel through the supply constraint environment. B, we had logistics coming in in 2023 in a meaningful way. Now, the subtlety is we were able to deliver that growth without the benefit of general merchandise in a significant way. That ramp remains in front of us, given the progress or lack thereof that we've been able to make on that ramp in 2023.
Just, Cary, I wanna just focus a little bit on-
Mm-hmm.
... on gross margins.
Okay.
A lot of moving parts to that, including mixed systems, endpoint ICs. And talk to us a little bit about some of those moving parts and whether we see we can anticipate a nice tailwind from the shift to the newer product.
Yeah, so the quick answer is, yes, there will be a tailwind from the M800. The biggest impact on gross margin, yes, the systems and endpoint IC revenue mix can play into a factor, but that's typically on a quarter-by-quarter basis, and depending on when we have a large system project. The sustainable change in gross margin is driven by the innovation we have on the endpoint IC, which is roughly 75% of our revenue stream. So if you go back three years ago, our corporate average gross margin was 50%. We launched the M700, which was half the size of our Monza R6 prior generation endpoint IC, which translates to a significant cost advantage. And we were able to parlay that cost advantage into a 300 basis point gross margin lift. So today, our normalized state is 53%.
Our revenue's a little subscale right now, so we're below that, but once revenue gets back to kind of where we were in the first half of 2023, I fully expect us to be in that 53% range. Now, the M800, we further shrunk the size of the die, and we get about 25% more die per wafer with the M800 than we do the M700. So when the M800 fully ramps, we expect another 300 basis points of gross margin lift from that product, becoming our volume runner. Now, historically, when we launch a new product, it goes into new sockets first, and then gradually, over time, it replaces existing sockets.
We think there's a lot of reasons for both our partners and our end customers to use the M800, both from a manufacturability perspective for our partners and a sensitivity perspective for our end customers. So we're optimistic that we can accelerate the typical ramp with the M800, but time will tell on that. We're still in the qualification phase, and we'll learn a lot more in the next six to nine months about how quickly we can ramp the M800.
Okay. I may have had a question from the audience. Did you?
Just apologize. I was a few minutes late. Can you talk about the power of retail last year, and what that means for calendar 2024? Typically when they are in a period where they take down inventory, is there a period of inventory growth or replenishment of inventory, or just a normalization of book and ship with their end markets?
Do you want me to take it?
I'm gonna start there by saying and then I'll hand off to you, 'cause I do want you to take it. The level of retail apparel inventory destocking that we're seeing right now is far larger than anything I've seen before in our company's history. So we're a little bit in uncharted waters in terms of the amount they're taking out of inventory. It can't go on forever, right? I mean, at some point they're gonna run out. But we're in a little bit of uncharted waters. Go ahead, Cary.
Yeah, what we typically see is they adjust their inventory levels to where they want it to be going forward. Now, that could be where it's been historically or could be a lower level.
Mm-hmm.
We don't really know that yet. Once they hit that level, then it's book and reorder process.
They don't kind of over flash?
Not typically.
Not typically.
Not typically, though. Not without purpose.
Okay.
The question is, are they overshooting the inventory destocking this time, or are they just driving-
There we are.
... to lower inventory levels? And if so, how does that work out, and what's the change in plans?
Yeah, I guess, follow up question.
Yeah, exactly.
I won't say that I know the answer.
Thank you.
The competitive environment on endpoint ICs, there's been two things at work here. You have one large competitor that you're involved in some legal action. Maybe Chris, if you could talk to us about that. And investors have asked me, and I'll ask you the question to you: Why don't we just get a settlement here and move on? And please.
Okay, I'll take the latter question first. I can't talk much about settlement, but settlement takes two parties reaching a consensus, and clearly, we haven't been able to have two parties reach a consensus yet, so we haven't settled yet. I can't tell you if a settlement is forthcoming soon, because of course, it takes two parties. So I really can't talk beyond settlement or beyond that on settlement. We'll just have to wait and see, including all of us, including me. In terms of the lawsuits, where we are, you know, we're not a litigious company. This is our first patent infringement lawsuit. We tried for the better part of two years to engage NXP to avoid having to sue them. In that two-year period, despite multiple, multiple efforts, we couldn't even get a meeting with them.
So finally, we ended up seeing that we had to sue. Six total trials have been resolved at this point in time. NXP dropped three of their lawsuits, countersuits against us in China. We prevailed when NXP countersued us in Washington. In the case in California, we won against NXP on two patents, and NXP was found to be willfully infringing one of them. There are still motions and cross-motions and things going on in that, in that case, and that, that's kind of how the legal system works. And then in a case in Texas, we prevailed on three patents against NXP, and they lost on three patents that they had licensed from a third party to sue us back.
So in six different cases and in front of two independent juries, we have prevailed, and I see it as vindication of our patent portfolio. I see it as kind of a vindication for the industry that copying is not something the industry should accept or allow. It's also, like I said, not something I would have preferred to do if there was an alternative option. And so we're not a litigious company. We hope for a resolution here, but we're also resolute in our willingness to protect our IP and protect our products. We've been leading this industry, investing heavily, and it's simply not fair for another company to come in and copy our stuff, especially knowingly copy it.
Cary, it's probably also worth reminding us just of the legal expense associated with this. It, as you get closer to these-
Okay.
... issue court cases, and this, the legal costs go up.
Yeah, and we've been in the midst of court cases or prepping for court cases for the bulk of 2023. So in the first half, the legal expense related to the patent trial was about $4 million, a little over $4 million per quarter. It moderated slightly to $3 million, a little over $3 million in Q3, and I signaled a similar amount, slightly increasing in Q4, and it came in pretty much where we expected in Q4. It's really hard to project too far into the future of what the legal costs can be, just because the court can change the schedule quite dramatically.
So my commitment to investors has been, we'll tell you what we spent in the prior quarter, and I'll give you guidance on the next quarter of how to think about it, but beyond that, it's really hard to signal with a great degree of accuracy.
But it also illustrates, I think... You know, we've talked about the leverage in the model.
Mm-hmm.
It's been, you know, admittedly, 2023 was a tough year in terms of what you saw in the market-
Mm-hmm.
... channel destocking, the buildup. There's still some leverage in that model-
Mm-hmm.
... even at that level of revenues. And maybe-
Mm.
... you may want to broaden just in terms of, of some of the targets you laid out at the Investor Day.
Actually, before you go there, I do want to say one thing-
Yeah.
... in terms of leverage in the model. You know, our end customers are Fortune 100, Fortune 500 companies. They have their own issues with copying and things, and for the most part, they don't want to use infringing product. So, even though the lawsuit has been a, you know, the costs have been a drag on, you know, on our company overall, at the end of the day, I do see the opportunity to both get to a settlement at some point, but in the meantime, to gain share, because our enterprise end users are above board companies, and they want to do the right thing, and using an infringing product is not the right thing. Go ahead, Cary.
Yeah. So in terms of leverage, at some point in the future, I'm not sure when, the legal cost goes away, and you'll see a step function improvement on the G&A line and ultimately leverage. And if we think about it on a normalized basis and look into the future, I expect leverage across all three of our major spend categories: R&D, sales and marketing, G&A. Our primary focus of investment is R&D, so the leverage won't be as great on the R&D line. But in sales and marketing, we have a very strong network of partners that help us take our products to market. So I expect, you know, quite substantial leverage in the sales and marketing line. And then G&A, once it's normal, obviously significant leverage there.
Mm-hmm. Okay, we're gonna end it there. Thank you. Thank you.
Thank you, Jim.
Thank you.
Thank you to all our investors. Thank you for your support.