Impinj Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 24, 2024

There are 10 speakers on the call.

Operator

Welcome to the Impin Second Quarter 20 24 Financial Results Conference Call and Webcast. All participants will be in listen only mode. Please note today's event is being recorded. I would now like to turn the conference over to Mr. Andy Cobb, Vice President of Strategic Finance.

Operator

Please go ahead.

Speaker 1

Thank you, Rocco. Good afternoon and thank you all for joining us to discuss Impinj's Q2 2024 results. On today's call, Christy Aureo, Impinj's Co Founder and CEO, will provide a brief overview of our market opportunity and performance. Carrie Baker, Impinj's CFO, will follow with a detailed review of our 2nd quarter financial results and Q3 outlook. We will then open the call for questions.

Speaker 1

Jeff Dossett, Impinj's CRO will join us for the Q and A. You can find management's prepared remarks plus trended financial data on the company's Investor Relations website. We will make statements in this call about financial performance and future expectations that are based on our outlook as of today. Any such statements are forward looking under the Private Securities Litigation Reform Act of 1995. Whereas we believe we have a reasonable basis for making these forward looking statements, our actual results could differ materially because any such statements are subject to risks and uncertainties.

Speaker 1

We describe these risks and uncertainties in the annual and quarterly reports we file with the SEC. We do not undertake and expressly disclaim any obligation to update or alter our forward looking statements, except as required by law. On today's call, all financial metrics, except for revenue, or where we explicitly state otherwise, are non GAAP. All balance sheet and cash flow metrics, except for free cash flow, are GAAP. Please refer to our earnings release for a reconciliation of non GAAP financial metrics to the most comparable GAAP metrics.

Speaker 1

Before turning to our results and outlook, note that we will participate in the Canaccord Genuity 44th Annual Growth Conference on August 13th in Boston, the 13th Annual Needham Virtual Industrial Tech, Robotics and Clean Tech 1 on 1 Conference on August 19 the Jefferies Semiconductor, IT Hardware and Communications Technology Summit on August 27 in Chicago the 2024 Evercore ISI Semiconductor IT Hardware and Networking Conference on August 28 in Chicago, the Piper Sandler Growth Frontiers Conference on September 10 in Nashville and the Goldman Sachs Immunocopia and Technology Conference on September 11th in San Francisco. We look forward to connecting with many of you there. I will now turn the call over to Chris.

Speaker 2

Thank you, Andy, and thank you all for joining the call. Our second quarter results were strong, setting several new records. Revenue topped $100,000,000 and adjusted EBITDA topped $25,000,000 both well above our guidance. Free cash flow topped $40,000,000 Multiple trends drove that outperformance including apparel and footwear strength, early signs of retail rebuying, steady growth in general merchandise, continued secular growth, including a long tail of specialty applications and strong demand for our products and platform. We expect these same trends to drive solid third quarter product revenue growth.

Speaker 2

Starting with silicon, 2nd quarter endpoint IC product revenue exceeded our expectations as unit volumes set a new quarterly record including M800 shipments more than doubling. The $15,000,000 2024 licensing payment added to the revenue strength. Looking to 3rd quarter, we expect to again deliver sequential endpoint IC product revenue growth. We also expect M800 to continue ramping albeit from a modest base but growing sharply as M800 inlays pass market qualification. Finally, our investments in post processing capacity during the COVID downturn are paying dividends today with our operations team well positioned to meet the rising demand.

Speaker 2

Turning to reader ICs, 2nd quarter e family volumes exceeded our expectations driven by broad market demand for handhelds, printers and fixed readers. Looking to Q3, we see continued strong e family shipment volumes, albeit masked by modestly lower overall reader IC revenue as we wind down our prior generation in the ICs. Turning to solutions, we expect the visionary European retailers ongoing rollout of our self checkout and loss prevention solution to continue driving growing demand for our protected mode enabled endpoint ICs as well as delivering modest gateway revenue. We expect IC volumes at the large North American retailer to continue growing driven by general merchandise tagging and product revise. And we expect the 2nd large North American supply chain and logistics end user to increase their label consumption and fixed reader footprint, driving demand for both our endpoint ICs and e family reader ICs.

