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Impinj Expects Revenue Slump to End

After delaying its second-quarter report as it investigated claims made by a former employee, radio-frequency identification solutions provider Impinj (NASDAQ: PI) caught up with its reporting on Sept. 12. Along with its results, the company disclosed that it found no credible evidence to back those claims.

Revenue slumped during the second quarter as Impinj's partners continued to reduce inventory levels, but the company sees a return to growth in the third quarter. After a year of brutal revenue declines, there's finally some light at the end of the tunnel.

Impinj results: The raw numbers

What happened with Impinj this quarter?

  • With the filing of its 10-Q with the SEC, Impinj has regained compliance with Nasdaq Listing Rule 5250(c)(1).
  • The Audit Committee of the board of directors concluded that the claims made by a former employee that prompted the investigation and delayed filing were not backed by any credible evidence and that no further action needs to be taken.
  • Impinj's revenue was above the company's guidance range of $25.0 million to $27.0 million but still down a double-digit percentage year over year.
  • GAAP gross margin was 47.9%, down from 53.3% in the prior-year period. Non-GAAP gross margin was 50%, down from 54.7%.
  • Adjusted earnings before interest, taxes, depreciation, and amortization was a loss of $4.0 million, down from a profit of $1.4 million in the prior-year period.
  • GAAP operating expenses rose 12% year over year to $21.3 million despite the revenue slump.

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

  • Revenue between $33.0 million and $34.0 million, up from $32.6 million in the prior-year period.
  • Adjusted EBITDA loss between $2.4 million and $3.4 million.
  • GAAP net loss between $9.3 million and $10.3 million and non-GAAP net loss between $2.6 million and $3.6 million.
  • Non-GAAP EPS loss between $0.12 and $0.17.

What management had to say

Impinj CEO Chris Diorio commented during the earnings call on continued inventory drawdowns from partners: "Endpoint IC sales exceeded expectations even as our inlay partners further reduced our inventory levels. Based on that reduction and our bookings trends, we anticipate third-quarter endpoint IC sales will build on the second quarter's momentum."

Diorio also discussed the impact of tariffs so far: "Turning briefly to tariffs, the U.S. imposition in late August of a new round of tariffs on products manufactured in China affects one pre-Monza R6 endpoint IC wafer product, and only those wafers our inlay partners import and assemble in the U.S. We shipped enough additional inventory to the U.S. before the tariffs came in effect to accommodate anticipated customer demand through the end of 2019."

When asked about what's driving the expected revenue increase in the third quarter, EVP of sales and marketing Jeff Dossett said: "And of course, retail continues to be a significant driver of RAIN deployment, especially in apparel, but we're encouraged by the adoption of RAIN to solve business problems across a wide range of verticals, including healthcare, automotive, air transport and others."

Looking forward

Impinj's revenue slumped in the second quarter, but the company expects to grow revenue on a year-over-year basis in the third quarter. That will be the first quarterly revenue growth in the year. Weak sales due to partner inventory reductions have wreaked havoc on the company's results, but the worst now appears to be over.

While revenue is set to grow again, the bottom line is still in rough shape. The company's net loss is expected to roughly double in the third quarter from the prior-year period, despite rising sales. The turnaround is making progress, but a return to profitability might not happen anytime soon.

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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.