Q3 2024 Earnings Summary
- 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.
- 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.
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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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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.
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