Speaker 2

Taken together, our enterprise solutions efforts continue paying dividends in silicon volumes. Touching now on growth opportunities, we see food tagging expanding, including in store item level pilots where the volumes are really large. In apparel, we see increasing supply chain usage driving demanding readability expectations, benefiting our higher performing M800. In general merchandise, we see market expansion as retailers piggyback on the pioneering work of the large North American retailer. And we see growth in specialty applications.

Speaker 2

For example, one I had the opportunity to see in-depth during a recent trip to Japan, in which a consortium of 4 Japanese publishers are tagging books, magazines and comic books to better match store inventory to consumer demand. On the organizational front, we promoted Gahan Richardson to Executive Vice President for our products and platform. We added Alberto Pesavento, a 23 year Impinj veteran and CTO to our executive team. And we promoted Christina Beylam to Senior Vice President of HR. Heartfelt congratulations and thank you, Gahan, Alberto and Christina.

Speaker 2

In closing, we delivered a very strong second quarter and see steady product revenue growth looking into the 3rd. On the solutions front, we believe our efforts are and will continue driving end point AC volumes and share gains. Further out, we see continued secular growth opportunities in retail, supply chain and logistics and specialty applications with food layering on top. As we continue driving our bold vision to connect every item in our everyday world, I remain confident in our market position and energized by the opportunities ahead. Before I turn the call over to Carrie for our financial review and Q3 outlook, I'd like to again thank every member of the Impinj team for your constant effort driving our bold vision.

Speaker 2

As always, I feel honored by my incredible good fortune to work with you. Gary?

Speaker 3

Thank you, Chris, and good afternoon, everyone. 2nd quarter revenue was $102,500,000 up 33% sequentially from $76,800,000 in Q1 2024 and up 19% year over year from $86,000,000 in Q2 2023. 2nd quarter endpoint IC revenue was $89,400,000 up 45% sequentially from $61,500,000 in Q1 2024 and up 38% year over year from $64,900,000 in Q2 2023. Excluding the $15,000,000 licensing revenue, 2nd quarter product revenue grew 21% sequentially and 15% year over year. Product revenue exceeded our expectations for the reasons Chris already cited.

Speaker 3

Looking forward, we expect 3rd quarter endpoint IC product revenue to increase sequentially. 2nd quarter systems revenue was $13,100,000 down 14% sequentially from $15,300,000 in Q1 2024 and down 38% year over year from $21,100,000 in Q2 2023. Systems revenue was below our expectations due primarily to lower channel reader sales. Looking forward, we expect 3rd quarter systems revenue to increase sequentially. 2nd quarter gross margin was 58.2% compared with 51.5% in Q1 2024 and 53.3% in Q2 2023.

Speaker 3

The sequential increase was driven primarily by licensing revenue. The year over year increase was also driven primarily by licensing revenue, partially offset by a higher mix of endpoint IC revenue. Excluding the licensing revenue, 2nd quarter product gross margin was 51%. Looking forward, we expect Q3 product gross margin to increase sequentially. Total second quarter operating expense was $32,800,000 compared with $32,900,000 in Q1 2024 $35,900,000 in Q2 2023.

Speaker 3

Operating expense was consistent with our expectations even with the revenue outperformance. Research and development expense was 17,600,000 dollars Sales and marketing expense was $7,000,000 General and administrative expense was 8,200,000 dollars Looking forward, we expect 3rd quarter operating expense to increase sequentially. 2nd quarter adjusted EBITDA was $26,800,000 compared with $6,700,000 in Q1 2024 $10,000,000 in Q2 2023. 2nd quarter adjusted EBITDA margin was 26.2%. Excluding the licensing revenue, adjusted EBITDA margin was 13.5%.

