Impinj, Inc. (PI) is a leading provider of RAIN RFID technology, enabling the Boundless Internet of Things (IoT) through its innovative platform and solutions. With a vision to connect every item that enterprises manufacture, transport, sell, and that people own, use, and recycle, Impinj is at the forefront of transforming the way businesses and consumers interact with the physical world.
Company Background and History
Founded in 2000 and headquartered in Seattle, Washington, Impinj has a rich history of driving RAIN RFID adoption and innovation. The company's journey began with a focus on developing silicon integrated circuits (ICs) for RAIN RFID, which quickly became the industry standard. In its early years, Impinj concentrated on building partnerships with Original Equipment Manufacturers (OEMs) and Original Design Manufacturers (ODMs) to incorporate its endpoint ICs into their products. However, the company faced initial challenges in increasing adoption of RAIN RFID technology, which was still relatively new compared to other RFID technologies.
A significant milestone for Impinj came in the late 2000s and early 2010s when major retailers like Walmart, Macy's, and Marks & Spencer began adopting RAIN RFID technology for inventory management in the retail apparel industry. This development helped drive broader awareness and adoption of Impinj's products and solutions. However, the company also encountered setbacks during this period, such as patent infringement lawsuits filed against retailers using RAIN RFID, which temporarily dampened demand.
Throughout the 2010s, Impinj expanded its focus beyond retail into other verticals such as supply chain and logistics, quick service restaurants, and aviation. The company invested heavily in developing more advanced RAIN RFID products, including readers, gateways, and software solutions, to provide a more comprehensive platform for its customers. While Impinj achieved profitability in certain years, it also experienced periods of losses as it continued to invest in R&D and new product development.
In recent years, Impinj has faced challenges related to semiconductor chip shortages and macroeconomic conditions, which have impacted its ability to meet customer demand at times. Despite these obstacles, the company has remained committed to driving RAIN RFID adoption across a growing number of industries and applications.
Financials
Impinj's financial performance reflects its market leadership and the growing demand for its products and services. In the fiscal year 2023, the company reported revenue of $307.54 million, a 19.4% increase from the previous year. However, Impinj has yet to achieve consistent profitability, reporting a net loss of $43.37 million in 2023. The company's operating cash flow (OCF) for 2023 was negative $49.38 million, while its free cash flow (FCF) stood at negative $68.22 million.
For the most recent quarter ending September 30, 2024, Impinj reported revenue of $95.20 million, representing a significant 46% year-over-year growth. The company achieved a net income of $0.22 million for the quarter, with an operating cash flow of $10.07 million and free cash flow of $4.66 million.
Impinj's business consists of two main product segments: Endpoint ICs and Systems. Endpoint ICs, which are silicon integrated circuit radios embedded into items or their packaging, constitute the majority of Impinj's product revenue. In the third quarter of 2024, Endpoint IC revenue increased by $32.4 million or 38.2% compared to the prior year period, driven by higher shipment volumes, partially offset by lower average selling prices due to product mix and short-term pricing incentives. For the first nine months of 2024, endpoint IC revenue increased by $51.3 million or 28.4% year-over-year, with the increase attributable to both higher shipment volumes and $15 million in new licensing revenue.
The Systems segment, which includes reader ICs, readers, gateways, test and measurement solutions, and software and cloud services, experienced a decline in revenue. Systems revenue decreased by $2.2 million or 13.3% in Q3 2024 and $13.7 million or 24.3% in the first nine months of 2024 compared to the prior year periods, primarily due to lower shipment volumes.
Despite the mixed performance across segments, Impinj's overall gross margin improved from 47.3% to 50.0% in Q3 2024, primarily due to lower excess and obsolescence charges. For the first nine months of 2024, gross margin increased from 49.9% to 52.0%, driven by the higher-margin licensing revenue.
One of Impinj's key strengths is its diversified customer base, which includes original equipment manufacturers (OEMs), tag service bureaus, original device manufacturers (ODMs), systems integrators, value-added resellers, and independent software vendors. This broad ecosystem allows Impinj to reach a wide range of end-users, from retailers and supply chain and logistics providers to restaurants and airlines.
