Impinj Expects Inventory Crisis to End Soon

Radio-frequency identification solutions (RFID) provider Impinj (NASDAQ: PI) reported its first-quarter results after the market closed on May 7. The company suffered a steep decline in revenue and profits, the result of an ongoing inventory correction at its partners that's reducing demand for its IC endpoints.

Impinj believes the situation will fully resolve itself this year, though, leading to double-digit unit-consumption growth in 2018. Here's what investors need to know.

Impinj results: The raw numbers

What happened with Impinj this quarter?

  • Impinj's first-quarter revenue was at the high end of its guidance range of $23.25 million to $25.25 million.
  • GAAP gross margin was 46.9%, while non-GAAP gross margin was 49.2%. During the prior-year period, GAAP and non-GAAP gross margins were 52.9% and 54.2%, respectively.
  • Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was a loss of $7.1 million, down from a profit of $0.2 million in the first quarter of 2017.
  • GAAP operating expenses jumped 38.3% year over year, to $26.0 million.

Impinj provided the following guidance for the second quarter of 2018:

  • Revenue between $25.0 million and $27.0 million, down from $34.1 million in the prior-year period.
  • Adjusted EBITDA loss between $6.25 million and $7.75 million.
  • GAAP net loss between $10.6 million and $12.1 million or between $0.49 and $0.57 per share.
  • Non-GAAP net loss between $6.5 million and $8.0 million or between $0.30 and $0.38 per share.

What management had to say

Impinj CEO Chris Diorio explained during the earnings call the impact of the ongoing inventory correction at its partners: "We continue to expect that our partners' endpoint IC inventory correction will resolve, mostly in the first half of 2018.... We continue to anticipate 15% to 20% growth in 2018 end-user endpoint IC consumption with our first half unit volume shipments lagging end-user consumption due to the inventory correction."

Diorio expects the second half of the year to be much better: "We believe we are on track to make the first half of 2018 the turning point for our business."

President and COO Eric Brodersen gave an update on the company's cost-cutting efforts: "In first quarter 2018, we completed that plan by reducing our global workforce, tightening our product development focus, halting our Seattle office expansion, working to sublease the facility, and closing several remote offices."

Looking forward

Impinj's revenue plunged during the fourth quarter of last year due to an unexpected drop in demand, as partners worked through existing inventory. The company believes this inventory correction will resolve itself this year, leading to solid unit-consumption growth despite a very weak first quarter.

It will become clear once the company laps these issues later this year whether there are deeper problems beyond excess channel inventory. Prior to the inventory correction, year-over-year revenue growth above 30% was the norm. With the stock surging on this earnings report, investors are betting that a return to robust growth is in the cards.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool recommends Impinj. The Motley Fool has a disclosure policy.