Speaker 3

2nd quarter GAAP net income was $10,000,000 2nd quarter non GAAP net income was 25,300,000 dollars or $0.83 per share on a fully diluted basis. Turning to the balance sheet. We ended the 2nd quarter with cash, cash equivalents and investments of $220,200,000 compared with $174,100,000 in Q1 2024 $114,900,000 in Q2 2023. Inventory totaled $80,800,000 down $7,000,000 from the prior quarter. 2nd quarter capital expenditures totaled $1,400,000 Free cash flow was $44,100,000 dollars Before turning to our guidance, I want to highlight 2 items specific to our results and outlook.

Speaker 3

1st, favorable working capital trends boosted 2nd quarter free cash flow. We expect those favorable accounts receivable and inventory trends to normalize in the second half. We recently increased our wait for purchases to ensure we can meet demand. So also expect second half inventory to increase from 2nd quarter levels. Finally, our 2nd quarter adjusted EBITDA outperformance previewed the operating leverage in our business model as revenue scales.

Speaker 3

That leverage will again be on display in Q3 as product revenue scales once again. And with most of the M800 ramp yet to come, we expect additional leverage in the future. Turning to our outlook. We expect 3rd quarter revenue between $91,000,000 $94,000,000 compared with $65,000,000 in Q3 2023, a 42% increase at the midpoint. We expect adjusted EBITDA between 13.8 $1,000,000 $15,300,000 On the bottom line, we expect non GAAP net income between $13,500,000 $15,000,000 reflecting non GAAP fully diluted earnings per share between $0.46 $0.50 In closing, I want to thank the Impinj team, our customers, our suppliers and you, our investors, for your ongoing support.

Speaker 3

I will now turn the call to the operator to open the question and answer session. Rocco?

Operator

Thank you. We will now begin the question and answer session. And our first question today comes from Harsh Kumar with Piper Sandler. Please go ahead.

Speaker 4

Yes. Hey, guys. First of all, Chris, Carey, Andy, the rest of the team at Impinj, congratulations. Fantastic results and fantastic guide. I'm sure all the investors, sell side analysts appreciate that.

Speaker 4

Chris, for my I have two questions. First of all, I wanted to ask about the 2nd logistics customers. You went out of your way to mention them in your commentary. I was curious if you could provide a little bit more update than perhaps in your commentary. Where are they in terms of endpoint IC?

Speaker 4

Where are they in terms of readers, in terms of fully getting embedded on both fronts? And how long will it be before, they are 100% penetrated? And then I have a follow-up.

Speaker 2

Okay. Thank you, Harsh for your kind words. On the 2nd large North American supply chain and logistics enterprise end user, we've got a close and direct relationship supporting that end user as well as with the multiple inlay partners that supply labels to that end user. The end user's deployment is proceeding as we and they anticipated. They remain committed to a full rollout.

Speaker 2

And as I said in my prepared remarks, we see them increasing their label consumption and we also see opportunities for our reader ICs. In terms of the time frame for them to get to 100%, I think I'll better just referring you to the comments that they've made about what their plans are. They've made some pretty strong

Speaker 1

statements to

Speaker 2

the market about what they plan to do and we see them executing to and delivering against those commitments.

Speaker 4

Thank you, Chris. And then for my other question, one of your distributors and their partners reported yesterday and sort of spooked the market, if you will, by talking down the growth rate from previous expectations on intelligent labels. I think at this point, again, you are growing a lot faster than that particular distributor is. So maybe help us understand how are you going fundamentally that much faster than this large distributor of yours? And maybe there's some color to it that you could help us think through.

Speaker 2

Okay. Sure. Thanks for the question Harsh. We have been building and today have close relationships and direct visibility innovating solutions for leading enterprises. We really feel that those relationships are paying dividends in silicon volumes.

