Impinj Inc (PI) November 12, 2026 Conference Transcript

We're going to go ahead and get started. We are very fortunate to have the CFO of Impinj. It's one of my favorite small cap companies. The ticker is PI. They are involved in RFID technology. They are the leaders in radio frequency identification, and it is something that is used to basically tag or digitally tag any kind of unique item. They're seeing a lot of traction in food and a bunch of other categories like apparel. So I wanted to, Kerry, ask you about particularly food. That's a very exciting category for you. You're doing a lot of work with guys like Kroger and Walmart. Can you maybe talk about what you're doing with them and what you're seeing there in that business?

Yeah, happy to, Harsh. And first off, thanks to you and the BMO team for having us out here. So food is a very exciting category for us. Yes. The pull that we're seeing from the food space is really unprecedented in our experience with new verticals. Now, the volumes are still modest. We shipped 29 billion units last year, and it's hard for a brand new category to make a dent into that. So the volumes are modest, but we are seeing significant engagement. So what I mean by that is if you go back into the early days of apparel, we had a handful of apparel retailers move forward. They were focused on a single-use case using a handheld reader to scan inventory at the store level. And they went all the way through those deployments, and at the end of the deployment, those first retail players announced some of the ROI they were achieving, you know, better same-store sales, reduced inventory because they could see down to the last items. And then the rest of the market went, huh, that's interesting. But we didn't see the groundswell of pull from those other retail players until many years later. And you compare and contrast that to what we're seeing in food today, the same early stage in food. We're seeing four different use cases. We are seeing interest from grocery stores, from quick service restaurants, from food logistics, and multiple players, multiple large players in each of those respective spaces moving forward before we even have ROI feedback. We actually only got the first public ROI figures a few weeks ago at Kroger's Investor Day, where they talked about significant reduction in inventory scan time and food waste driving 200 basis points of same-store sales lift and 50 basis points of share. So, already very compelling ROI, and I think that's what's getting us very excited about the food space.

Thanks. Thank you for that. One of the dreams that RFID promises is the ability for self-checkout. So for those that live in New York, I believe Decathlon and Uniqlo, I think, are the ones, and Zara are the ones where you can just drop your stuff into a, quote-unquote, a bucket, and then it'll check you out automatically. But that concept taken at a grocery store level, I believe you're working with a kind of a very up-on-the-technology grocery store that wants to do self-checkout at a grocery level, complete 100% store checkout. So maybe talk about what you're trying to achieve there, how you go about it at this point in time, and where you are.

Yeah, so this grocer came to us by way of an introduction through Inditex. They went to Inditex and said, we want to do the same self-checkout that you do in your stores, but we want to do it at our grocery stores. So Inditex said, well, if you're going to do that, you've got to talk to the folks in Impinge, and that's how we got connected with them. Their vision is self-checkout. We are in the early days of that vision. The status as now is we've made it out of the proof of concept, so we've demonstrated that it works in the lab, and we're underway in planning for a single-store pilot. Now, the activity that I see going on today is largely around source tagging at that grocer. So, yes, you can tag every item in a store, but it's very inefficient to do it in the store. You want to tag it at the source and then track that benefit all the way through your supply chain. And interestingly, where this grocer is focused on source tagging is they're starting with high-value items. Alcohol, proteins, olive oils, some specialty items. And I believe the reason for this is very smart because these are high-theft items. So they're going to be able to roll out a loss identification solution in parallel to getting source tagging spread throughout their store in advance of a self-checkout solution.

Great. I believe you have a very compelling market share in RFID. And I believe that one of your only, there's only one notable competitor here that plays at a global level like you do. They're actually paying you royalty. Can you talk a little bit about how you got into the situation where they're paying you royalty? And then how should we think about the royalty payments on a long term basis?

Yeah, so it was an IP infringement case. We went to multiple jury trials. It followed the typical path that you see where one party sues the other and then the other party countersues. Long story short is they pay to license our IP. They paid us an upfront payment of $45 million and then an annual payment that starts at $15 million or started at $15 million and increased by a mid-single-digit percentage range. They, it's a 10-year agreement, but they have the ability to get out if they design out our IP and then migrate all their existing business onto that uninfringing IC. So we're year three into it right now. With reasonable confidence, we'll get the 2027 payment. What we've always said, and there's no new information on this, this has just been our thought, that if they hustle, the quickest they could get out of the license payment was by year four. So, 2028 would be, excuse me, after year four. So, 2028 would be where the rubber meets the road. Okay.

