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    Impinj Inc (PI)

    Business Description

    Impinj, Inc. is a technology company specializing in connecting everyday items to the Internet using its RAIN RFID platform. The company enables businesses and consumers to analyze, optimize, and innovate by providing real-time data about items such as apparel, automobile parts, luggage, and shipments. Impinj sells a range of products, including endpoint ICs, reader ICs, readers, gateways, and software solutions, which collectively support a boundless Internet of Things.

    1. Endpoint ICs - Provides integrated circuits (ICs) used in tags and inlays, primarily sold to inlay manufacturers and tag OEMs.
    2. Systems - Offers reader ICs, readers, gateways, test and measurement solutions, and software/cloud services, sold to OEMs, ODMs, solution providers, VARs, and system integrators.

    Q3 2024 Summary

    Initial Price$156.32July 1, 2024
    Final Price$211.67October 1, 2024
    Price Change$55.35
    % Change+35.41%

    What went well

    • Strong adoption and ramp of the M800 product: The M800 endpoint IC is seeing promising growth, with two major inlay partners obtaining certification and designing multiple inlays. Additional customers are nearing certification, and customers are pleased with the product, leading to a healthy ramp growing as expected.
    • Broad-based industry adoption across multiple sectors: The company is experiencing strong financial results due to supply chain and logistics strength, steady growth in retail general merchandise, secular growth in apparel, and growth in long-tail applications. This broad-based industry adoption demonstrates the company's market leadership.
    • Robust pipeline of enterprise customers due to solutions focus: The company's significant investment in solutions, including systems, software, and cloud services, is paying dividends. There is a large pipeline of Fortune 500 and Fortune 100 enterprises engaging with the company to address unmet business needs, positioning the company for future growth.

    What went wrong

    • The adoption of Impinj's authentication solutions has been slower than originally hoped for, which may impact future growth in this critical area.
    • Reader IC revenue is expected to decline in the fourth quarter due to project timing at a large supply chain and logistics end user, potentially signaling challenges in this segment.
    • The integration of RAIN RFID into consumer mobile devices is expected to take longer than anticipated, with readiness across the entire community and backend services posing challenges.

    Q&A Summary

    1. Q3 Results Drivers
      Q: What drove your strong Q3 performance?
      A: Management highlighted broad-based growth with no single driver; they saw supply chain and logistics strength, steady growth in retail general merchandise, secular growth in apparel, long-tail applications, and solutions efforts paying dividends.

    2. Q4 Systems Outlook
      Q: Will systems revenue grow in Q4?
      A: Yes, they expect systems revenue to increase sequentially in Q4 due to seasonality, increased volume from a visionary European retailer's self-checkout and loss prevention rollout, and elongated Indy reader IC end-of-life process adding a tailwind.

    3. Qualcomm Partnership Impact
      Q: What are the implications of the Qualcomm partnership?
      A: The partnership advances RAIN RFID as a data carrier for digital product passports. Initial opportunities are in enterprise mobile devices, with consumer mobile to follow. It positions RAIN for broad-based adoption, though implementation in phones won't be the pacing factor.

    4. Food Industry Opportunity
      Q: How significant is RFID adoption in food?
      A: Management is excited about the food opportunity, seeing adoption in quick-serve restaurants, food supply chains, and grocers. While initial volumes in 2025 won't be huge, they believe there will be meaningful volumes, starting on a path in a market order of magnitude larger than general merchandise.

    5. M800 Chip Ramp
      Q: What's the status of the M800 chip certification?
      A: Two major inlay partners have received certification and are designing multiple inlays and products. Additional customers are close to certification. The M800 ramp is promising, and customers are pleased with the product.

    6. Authentication ICs in Asia
      Q: Are authentication ICs gaining traction in Asia?
      A: They are shipping high-margin authentication endpoint ICs into Asia-based pilots, providing a tailwind to Q4 gross margin. While adoption has been slower than hoped, replenishments are occurring, and management believes authentication is critically important going forward.

    7. Retailers Piggybacking Adoption
      Q: Are other retailers adopting RFID due to large retailer initiatives?
      A: Yes, other general merchandise retailers are piggybacking by requiring products to be tagged as they place RFQs. Since they already use RFID in apparel, they can quickly add new categories, accelerating adoption.

    8. Logistics Customer Adoption
      Q: What's the status with your second logistics customer?
      A: While unable to cite specifics, the customer is executing strongly and not fully deployed. Endpoint IC volumes are expected to increase in 2024 and 2025. A decline in reader IC revenue in Q4 is due to project timing and not indicative of underlying demand.

    9. Gross Margin and Seasonality
      Q: What is the gross margin outlook and seasonality effects?
      A: Q4 gross margin is expected around 53% due to a richer systems mix and high-margin authentication ICs. Long-term, the M800 will contribute to gross margin accretion. Endpoint IC pricing negotiations are underway. Q1 seasonality for endpoint ICs is expected to be flattish.