Speaker 2

Additionally, we partner closely with and deliver to 8 large inlay suppliers that broadly supply the market as well as dozens of smaller ones. So we've got broad reach into the market, not just through 1 in light provider or label provider, but through many, many of them. Finally, as I said in my prepared remarks, we see strong demand for our products and platform. We think we've got the leading products in the market. We feel good about our market position.

Speaker 2

And overall, we're seeing strength in the market today. Carey, anything you'd like to add?

Speaker 3

Yes. Thank you, Chris. First, I would just like to remind everybody that we don't always line up with Avery Dennison in a given quarter. And in fact, we haven't lined up with them in the last 4 quarters. So, they're an incredibly strong partner for us, but we just don't always line up with their public comments.

Speaker 4

Understood. Thank you guys for the color. Appreciate it and congratulations.

Speaker 2

Thank you.

Operator

Thank you. And our next question today comes from Jim Ricchiuti with Needham and Company. Please go ahead.

Speaker 5

Hi, thank you. Maybe just to follow-up on that last question. Yes, Amy did talk about certain customer rollouts shifting to the right. And I'm just curious, I know you don't line up with them quarter to quarter, but are you seeing any signs of that versus maybe what you were anticipating

Speaker 6

earlier in the year?

Speaker 2

Jim, this is Chris. At the highest level, I'd say, no, not really. There's puts and takes with any given account. So the answer I just gave to Harsh about the 2nd large North American supply chain and logistics end user, We see their deployment proceeding as we anticipated. So we're actually not seeing pullback in the market.

Speaker 2

We see strength in the market today. And we also I gave some reasons as I was speaking, the apparel and footwear strength, retail rebuys, steady growth in general merchandise, long tail of specialty applications and strength in our products and platform. On the retail rebuys, you see those retail rebuys beginning now with Europe actually leading. The market as we see it is not yet caught up and we see no evidence of us over shipping demand. So we broadly do not see a pullback.

Speaker 5

Got it. That's clear, Chris. Thanks. And the follow-up question is just regarding the systems business. And I'm wondering if you could talk about the line of sight you have in the systems business.

Speaker 5

I think you're suggesting a pickup in Q3. Is that a pickup in project based business or just more broadly the systems business?

Speaker 3

Yes. Hey, Jen, this is Terry. I'll take that one. So yes, you're correct. We expect systems revenue to increase quarter over quarter in Q3.

Speaker 3

There's a couple of components at play. We see continued strong e family reader IC shipment volumes, but they're a little bit masked by the modestly lower overall reader IC revenue as we wind down the prior generation in the ICs. Now recall those last time ships largely occurred in Q2, which makes the sequential and tough compare for the reader IC component of our systems business. Outside of reader IC, we expect all systems product lines to grow sequentially in Q3. We're coming off what we hope to be a low point as we look to the future.

Speaker 3

And in Q4, historically, systems business has been stronger. Now it's too early to guide a Q4 number at this point, but we're encouraged by some of the traction we're seeing. In the number that we're guiding, there's clearly not a big project at play in Q3. The loss prevention final phase is going as expected. We recall that we thought that would be more modest volumes quarterly given the complexity of that deployment across 4 different brands.

Speaker 3

But that's what we're seeing today in the systems business. We're encouraged by our Q3 guide being up a little bit for systems.

Speaker 5

Got it. Thanks very much and congrats by the way guys on the quarter.

Speaker 2

Thank you, Jim.

Operator

Thank you. And our next question today comes from Scott Searle with ROTH Capital. Please go ahead.

Speaker 7

Hey, good afternoon. Thanks for taking my questions and great job on the quarter.

Speaker 2

Thank you, Scott.

