Impinj (PI) Beats Q2 Earnings Estimates, Raises IC Outlook

Shares of Impinj Inc. (NASDAQ:PI) climbed 9.1% in after-hour trading following the company’s impressive second-quarter 2016 results. Notably, this is the first earnings report from the RAIN RFID (radio frequency identification) tag provider after it became public in late July.

Impinj reported earnings (including stock-based compensation) of 4 cents per share, which beat the Zacks Consensus Estimate by 3 cents. However, earnings plunged 61.4% from the year-ago quarter primarily due to higher operating expenses, which fully offset strong top-line growth of 36% on a year-over-year basis.

Revenues totaled $26 million, driven by 37% increase in product revenues, a reflection of the strong demand for Impinj’s end point ICs.

However, operating expenses as percentage of revenues soared 380 basis points (bps) to 49.6%. The massive growth was primarily attributed to 280 bps surge in sales & marketing (S&M) expenses.

Gross margin (including stock based compensation) contracted 110 bps in the quarter. Impinj reported adjusted EBITDA of $1.3 million as compared with $1.9 million in the year-ago quarter.

Quarter Details

Impinj’s primarily caters to retail and healthcare sector. The company stated that it has connected 3.8 billion items in the 12 months ended Mar 31, 2016.

During the quarter, Impinj launched a new endpoint IC - Monza 4i - targeting automotive applications. The company also upgraded its ItemSense operating system (OS) by integrating the system health monitoring application into the OS. This helps in streamlining system setup as it automatically discovers readers and gateways.

Impinj also launched a developer website, which will help its ISV partners develop software applications on the top of ItemSense. The company also introduced an IoT connector that links Impinj’s platform with SAP Hybris Commerce suite. The link will help in delivering accurate inventory data to retailers based on which they can handle customer management effectively, both online and in stores.

Impinj released four new solutions, developed jointly with 6PM, Data2 and Nedap, Terso and Accruent. The new solutions expand the company’s footprint in patient file tracking, jewelry store inventory visibility, medical and scientific products monitoring and mobile medical device tracking.

Impinj also took stock of expanding collaboration with Intel (NASDAQ:INTC) . The company stated that Intel's retail sensor platform relies on the Impinj RS2000 Reader System-in-Package for its RAIN functionality. The combination helps retailers to effectively manage their store operations.

IPO Proceeds

Impinj raised approximately $69.2 million in net proceeds from its Initial Public Offering (IPO) by issuing approximately 5.5 million shares of common stock, which includes the underwriter's option to purchase additional shares. The company used $5 million of these proceeds to retire its mezzanine debt.

Guidance

Impinj forecasts revenues to be in the range of $27.4 million to $28.9 million for the third quarter of 2016. This reflects 36% year-over-year growth at the midpoint of the range. Management expects adjusted EBITDA to be in the range of $0.3 million to $1.8 million.

Non-GAAP earnings are estimated to be in the range of a penny to 9 cents per share for the quarter.

For 2016, Impinj now expects endpoint IC volumes to be between 4.9 billion and 5.1 billion units, up from its prior estimate of 4.3 billion to 4.5 billion units.

Our Take

We believe that strong growth in end point IC demand will drive Impinj’s top-line for the rest of 2016. Growing customer base that includes the likes of Coca Cola (NYSE:KO) and McDonald’s (NYSE:MCD) is a good sign. However, continuing investments in strategic initiatives will hurt margins and bottom-line growth in the near term.

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