And what do they have to prove? They have to just get out of your technology, or they have to actually not have the chip shipped with your, like?

Both. They have to introduce an IC that doesn't infringe our policy and then stops our IP and then stops selling the ICs that do infringe. Got it.

I want to go back to food just because of all the categories. This is the one that's the biggest. How do you see food playing out? So you're tagging, not you are, but your customers, Kroger and Walmart, are tagging some homemade or sort of store-made things. But how does it play out if we want to get to sort of a mass adoption in food?

Yeah, I mean, it starts where it is right now. It's starting in the grocery stores where they control the supply chain. So Kroger is deploying in their bakery department. This is not the bag of Wonder Breads that get delivered on the truck every morning. This is the loaf of French bread they make behind the counter. And the reason they're starting there is because they control the entire supply chain. They produce, they package, they label all of those within their supply chain, more often than not behind the counter. And we're seeing a similar path. Walmart is in a pilot where they're piloting bakery, proteins, and deli, but again, in the proteins and deli component where they're packaging and labeling the items there. I think that's a very logical place to start because of the supply chain ownership. Kroger announced at their most recent analyst day a few weeks ago that they're through 1,500 stores with a path to 2,300 stores. And I think that's the way you'll see it roll out. You'll see them start in a certain portion of the grocery store, they'll roll it out across their network at a measured pace, and then they'll start adding different categories in behind wherever they start. So Kroger, 1,500 going to 3,500?

2,300. 2,300. Okay, got it. When I talk to investors, a lot of the investors... Treat your stock, at least, as an anti-AI play. And I've noticed that on the days that AI is down, your stock is up, and vice versa. But when I think about it, you're the ultimate edge play. Can you just talk about that dichotomy, not so much about what the investors are doing, but maybe about how you're in edge play?

Yeah, it's interesting. We are attaching a radio chip to every item that's important to a company, and we're giving that company the ability to track and trace the movement of that item throughout its life. That is a lot of data that can feed an AI model and make an AI model less reliant on inference and more reliant on hard physical data. We think that has a potential play, and if you go back and listen to UPS's most recent earnings conference, I think they summed it up very well. They said RAIN RFID is the eyes and ears of their network, and AI is the brain. And so I think there's an interesting place for Impinj to play kind of on the periphery.

You've recently started talking a lot about your software. You did not like two or three quarters ago. I think you talked two or three years ago a little bit about the software, and then you stopped, but now you've been highlighting on your earnings call. Can you maybe talk about what the software does and why it's important to your strategy and how it helps the customers?

So think of our software strategy as twofold. On one hand, we have algorithms that solve use cases that live on a reader, so a loss prevention algorithm or a self-checkout algorithm. Historically, we've sold those algorithms as part of the reader in a one-time sale, and then we continue to service that algorithm as the code changes. Look for us to develop more of those algorithms, but sell them more like a SaaS model where we can push them through the reader. We charge a monthly fee for that, and we provide ongoing service for that. The second component of our software strategy is much more ambitious. What we want to do is we want to take our component sales, our readers and gateways. We want to wrap software around that. And insert machine learning into the edge to help with ease of deploying a RAIN network and tuning a RAIN network so that we can develop an off-the-shelf, almost self-deploying solution. And the reason we want to do that is RAIN RFID technology today requires a certain level of RAIN expertise. That's why we see the biggest players in the market move forward, the UPSs, the Walmarts, folks that have RFID expertise in-house. We want to move to a place where an IT team, an internal IT team, can deploy a RAIN network, can tune it, can manage it throughout, much like they would do a Wi-Fi network. Admittedly, this is a more ambitious goal for us. It's going to take us some time to get up there, but that's the second portion of our software vision.

Okay, got it. I want to talk about your logistics business or end market. You work with the two big guys here in the U.S. Customer number two is pretty well entrenched, and I believe you developed an ASIC for them, just a chip that's very specific to that customer. I was curious about what led to that and what kind of requests they had and how you matched it up to come to what they should need. And would you be willing to do that for large enough customers in other portals or categories or end markets?