Speaker 7

Terry and Chris, maybe to jump in, it seems like systems is on a little bit of a better trajectory into the Q3 than I think we were thinking probably about 90 days ago. Blending that into your guidance, it implies that endpoint ICs are growing give or take 10% or so sequentially. I know the last couple of years, we haven't had traditional seasonality, but before we went into constrained environment from a supply chain perspective, The uptick I think was historically larger. So I'm wondering if you could talk a little bit about that, about what you're seeing from an endpoint IC standpoint into the Q3 and Q4, especially given the strength that we just saw on the June quarter?

Speaker 3

Yes. Thanks, Scott. This is Terry. I'll take that one. So you highlighted that both Q1 and Q2 endpoint IC volumes have significantly outperformed normal seasonality.

Speaker 3

In Q1, normal seasonality is flat to slightly up. We were up 14% sequential. Q2 is typically up around 15%. And as I noted in the prepared remarks, our endpoint IC business was up 21%. So again, we significantly outperformed seasonality through the first half of the year.

Speaker 3

That's given us a little bit a cautious approach into Q2. We're still signaling systems business up maybe on the lower Q3 signaling systems business up, but maybe on the lower end of seasonality.

Speaker 7

Got you. But just curious to just that a little bit more there's you're not seeing anything specific from a customer standpoint, a pullback, it's more just caution given 1Q and 2Q traditional norms?

Speaker 3

Yes, we're not seeing any pullback in customers. There's always puts and takes here and there, but we see broad strength in our endpoint IC business and that's reflected in what we've delivered through the first half of this year as well as our guide into Q3. Yes.

Speaker 2

Scott, in my prepared remarks, I talked about solid third quarter product revenue growth extending the endpoint SCs. And then we do expect to see some seasonal typical seasonality in 4th quarter, but we got 1 quarter at a time.

Speaker 7

Got you. And Chris, if I could just quickly follow-up, you're starting to talk about food vertical again or starting to talk about it now. Huge opportunity. I wonder if you could take us through how you're seeing the early implementations and pilots and how we should think about that as we get into, I guess, '25 and beyond? Thanks.

Speaker 2

Yes. So Scott, that's a as I said, I think it was on last quarter's earning call, food opportunity is moving more quickly than I had previously anticipated. And I had tempered my expectations just based on the potential volumes in food. The bigger things are, the slower they tend to go. But we saw, we're seeing and saw then or continue to see some real promising opportunities around pallet and case tagging through the supply chain for food freshness.

Speaker 2

Those opportunities are accelerating or accelerated in the Q2 and we see further acceleration looking further out. On top of that, I said in my prepared remarks this time that we're actually now seeing item level pilots in stores. That's relatively new. Those pilots have not yet turned into rollouts, but there are multiple of them. And the opportunity around food freshness and reducing food waste in stores is very significant.

Speaker 2

So the fact that we're already seeing in store pilots to me is very exciting. I can't give you a timeframe for when those pilots will turn into deployments, but just the size and the scope of the pilots and the fact that they are in stores and they're layering on top of the supply chain opportunities for me is very exciting.

Speaker 7

Great. Thanks so much. Congrats on the quarter again.

Speaker 2

Thank you, Scott.

Operator

Thank you. And our next question comes from Troy Jensen with Cantor Fitzgerald. Please go ahead.

Speaker 8

Hey, gentlemen. Congrats on another spectacular quarter. Maybe I'll start here with Carrie. I got a follow-up. You're welcome.

Speaker 8

Follow-up for Chris. But, Carrie, can you just kind of help us out with on Q3 OpEx versus margins, gross margins, what kind of directionally where you think we're going?

Speaker 3

Yes, sure. So in Q3, we expect our product gross margins, now again, that's without the license revenue. We expect our product gross margins to increase quarter over quarter. I would say currently our product gross margins are running below our targeted 53% to 54% range for a few reasons. First, we have stronger than typical mix of endpoint IC revenue as our systems business recovery has lagged that of endpoint ICs.