Liquidity
Impinj's financial ratios paint a mixed picture. The company's current ratio of 0.99 and quick ratio of 0.73 suggest a relatively healthy liquidity position, though the company's high debt-to-equity ratio of 2.08 may raise concerns about its long-term solvency. Additionally, Impinj's return on assets of 5.95% and return on equity of 30.39% indicate strong asset utilization and shareholder value creation, respectively.
As of December 31, 2023, Impinj had cash and cash equivalents of $94.79 million and short-term investments of $18.44 million. The company has not disclosed any credit facilities or credit lines.
Growth Strategy and Market Position
Impinj's growth strategy is centered around three key pillars: expanding its endpoint IC business, driving adoption of its reader ICs and systems, and developing innovative enterprise solutions that leverage its RAIN RFID platform. The company's recent acquisition of Voyantic Oy, a global provider of RFID inlay and label design, manufacturing, and testing systems, is expected to bolster its solutions capabilities and further strengthen its position in the market.
One of the most significant developments for Impinj in recent years has been the growing adoption of RAIN RFID technology across various industries, particularly in retail, supply chain and logistics, and food and beverage. The company has played a pivotal role in driving this adoption, working closely with industry leaders to develop tailored solutions that address their unique needs.
Industry trends suggest strong growth potential for Impinj. Endpoint IC sales have grown at a 26% CAGR from 2010 to 2023, though growth rates have been uneven. The company expects continued secular growth in endpoint IC sales and expansion into new markets like food and grocery.
Challenges and Competition
However, Impinj is not without its challenges. The company operates in a highly competitive market, facing competition from established players like NXP, EM Microelectronic, and Alien, as well as emerging Chinese manufacturers. Additionally, the pace of RAIN RFID adoption, particularly in newer markets, remains uncertain, and Impinj's ability to execute on its enterprise solutions strategy will be crucial to its long-term success.
Furthermore, Impinj's financial performance has been characterized by significant fluctuations, with the company reporting a net loss in 2023 and struggling to achieve consistent profitability. This volatility underscores the need for the company to continue investing in product development, market expansion, and operational efficiency to drive sustainable growth.
Future Outlook
Despite these challenges, Impinj's leadership position in the RAIN RFID market, its strong customer relationships, and its ongoing innovation efforts position the company well to capitalize on the burgeoning IoT revolution. As enterprises and consumers increasingly embrace the benefits of connected items, Impinj's Boundless IoT vision could become a reality, driving long-term value for the company and its shareholders.
Looking ahead, Impinj has provided guidance for the fourth quarter of 2024. The company expects revenue between $91 million and $94 million, representing a 31% increase at the midpoint compared to Q4 2023. Adjusted EBITDA is projected to be between $13.6 million and $15.1 million, with non-GAAP net income between $13.4 million and $14.9 million, reflecting non-GAAP fully-diluted earnings per share between $0.45 and $0.49.
Impinj anticipates Q4 2024 gross margins to increase sequentially, driven by lower 200-millimeter endpoint IC volume, a larger mix of systems revenue, and endpoint IC replenishments into Asia-based authenticity pilots. The company has also increased its second half 2024 wafer purchases to move some to inventory ahead of 2025 growth and fulfill stronger-than-anticipated second half 2024 demand.
Notably, Impinj's adjusted EBITDA margins are approaching their long-term range presented at the 2023 Investor Day, and the company anticipates incremental leverage and cash flow generation as revenue scales.
In conclusion, Impinj, Inc. (PI) is a pioneering provider of RAIN RFID technology, poised to lead the charge in the Boundless IoT revolution. With a solid foundation, a diverse customer base, and a focus on innovation, the company is well-positioned to navigate the evolving market landscape and capitalize on the growing demand for its products and solutions. While challenges remain, Impinj's strong recent performance and positive outlook suggest that the company is on track to realize its vision of connecting every item in the physical world.