Yeah, we have the capability to do additional custom ICs. I think just broadly speaking, there's two prerequisites to do that. One is the volume has to be there to manage a standalone SKU. But second, and more importantly, we have to know what to put in the IC. So we need a deep technical relationship with that end customer to know what they need in IC, how to put that into the reader and throughout the entire infrastructure. So as it turned out with our second large logistics provider, our engineering teams meet periodically for summits. We talk about what's working well, what's not working well, and what is the art of possible. The custom IC was an output from one of those meetings where we were whiteboarding. We, our engineers, were whiteboarding different pain points in the network, what we could solve with the IC part and the radio link, and the custom IC came out of it. It was roughly from ideation to test prototype or test chip was probably 12 months, and we've taken most of this year to ramp up to 100% penetration. It's probably not quite 100% penetration yet. There's a couple areas where the readers need to be updated first before we can start rolling that out. But it is leveraging our M800 platform. It's delivering the features and functionalities that this end customer needs. It's leveraging our ability to participate on both ends of the radio link, and it's driving efficiencies for them.

And what sort of drove them to consider an ASIC chip? What were they seeing, maybe, that they asked for, or are there bigger aspirations to developing, like, an e-commerce business around that?

I think – I can't go into too many details, but they had different – Goals of efficiency within their operations and different pain points that they had previously been unable to solve with the M800 or with prior solutions. So it came as a what if. What if we could put this into the chip? Would that help? And it just spawned from that.

And how long did it take you guys to come up with an ASIC? Was it relatively quick or six to nine months?

In semiconductor design, I think it was pretty quick. We're proud of our engineers for how quickly they did it. It took them about 12 months from kind of whiteboarding to having a chip to be ready to test. Now, the benefit that we leveraged is this custom ASIC is a derivative of the M800, so it operates on the M800 platform, which took us multiple years to design. So we have flexibility from a platform perspective.

And you've historically had some issues in this logistics segment with excess inventory build, particularly with the way that this second customer of yours operates and operated with inlay partners. How will this ASIC help you have better visibility so you might be able to avoid this?

The crux of the issue from the missteps we've had in the last two Q1s. Have been our inability to see how our partners build and manage an inventory for this customer. Anytime they overbuilt, it manifested to us as retail demand, because the customer used to be on the M800, which is a general purpose IC that can go into virtually any socket that's out there. And we would take that incremental, what we thought was retail demand, and we would extrapolate it forward, and it would manifest as an issue in Q1, typically because this customer does an RFP process in the fourth quarter for who they're going to buy inlays from, where they're going to procure RICs for the upcoming year. Now, with the custom IC, we know exactly how many ICs we ship into the channel. We know what they pull from the channel. We can figure out what is the delta in terms of channel inventory or hasn't been consumed by them. So we have visibility today that we just haven't had in the past. And I know we have to prove it to you after two back-to-back missteps in Q1, but I'm feeling confident that we've got our arms around this situation.

Great. Wanted to talk about the biggest segment that you have, retail apparel. Just curious, latest, greatest, what you're seeing in retail apparel, and how do you think, well, the rest of the year is very close, but how do you think the midterm outlook for that retail category apparel is?

Yeah, so after a prolonged period of softness, we're seeing relative strength in retail, I would say. Now, the softness hasn't been at the consumer level. The consumer's been resilient, but what we've seen is retailers pull down their inventory, and with 60%, give or take, of the IC shipped in our industry going into retail apparel, the whole industry felt that. We heard at the beginning of the year with one of the largest retailers coming out in February saying, we've managed inventory too aggressively, and we've missed sales as a result. We felt like that was the tide changing. I don't think retailers are rebuilding inventory yet. We track retail prints, and we just don't see that happening. But what I do think is happening is we're shipping closer to retail demand now, whereas in the past couple of years, I believe we've shipped under retail demand. And then I would say zooming out, retails are most mature vertical. It is 40% penetrated by volume, but it is north of 90% penetrated by logo. Most retailers are not 100% deployed. They've made the move forward, but they're not 100% deployed. So there is expansion opportunity within the existing portfolio of retailer customers. Every quarter, we see new retailers moving forward. They're often smaller than the ones that are at play right now, but this is all net new. It's particularly exciting for us because we're not often involved with these retail customers when they're moving forward. So, it's the partner ecosystem standing them up, and then we'll help supply ICs into these accounts.

Great. Kerry, we got seven seconds left, so I think we'll call it at that. Thank you for your time.

Thank you. Appreciate it.

Thank you, everybody.