Speaker 3

2nd, our lower margin 200 millimeter volume running SKUs were a higher percentage of our revenue in Q2. And to a lesser degree we expect it again in Q3. That product line is 2 generations old at this point and we are moving it before the M800 ramps. That effort should mostly be finished before we enter Q4. And then finally, while growing sharply, we expect the M800 volumes to remain small from a mix perspective and will not have a visible impact to product gross margins.

Speaker 3

And I would just add that overall, we remain confident in the long term margin targets that I outlined at our Investor Day last year.

Speaker 8

Okay. So 51% in Q2 if you ex out NXP, and you expect that to grow sequentially here in Q3 to support? That's correct, Troy. And then I And then I

Speaker 1

But you asked about OpEx too.

Speaker 3

I expect OpEx to increase sequentially in Q3.

Speaker 8

On an absolute basis, it should be up sequentially?

Speaker 1

Yes.

Speaker 8

Okay. All right. So Chris, for you, remember coming out of COVID, a lot of chatter about wafer shortages and impinge out of fight for capacity. There's so much chatter right now about just the processing needs for AI, right? So I'm just curious to know kind of your kind of like longer term visibility on kind of wafer supply.

Speaker 8

I don't know if we've kind of thought about that much or talked on that, but that just kind of popped in my head recently.

Speaker 2

We haven't talked about it much, Troy, but we've sure thought about it a lot. As we said in our prepared remarks, we are increasing our wafer orders to stay ahead of the growing demand. We have good support from our foundry partner today. And really right now, the way the market has evolved, we and they recognize that we are together supplying into enterprises that have transformed their operations to rely on RAIN RFID. And those enterprises are delivering everything from medical parts and supplies to hospital crash carts to critical shipments to airline parts and baggage.

Speaker 2

So I can never say that we won't go through another shortfall because the semiconductor industry is cyclical. I do feel today with the growth in RAIN RFID impinges growth overall and the recognition of what we are critically delivering to the market that we have good support from our foundry partner. And as long as we stay ahead in terms of our wafer availability and are able to deliver into the opportunities, I'm guardedly optimistic that with that support from our foundry partner, we'll be able to continue delivering going forward. No promises, can't predict the future, but I feel good today and I feel good also that we are better at forecasting, able to understand what we need in the market and are buying ahead into it.

Speaker 3

Troy, this is Terry. The other piece that I would add today being different than 2020 is today we target carrying 180 days forward inventory on the balance sheet. And that is so that we can insulate or do our best to insulate our customers from semiconductor cycles. We just didn't have that in 2020.

Speaker 8

Understood. Great answers guys as expected and good luck going forward.

Operator

Our next question comes from Guy Hardwick with Freedom Capital Markets. Please go ahead.

Speaker 9

Hi, good afternoon.

Speaker 2

Good afternoon. Thank you, guys.

Speaker 9

Just to echo everyone else says congrats on the tremendous results. So my question is regarding the M800 series, I think you just you said that volumes doubled. Are you prepared to give us a sense of what proportion of IC volumes are the M800 series firstly? And secondly, I mean, just wondering what the commercial implications are of the step up in performance of the M800 versus the previous M700 and your closest competitor, which I think is the NXP U Code 9. Because by my simple math, I think the M800 is something like a 20% increase provides a 20% increase in range for the same power or something like a 30% reduction in power for the same range.

Speaker 9

Maybe you could talk us through the commercial implications of that?

Speaker 3

This is Carey. I'll take the first piece and then I'll hand it over to Chris. The volumes are small. We have received the first few market qualifications and now we're working on getting the M800 qualified into sockets. We won't really see a ramp until that piece is completed.

Speaker 3

So early days right now, we're encouraged by where we are. We're growing sharply. It's still a very small portion of our mix.

Speaker 2

And Guy, to answer your question about the impact, you are correct in the numbers. The M800 depending on the in leg, it gives between 20% 25% greater read range. It also has additional capabilities in the IC that improve overall readability. We are seeing the M800 unlock opportunities or solve problems that were previously very difficult to solve. I'll cite 2 examples.

