Impinj Returns to Growth After a Year of Pain

Radio-frequency identification solutions provider Impinj (PI -4.72%) reported its third-quarter results after the market closed on Oct. 29. The company returned to growth following a yearlong channel inventory correction that led to steep revenue declines. Impinj now expects to return to more typical unit volume growth, although it may be a while before the bottom line fully recovers.

Impinj results: The raw numbers

Data source: Impinj.

What happened with Impinj this quarter?

• Impinj returned to revenue growth in the third quarter after three quarters of double-digit revenue declines.
• Revenue was above Impinj's guidance range of $33 million to $34 million.
• Gross margin was 48.1% on a GAAP basis and 50% on a non-GAAP basis.
• Adjusted earnings before interest, taxes, depreciation, and amortization was a loss of $0.9 million, compared to a loss of $4 million during the second quarter.
• Endpoint ICs accounted for 69% of revenue, with the remaining 31% coming from systems. Endpoint IC revenue rose 18% sequentially, while systems revenue jumped 26%.
• GAAP operating expenses rose 7.8% year over year to $21.4 million, growing faster than revenue.

Impinj provided the following fourth-quarter guidance:

• Revenue between $31 million and $33 million, up from $26.9 million in the fourth quarter of 2017.
• GAAP net loss between $8.3 million and $9.3 million, and non-GAAP net loss between $2.3 million and $3.5 million, or between $0.10 and $0.17 per share.
• Adjusted EBITDA loss between $2 million and $3.5 million.

Image source: Impinj.

What management had to say

COO Eric Brodersen reminded investors of the typical seasonal trends that affect the business during the earnings call: "In the fourth quarter, lower endpoint IC volumes are partially offset by stronger systems sales. In the first quarter, annual endpoint IC pricing negotiations typically impact both revenue and gross margin while systems sales are seasonally lower."

CEO Chris Diorio discussed the company's opportunity in retail: "Retail apparel roughly is about 10% penetrated. So there is huge upside on the retail apparel side and then adjacencies, for example, the beauty, cosmetics, use cases and other items in retail, home goods and others offer further opportunities beyond the retail use case."

Diorio also gave an update on the inventory correction that knocked down the company's revenue over the past year: "We also completed our channel inventory correction and expect to return to more typical unit volume growth rates going forward."

Looking forward

Impinj's revenue is set to grow by nearly 20% year over year in the fourth quarter, although that's on top of a steep double-digit decline in the prior-year period. Impinj was growing at a 40%-plus rate prior to the inventory correction, and Diorio's comments suggest that a return to that level of growth may be in the cards.

Profitability is still a problem. Impinj lost money on every basis in the third quarter and will do the same in the same in the fourth quarter. The numbers will move in the wrong direction based on the company's guidance, although seasonality is likely playing a role.

With the channel inventory correction finally over, Impinj should start looking like a growth company again.