    Key Metrics

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    Revenue by Segment - in Millions of USDQ2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024
    Endpoint ICs64.90548.653.85234.461.5189.39280.966-
    Systems21.08116.416.7773.115.3213.10314.232-
    - Product Revenue--------
    - Development, Service, Licensing--------
    Total Revenue85.98665.070.61307.576.83102.49595.198-
    Revenue by Geography - in Millions of USDQ2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024
    Americas---96.42----
    - United States---86.20----
    Asia Pacific---176.41----
    - China and Hong Kong---128.30----
    - Malaysia---<10% of total----
    EMEA---34.71----
    Europe, Middle East, Africa--------
    Total Revenue85.9965.00570.65307.5476.825102.49595.2-
    KPIs - Metric (Unit)Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024
    Endpoint IC Sales Volumes CAGR (%)26%26%26%-26%26%26%26%

    Executive Team

    NamePositionStart DateShort Bio
    Chris DiorioDirector, CEO, Vice ChairApril 2000 (Director), November 2014 (CEO), September 2013 (Vice Chair)Chris Diorio, Ph.D., co-founded Impinj, Inc. and has served as a Director since April 2000, CEO since November 2014, and Vice Chair since September 2013. He holds a B.A. in Physics and a Ph.D. in Electrical Engineering.
    Cary BakerChief Financial OfficerFebruary 2020Cary Baker has been CFO of Impinj, Inc. since February 2020. He previously held CFO roles at RealNetworks, HEAT Software, and NetMotion Software. He holds an M.B.A. and a B.S. in Finance.
    Jeff DossettChief Revenue OfficerJune 2020Jeff Dossett has served as CRO at Impinj, Inc. since June 2020. He previously held roles as EVP of Sales and Marketing and SVP of Marketing and Business Development at Impinj.
    Hussein MecklaiChief Operating OfficerFebruary 6, 2022Hussein Mecklai has been COO at Impinj, Inc. since February 6, 2022. He joined the company under an employment agreement on November 13, 2018.
    Cathal PhelanDirector, Chief Innovation OfficerSeptember 2019 (Director), January 2023 (CIO)Cathal Phelan has served as a Director at Impinj, Inc. since September 2019 and as Chief Innovation Officer since January 2023. He previously held leadership roles at RAPT Touch Inc. and Cypress Semiconductor.

    Questions to Ask Management

    1. Your third quarter gross margin decreased to 52.4% from 58.2% in the second quarter, primarily due to licensing revenue in Q2; with the expected decline in endpoint IC revenue and lower E-family reader IC sales due to project timing, how do you plan to stabilize and improve gross margins in the upcoming quarters?

    2. You mentioned that the authentication opportunity in Asia has been slower to adopt than originally hoped, and that you will be redoubling efforts to ramp authentication; what specific challenges are you facing in driving adoption of your authentication products, and how do you plan to overcome them to meet your growth expectations?

    3. Given that the M800 ramp is looking promising with two major inlay partners getting certification, but the pace of adoption depends on customer certification and product launches, what risks do you see in achieving widespread adoption of M800, and how are you mitigating potential delays in the certification process?

    4. With the announcement of Qualcomm's support for RAIN RFID in mobile devices and your excitement about the consumer opportunity, but acknowledging that the entire ecosystem needs to be ready, what concrete steps are you taking to ensure your company is prepared to capitalize on this opportunity, and what is the expected timeline for significant revenue contribution from this segment?

    5. Considering that you've increased your second half 2024 wafer purchases to fulfill stronger-than-anticipated demand, but inventory levels rose by $7.6 million to $88.4 million, how do you plan to manage inventory risk if demand fluctuates, and what safeguards are in place to prevent excess inventory impacting your balance sheet?

    Past Guidance

    1. Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024
    • Guidance:
      • Revenue: $91 million to $94 million (31% increase at the midpoint compared to Q4 2023).
      • Adjusted EBITDA: $13.6 million to $15.1 million.
      • Non-GAAP Net Income: $13.4 million to $14.9 million.
      • Non-GAAP Fully Diluted EPS: $0.45 to $0.49.
      • Gross Margin: Expected to increase sequentially, with a potential Q4 gross margin around 53%.
      • Endpoint IC Revenue: Expected to decline but on the favorable side of normal seasonality.
      • Systems Revenue: Expected to increase sequentially.
      • Operating Expense: Expected to increase sequentially.

    2. Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: Q3 2024
    • Guidance:
      • Revenue: $91 million to $94 million (42% increase at the midpoint compared to Q3 2023).
      • Adjusted EBITDA: $13.8 million to $15.3 million.
      • Non-GAAP Net Income: $13.5 million to $15 million.
      • Non-GAAP Fully Diluted EPS: $0.46 to $0.50.

    3. Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: Q2 2024
    • Guidance:
      • Revenue: $96 million to $99 million (27% quarter-over-quarter increase at the midpoint, including the licensing payment; 7% quarter-over-quarter increase at the midpoint, excluding it).
      • Adjusted EBITDA: $23.9 million to $25.4 million.
      • Non-GAAP Net Income: $21.7 million to $23.2 million.
      • Non-GAAP Fully Diluted EPS: $0.72 to $0.77.

    4. Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: Q1 2024
    • Guidance:
      • Revenue: $72 million to $75 million (4% quarter-over-quarter increase at the midpoint compared to Q4 2023).
      • Adjusted EBITDA: $3 million to $4.5 million.
      • Non-GAAP Net Income: $2.2 million to $3.7 million.
      • Non-GAAP Fully Diluted EPS: $0.08 to $0.13.
      • Gross Margins: Expected to sequentially increase from Q4 2023.
      • Operating Expense: Expected to increase sequentially, driven by annual payroll tax and bonus accrual resets, with litigation expense expected to decline sequentially.

    This table summarizes the issued and guided periods along with the guidance details for the last four earnings calls.