Speaker 2

One is, as I mentioned in my prepared remarks in retail supply chain, Retailers are putting more and more items into boxes and reading the boxes, outgoing from manufacturing and incoming into DCs with the expectation that they'll get 100% readability on the items in a box as it comes into the DC. We're now seeing boxes containing several 100 items very closely stacked, really packed in. The M800 gives much better readability in those situations, meaning that there's less exception handling where employees have to open the box and do a manual count. That's a big impact. 2nd one that I'll cite is, I mentioned the food pilots.

Speaker 2

The readability on certain food items is very difficult. Food items tend to either have a lot of liquid if they're proteins or they may be wrapped in foil. We're finding that using the M800, we're able to innovate with our inlay partners, innovate inlays that solve those use cases and give good readability where that readability wasn't achievable before. And so we're actually pushing fairly aggressively M800 based inlays into those food pilots. So overall, we have very high expectations for M800 in the market in terms of its penetration and overall ability to drive new opportunities.

Speaker 2

We are coming off of modest volumes right now, but ramping sharply and really high expectations for the future.

Speaker 9

Thank you. That's very helpful. It's a great answer.

Speaker 8

Thank you.

Operator

Thank you. And our next question today comes from Christopher Rolland with Susquehanna. Please go ahead.

Speaker 6

Hi, guys. Thanks for the question. And I just wanted to talk about 2 opportunities and get your opinions on them. I guess the first, any update, I think you talked about the digital passport in Europe. Any update there?

Speaker 6

And then secondly, self checkout, I think there were retailers, 5 and Below is one of them talking about loss via self checkout, the traditional barcode checkout. Obviously, doing it with ICs would be much better. But do you think there's an aversion to self checkout overall? Or do you think there's a draw towards this IC IC driven checkout? And have you seen an increase in interest around

Speaker 5

IC based checkout? Thanks.

Speaker 2

Yes. Okay, Chris. This is Chris. I'll take the I'll do them in reverse order. I'll take the second question first.

Speaker 2

In terms of self checkout, we're seeing today the self checkout opportunities in retail stores and those self checkout opportunities are really improving customer satisfaction. You don't have to wait in line, you do a self checkout, you walk out of the store. The reading of the items at the point of sale is essentially instantaneous. I've done it personally many times. I did some of the earliest ones in Japan.

Speaker 2

They just go up to the checkout counter, you put your items down instantly you see on the screen what they are, you hit pay, pick up the items and you walk out of the store. It is a seamless, incredible experience compared to waiting in a line to getting checked out. Self checkout requires effective loss prevention at the store exits. And what we and that loss prevention is very difficult problem because what the readers have to do is find the stolen item leaving the store and a sea of other items that's right near the store exit. We have been able to effectively solve that problem and that solution is enabling the self checkout.

Speaker 2

So we see pull from the retail market. We're focusing right now on our visionary European retailer really to make sure that we have our incredibly robust solution, which they have today, working with them to make sure they are successful. And then we're looking with our partners to step and repeat that solution into the market. To go back to your first question on DPP, we Impinj are working very closely with the RAIN Alliance who and together we're working the DPP initiative very closely. There's others participating of course as well.

Speaker 2

We're also participating directly in the European standards bodies via our Voyantec business unit together to ensure first that RAIN is an approved data carrier for DPP. After that the necessary next step is to enable consumers to be able to read the tagged items. And what I can say there is really our entire RAIN community, all the companies in it are galvanized behind that need for consumers to be able to read the tagged items. I can't point you to specific proof points right now, but just know there's a lot of push and at the end user level, at the enterprise end user level, there's a lot of pull from companies that provide to consumers to enable that readability. So time will tell how fast this rolls out, but those are the 2 things.

Speaker 2

1st, get RAIN approved as a DPP carrier. 2nd, enable consumers. So expect us and others to work very hard on both of those efforts.

