IMPINJ INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Strong Q3 Results: Third quarter revenue and profitability well above guidance; excluding Q2 licensing revenue, revenue and adjusted EBITDA set new records.
• Drivers: Strength in supply-chain and logistics, steady growth in retail/general merchandise, secular growth in apparel and long-tail applications, and solutions efforts paying dividends.
• M800 Adoption: Third quarter endpoint IC unit volumes set a new quarterly record, with M800 shipments more than doubling for the third consecutive quarter; continued M800 adoption expected in Q4 as more M800-based inlays qualify.
• European Retailer Rollout: The current phase of the visionary European retailers' self-checkout and loss prevention solution to spike in Q4, driving strong fourth quarter gateway revenue and endpoint IC volumes.
• Enterprise Opportunities: Enterprise account pipeline larger than current base; investing in enterprise solutions including software and cloud services; food tagging opportunities with multiple supply-chain and quick-serve restaurant rollouts and grocery pilots.
• RAIN Market Potential: Conviction in food tagging and broader RAIN market, with endpoint IC opportunity at least an order of magnitude larger than current markets.

Segment Performance

• Endpoint IC: Third quarter endpoint IC product revenue was $81 million, down 9% sequentially from $89.4 million in Q2 2024 but up 67% year-over-year from $48.6 million in Q3 2023. Unit volumes set a new quarterly record, with M800 shipments more than doubling for the third consecutive quarter. Fourth quarter endpoint IC revenue is expected to decline modestly vs Q3 with typical seasonal trends, partially offset by market strength, and continued M800 adoption as more M800-based inlays achieve market qualification.
• Reader ICs: Third quarter volumes exceeded expectations driven by stronger-than-anticipated demand for Indy and E-family ICs. Fourth quarter E-family revenue is expected lower due to project timing at large supply-chain and logistics end users, but longer-term, continued E-family adoption across the broad RAIN market is seen as legacy Indy ICs wind down.
• Systems: Third quarter Systems revenue was $14.2 million, up 9% sequentially from $13.1 million in Q2 2024 but down 13% year-over-year from $16.4 million in Q3 2023, driven by strength in test and measurement and reader IC sales. Fourth quarter Systems revenue is expected to increase sequentially, with the current phase of the visionary European retailers' self-checkout and loss prevention solution spiking in Q4.

Guidance

• Revenue: Fourth quarter revenue expected between $91 million and $94 million, a 31% increase at the midpoint from Q4 2023.
• Adjusted EBITDA: Expected between $13.6 million and $15.1 million.
• Net Income: Non-GAAP net income expected between $13.4 million and $14.9 million, reflecting non-GAAP fully-diluted earnings per share between $0.45 and $0.49.
• Gross Margin: Fourth quarter gross margin expected to increase sequentially due to lower 200-millimeter endpoint IC volume, larger systems mix, and endpoint IC replenishments into Asia-based authenticity pilots.

Risks

• No specific risks explicitly detailed in the transcript beyond general forward-looking statement risks as mentioned in the opening remarks.

Question and Answer

Q: Jim Ricchiuti with Needham & Company asked about Systems business strength in Q4 and seasonality.

A: Cary Baker responded that Q4 is seasonally stronger for systems, with European retailer self-checkout/loss prevention rollout spiking in Q4 and Indy reader IC end-of-life shipments extending into Q4.

Q: Harsh Kumar with Piper Sandler asked about drivers of Q3 results and logistics customer adoption.

A: Chris Diorio stated broad-based drivers including supply-chain/logistics, retail/general merchandise, apparel/long-tail, and solutions efforts; on logistics customer, execution is strong but volumes not specified.

Q: Troy Jensen with Cantor Fitzgerald asked about Qualcomm partnership and gross margin guidance.

A: Chris Diorio discussed Qualcomm's role in driving RAIN adoption in enterprise mobile, not specific timeline; Cary Baker said Q4 gross margin expected around 53% due to systems mix and authenticity pilots.

Q: Christopher Rolland asked about RAIN in DPP and food tag pricing.

A: Chris Diorio said RAIN not yet approved for DPP but dialogue has changed; on food tags, price points well under $0.05, and FDA likely disallows reusable tags for food.

Q: Guy Hardwick with Freedom Capital Markets asked about M800 certification and Systems revenue guidance.

A: Hussein Mecklai said two inlay partners certified, with more in process; Cary Baker explained Q4 Systems revenue expected to increase sequentially based on seasonality and European rollout.

Q: Scott Searle with ROTH Capital asked about DPP certification and Q1 seasonality.

A: Chris Diorio said RAIN in poll position for DPP, multimodal approvals expected; Cary Baker said Q1 endpoint IC seasonality flattish.

Q: Mark Lipacis with Evercore asked about retailers piggybacking and process.

A: Chris Diorio explained large retailer's success in tagging items led other retailers to place RFQs for tagged products, leveraging existing business processes.

Q: Harsh Kumar with Piper Sandler asked about Asia authentication opportunity.

A: Chris Diorio said Asia authentication replenishments are positive, emphasizing authentication is essential for RAIN in consumer mobile, and efforts to ramp adoption.