Speaker 6

Thank you. Just a quick follow-up and then a question. For consumers to read that, would that imply they would have an app on phone and readability? Or how would they be able to read that? And then just for my main question, second question, your competitor in RFID had very strong results there.

Speaker 6

Do you think their share accelerates now that the lawsuit is done? And also they talked about having a workaround in your IP in the next 3 years or so. Do you think that's a possibility as well?

Speaker 2

Okay. I'll try and write those questions down. I'm going to do my best to answer that in order we may have to come back to it. First one, in terms of consumer readability, the initial target is consumer mobile devices. That won't be the exclusive target.

Speaker 2

You can see readability in homes and things like that, but the initial target is readability in consumer mobile devices. It's a matter of getting that reading in the phone and then of course there would be an app that supports it. That's what the community is pushing towards. And quite frankly, we have enterprise end users pulling for it, which they have a lot larger voice than our community. We're the suppliers.

Speaker 2

When the enterprise end users say they want it, that really helps. On the NXP part, we feel good about our position in the market. We feel good about demand for our products and platform. And we believe our enterprise solution efforts have the potential to drive share gains for us. But we don't actually really can't comment on share gains or share losses or where we stand in share until the end of each year when the RAIN Alliance compiles the composite data and gives a number for what the overall market is doing.

Speaker 2

All I can say right now is we feel good about our position and we feel good about demand for our products and platform and we believe we have the leading products in the market and the leading ability to deliver enterprise solutions that use those products and in many ways require those products in order to get in order for the solution to work to just flat out work. And then the third question was about IP design around. Time will tell there. Any just in just about every case, if there's somebody who really wants to put in a lot of effort to design around some IP, there's almost always a way. You can cite a couple of exceptions historically, but there is a way to design around IP, but it takes a lot of effort.

Speaker 2

And Impinj has a very large number of patents in the IC space or in RFID IC space and in the systems and solutions that kind of use that IP. It's going to be up to NXP whether they put effort into designing out that IP or put effort into innovating new products. I can't speak for what they're going to do. Feel good about the fact that we've reached a settlement that we've brought in a $45,000,000 upfront payment at $15,000,000 at least this first time in licensing revenue. And I feel good about the fact that Impinj is the leading provider in the market in terms of products and in terms of our IP portfolio, which will do well for us going forward.

Speaker 5

Thank you very much, Chris.

Speaker 2

Thank you.

Operator

Thank you. And this concludes our question and answer session. I'd like to turn the conference back over to Chris Diorio, Co Founder and CEO, for any closing remarks.

Speaker 2

Thank you, Rocco. I'd like to thank you all for joining the call today and thank you for your ongoing support. Bye bye.

Operator

Thank you, sir. Today's conference is now concluded. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

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Key Takeaways

  • Impinj delivered record Q2 results with revenue of $102.5 M (+33% QoQ, +19% YoY), adjusted EBITDA of $26.8 M, and free cash flow of $44.1 M, driven by apparel/footwear strength, retail rebuying, general merchandise growth, and specialty applications.
  • Endpoint IC momentum set new quarterly shipment records, with M800 volumes more than doubling and a $15 M licensing payment boosting revenue; sequential growth and further M800 ramp are expected in Q3.
  • Reader ICs and solutions saw eFamily shipments exceed expectations, supported by self-checkout and loss prevention deployments in Europe and growing tagging initiatives by major North American retail and logistics customers.
  • Emerging verticals include large-scale food tagging pilots for freshness tracking, increasing apparel supply chain tagging leveraging M800 performance, and specialty applications such as tagging printed media in Japan.
  • Q3 guidance calls for revenue of $91–94 M (42% YoY growth), adjusted EBITDA of $13.8–15.3 M, and non-GAAP EPS of $0.46–$0.50, with anticipated sequential product gross margin expansion and continued operating leverage.
A.I. generated. May contain errors.
Earnings Conference Call
Impinj Q2 2024
00:00 / 00:00